President elect Barack Obama is expected to move quickly to try and revive the US economy. Theo Casey says a new fiscal stimulus will be targeted at job creation and infrastructure building instead of free handouts. However, it still won’t stop the recession. And it will add even more zeros to Treasury debt.

This from Fleet Street Invest:

As investors, we must take a step back from the spectacle of this historic event and ask a more pressing question. What does this mean for the world economy and the world’s stock markets?

First the economy…

Almost 70 per cent of Americans named the economy as the number one motivation behind their vote.

A vote for a man that has so much influence on us all.

After all, when America sneezes, the rest of the world catches a cold. And when the US subprime bubble burst, we caught pneumonia. We are caught in a storm of macro crises: the credit crunch, housing slumps, recessions and bear markets across the globe. The responses by the world’s leaders affect all of the above and all of us.

As leader of the free world at such a low ebb, Barack Obama’s next move is so important.

President Obama wasted no time, addressing the economy in his acceptance speech:

“Even as we celebrate tonight, we know the challenges that tomorrow will bring are the greatest of our lifetime — two wars, a planet in peril, the worst financial crisis in a century.

“There is new energy to harness and new jobs to be created; new schools to build and threats to meet and alliances to repair.”

The President must, in the coming weeks, outline a convincing plan of action to help the world’s biggest economy get back on its feet.

What’s next for the economy?

A big recession bailout.

The last intervention by the US was the $700 billion bank bailout. That was about the financial system, not the recession.

The last recession bailout was the $150 billion of rebate cheques handed out to ordinary Americans. This fiscal injection was a bad call, one that the new President-elect opposed, and it had an artificial effect on the economy.

The money could have been much better spent and the next round of monies will be better spent.

How much money?

$300 – $500 billion is being touted as the size of the next injection. That’s what is estimated as necessary for America to spend to offset the downturn of the private sector.

- $300 billion is equivalent to a 2% boost to GDP.
- $500 billion is equivalent to a 3.4% boost to GDP.

The expectation is that rather than give everyone $600 to fritter away, they’ll put the money into big infrastructure projects to spur “job creation.”

Digging holes in the ground, building bridges… the Keynesian approach.

The good news is that it should all now happen a lot faster.

We have a Democratic President and a Democratic Congress. That means that we are unlikely to face the same sentiment-crushing political hurdles that we encountered with the $700 billion bailout.

SocGen Cross Asset Research

The bad news is that it only delays the inevitable. The US, the world’s largest recession and an economy that affects the UK heavily, is still going into recession. Even a supersized deal would not prevent recession in the US and, if anything, will probably push debt levels over 50% of GDP.

It’s a bad move in the long term, but having led his campaign on the economy, Barack Obama has no choice but to spend, spend, spend.

Source: Even Obama Can’t Fix The Economy