The 2001 Bush income tax cut is one of those issues whose fate has been sealed by objective economic conditions.

Simply, if the U.S. economy had registered robust growth during the final two years of the Bush administration, and no other negative economic events occurred, the tax cut, which will increase the deficit by $336 billion this fiscal year, $295 billion in fiscal 2011, and by more than $320 billion per year through fiscal 2019, perhaps would have had a chance of being extended.

A key figure in the Reagan administration's supply side economics policy implementation opposes extending the 2001 Bush income tax cut.

David Stockman, who served as budget director under President Reagan, in a New York Times op-ed piece, said a Republican effort "to extend the unaffordable Bush tax cuts would amount to a bankruptcy filing."

Stockman also called the current Republican stance of wanting to extend the tax breaks as not fiscal responsibility, but "vulgar Keynesianism robed in the ideological vestments of the prosperous classes."

One upside to gridlock in Washington? The U.S. Congress won't likely move forward with its effort to allow the General Accounting Office to audit the U.S. Federal Reserve.

One (big) downside? President Obama and Congressional Republicans, particularly Republicans in the Senate may not be able to agree on next year's budget. This could result in a shutdown of the federal government if the two political parties don't agree to pass a continuing resolution in the meantime. Any inability of the parties to agree on new budget or a continuing resolution as a temporary bridge will likely rattle both the bond and stock markets.

In the past year, President Barack Obama has been introduced to Washington's realpolitik. As MarketWatch Washington Bureau Chief Rex Nutting aptly put it: This is how Washington works. The truth is, most times, it doesn't.

In theory, congressional lawmakers and the executive branch should be able to find common ground, aided by that long-standing American habit of compromise, to solve the nation's problems.

A few points about the public policy impact of Tuesday's stunning Republican victory in the Massachusetts U.S. Senate election:

You'll hear a great deal of analysis arguing that health care reform, and the bank bail-out, convinced Independents to vote for Republican Scott Brown. To be sure, those two factors (in political science, they're called variables) played a role, as did Democratic candidate Martha Oakley's listless, clumsy campaign, but the biggest factor affecting vote was the Massachusetts' unemployment rate, which is high, as it is across the United States.

As most investors know, before President Obama took the oath of office, there were a half dozen problems waiting for him and his administration -- problems that no-doubt have discouraged many qualified, future aspirants from even thinking of running for the presidency during what will surely be a decade of repair and correction for the United States.

But if one had to isolate one problem President Obama must fix -- one on which his presidency will likely hinge -- it would be, of course, the U.S. economy, and within that, the issue of jobs.

New York Times (NYSE: NYT) columnist Paul Krugman argues quite persuasively that the major problem with the fiscal stimulus package was that it was too small, given the financial crisis and the large economic crater the accompanying, pronounced recession created.

Further, the fiscal stimulus' many benefits -- including substantial job retention in essential public services such as education -- are harder to see and not likely to translate into too much political gain for President Obama and Congressional Democrats, he said. That's consistent with a political science axiom -- often repeated by U.S. Rep. Barney Frank, D-Massachusetts -- that "Congress gets little credit or benefit for averting something." Indeed, retained jobs are hard to see, and the fact that a local public school system is is still operating with as many teachers is an accomplishment, but one that most American voters will take for granted, and not give Democrats credit for.

The best strategy for President Obama and congressional Democrats regarding health care reform may be to "go it alone" -- to pass a bill that has Democratic Party support, with maybe one or two Republicans.

Further, the era of bipartisan cooperation is over, if it ever really began. The U.S. Congress is as polarized as it ever has been in the post-World War II era, with ideologues dominating each party. President Obama's effort to forge a post-partisan politics was admirable, but it did not get very far, largely due to a Republican Party that's dominated by a conservative base, but also due to a Democratic Party committed to largely liberal goals.

Amid the lamentable health care reform debate, one fact is incontrovertible: despite President Barack Obama's large 2008 presidential election victory, one in which the Democrats gained 21 seats (to 257-178) in the House and eight seats in the Senate (59-40, not counting the late Senator Edward M. Kennedy's seat), the Democratic Party's majority still is not large enough to pass progressive legislation.

The solution to this is obvious enough: win more seats in the 2010 off-year congressional election, and then in the 2012 presidential/congressional election. And how does a majority party accomplish the above? By solving the nation's problems. These days, that means: 1) getting the U.S. economy growing again with robust job growth, 2) keeping the U.S. safe against international terrorism, and 3) ending the Iraq War successfully and making substantial progress toward victory in the Afghanistan War.

Christine A. Varney heads up antitrust at the Department of Justice, and she's going hunting. She is the point person for a group consisting of the presidential administration and some Congressional Democrats that is looking to put the breaks on large companies in several industries.

Already, airlines have run into roadblocks when requesting relief from antitrust regulations. Varney & Co. are digging into complaints by AT&T (NYSE: ATT) and Verizon (NYSE: VZ) that cable competitors – e.g., Cablevision (NYSE: CVC) – have locked them out of the market for cable company-produced programming.

(Imagine that, a phone company complaining! Usually, they're the objects of derision.)

In his column last week, New York Times (NYSE: NYT) columnist and Nobel Prize-winning economist Paul Krugman laid waste to those who argue that he's not critically assessing Obama administration programs. He offered a cogent critique of the U.S. Treasury's tardiness regarding the banking system fix.

Either temporarily nationalize those banks that are clogging the system, buy the toxic assets at unsubsidized prices, or announce some other market-valued removal plan to unclog the system, but let's put this train in motion, Krugman said, in so many words, to get to the root of the matter: We need to get credit flowing freely to facilitate commerce.

In the landmark, blockbuster film "Jaws" (1975), reluctant sailor, Police Chief Martin Brody (Roy Scheider), while chumming bait, gets his first look at the great white shark that's been terrorizing Amity's shoreline community. Captain Quint (Robert Shaw) and Marine Biologist Matt Hooper (Richard Dreyfuss) are immediately struck by the shark's size.

But Chief Brody is struck by another reality. "You're gonna need a bigger boat," Brody said.

In today's environment, with the U.S. economy in a pronounced recession and credit markets still constrained, the Keyensians - - which include most Congressional Democrats - - are playing the role of Chief Brody. They know what's needed to go after that shark (the recession).

'You're gonna need a bigger stimulus.' (In this case the 'bigger stimulus' means a second stimulus package.)

The U.S.'s first fiscal stimulus package 'of size' since the recession's start has passed - - albeit in a modified form that decreased spending by about $140 billion over the original outline.

Further, the young President Barack Obama, like the young President John F. Kennedy, has learned that presidential honeymoons can be short inside the beltway, particularly if you have to trade policy to obtain votes both inside your party and among the loyal opposition.

Meanwhile, investors and the financial community more broader await the specifics pertaining to Obama administration's revised plan to stabilize the banking system, with the declining Dow discounting that even a successful plan will require months of systemic adjustment, and, of course, more public funds.

As the U.S. Senate prepares to vote on an $820-$900 billion fiscal stimulus bill and send it to a House / Senate conference committee, a stark reality confronted lawmakers: the stimulus package may not be large enough.

A group led by Senate Moderate Republicans and selected Democrats cut roughly $60-80 billion from the bill, in what they believe to be wasteful spending and / or items not directly related to stimulating the economy.

Economist Richard Felson said lawmakers may find themselves staring at an economy in six months that needs another stimulus jolt, and given the two options, it's better to provide the stimulus all at once, from a GDP-impact standpoint.

New York Times columnist and Nobel Prize-winning economist Paul Krugman knows the situation facing the United States is very serious, so he doesn't mince words.

columnist and Nobel Prize-winning economist knows the situation facing the United States is very serious, so he doesn't mince words.

Krugman outlined: The housing sector has collapsed. Consumers have sharply decreased their spending, due to a declining stock market, home prices, and stagnant wages. Businesses are cutting investment. Exports, the formerly one strength of the economy, are plunging, as the recession grips emerging markets. The Fed has already cut short-term interest rates to zero. And there are signs of deflation. In sum, the U.S. economy is very close to the dreaded negative spiral that tends to feed on itself, and that could continue for a long, long time without fiscal stimulus.

Hence, the nation needs to pass the fiscal stimulus package, and if anything, the current package is too small, he argued.