Martin Wolf: U.S. fiscal stimulus is a necessary task, but not the only one

Second, the U.S. must reduce its trade deficit, Wolf argues, and the reasoning here is overt and obvious enough: the U.S. can not afford to see demand float overseas (as it did throughout this decade), but needs that commercial activity to remain at home.

Economist Richard Felson agrees with Wolf, except regarding the pace of bank/financial institution removal of toxic assets. "Toxic asset write-downs need not be as quick as Wolf suggests because U.S. real estate prices, although they were high and in a bubble, were not as high relative to GDP as, for example, Japan's during its bubble." The toxic asset write-offs (or capital infusions by the government), should not take 10 years, in Felson's view, but they should not be done in a year, either.

Fiscal Policy/Economic Analysis: To be sure, investors should not expect a return to giddy growth when the U.S. economic expansion resumes. Still, a large fiscal stimulus package (and probably another in 2010), plus toxic asset removal and a lower trade deficit puts recovery in sight. Fiscal Stimulus Package I is on its way, the TARP and/or additional Fed quantitative easing will speed toxic asset removal (or bank recapitalization), and an innovative energy policy will cut the trade deficit by reducing oil imports. Further, the latter illustrates yet another economic benefit of vehicle fuel efficiency and reducing foreign oil consumption.