- The Washington Times - Tuesday, October 21, 2008

The White House dropped its opposition to a second stimulus bill Monday after Federal Reserve Chairman Ben S. Bernanke urged Congress to pass legislation to counter what he said could be a long and deep downturn in the economy.

House Speaker Nancy Pelosi, California Democrat, has said Congress may convene after the Nov. 4 elections to pass a stimulus package of $150 billion to $300 billion that could include a second round of tax cuts as well as aid for state and local governments and the unemployed. With the White House’s assent Monday, House aides said the likelihood of such a lame-duck session increased considerably.

“We’re continuing to have conversations with members of Congress and we’re open to ideas that they would put forward … that would stimulate the economy and help us pull out of this downturn faster,” White House spokeswoman Dana Perino said within hours of Mr. Bernanke’s testimony before the House Budget Committee. “We’ll just have to see when Congress gets back, if they decide to move forward, what sort of package they want to draft into legislation.”

Mrs. Perino downplayed previous White House reluctance to pass a stimulus bill that could boost the already soaring budget deficit past $1 trillion this fiscal year.

“We’ve had an open mind about it, but what we are focused on right now is the urgent need to get [the $700 billion bank] rescue package implemented,” she told reporters traveling with Mr. Bush to Louisiana.

For weeks, the administration and congressional Republicans have been pushing alternatives they say would boost the economy, including drilling for oil and gas on the outer continental shelf and ratifying free-trade pacts with Panama, Colombia and South Korea.

Mrs. Perino expressed skepticism about whether the legislation Democrats are drafting would be effective. “We’ll see if it actually would stimulate the economy,” she said, adding that Mr. Bush would seek the advice of all his economic advisers. “Obviously, Ben Bernanke is a key one.”

The Democratic plan would increase federal spending on infrastructure, food stamps, unemployment insurance and health care for the poor.

Democrats have touted funding for building projects in particular as a way to re-employ thousands of construction workers who have been laid off because of the slump in housing and real estate.

In addition, the credit crunch has endangered state and local financing of many projects, forcing them to cancel or postpone them.

The Washington Metropolitan Airports Authority last month postponed $3 billion of spending on airport expansion because of difficulties obtaining financing.

Mr. Bernanke did not endorse specific proposals, but he encouraged Democrats who want to fund building projects as long as they target projects that are ready to go and can provide an immediate boost to the economy.

Rep. Paul D. Ryan, Wisconsin Republican and ranking member of the House Budget Committee, attacked that idea. Like the White House, congressional Republicans have criticized the infrastructure proposals in the past, saying the funding would not flow quickly enough into the economy because spending on building projects typically trickles out slowly over several years.

Mr. Ryan called the Democratic plan “a bloated $300 billion stimulus,” and noted congressional estimates that the federal deficit will top $750 billion this year. He also said the plan provides no lasting help for the economy.

“We see time and again that these temporary fiscal spending packages simply provide one or two quarters of ‘pop’ before the economy simply reverts to its pre-stimulus trend,” he said. “Short-term actions like stimulus do not grow the economic pie, they simply transfer funds from one part of the economy to another.”

Mr. Bernanke declined to say how big the package should be - only that it should be “significant” - and should be designed to stimulate growth immediately. While increasing the budget deficit is “unavoidable” in the short term, he said, Congress should try to limit the impact of the bill on the deficit over the long term.

“With the economy likely to be weak for several quarters, and with some risk of a protracted slowdown, consideration of a fiscal package by the Congress at this juncture seems appropriate,” he said. But he stressed that Congress should not abandon all fiscal discipline in its attempts to prop up the economy.

Mr. Bernanke made a strong pitch for including in the bill help for homeowners, consumers and businesses that are having trouble securing loans, and he mentioned specific proposals. Congress might consider loan guarantees or partial guarantees, he said, as well as tax credits for home purchases and paying guarantee fees charged by Fannie Mae and Freddie Mac on behalf of homebuyers.

“The extraordinary tightening in credit conditions has played a central role in the slowdown thus far and could be an important factor delaying the recovery,” he said. “If the Congress proceeds with a fiscal package, it should consider including measures to help improve access to credit by consumers, homebuyers, businesses and other borrowers.”

Separately Monday, Treasury Secretary Henry M. Paulson Jr. said he did not expect the bank rescue plan to add to the deficit.

“This is an investment, not an expenditure, and there is no reason to expect this program will cost taxpayers anything,” he said at a Treasury Department briefing on the program.

David R. Sands and Sean Lengell contributed to this report.

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