New York Times (NYSE: NYT) columnist Thomas Friedman in his latest column and again Tuesday night on 'The Charlie Rose Show' returned to his theme of the U.S. effort at nation building.

Nation building, that is, at home. Friedman, among others, has underscored the need for the nation to begin, in a comprehensive way, to rebuild its dilapidated and/or outmoded infrastructure that includes its electric grid, highways, roads, bridges, mass transit systems, schools and other public buildings.

Further, one doesn't have to be a civil engineer or a mechanical engineer to see that the nation's infrastructure has been neglected, and while at times Friedman's discourses on the gleaming magnificence of yet another high tech airport in Asia can begin to grate, his overall conclusion regarding a period of pronounced underinvestment in U.S. public assets is valid.

'Action' is a two-edge sword

Friedman wants 'radical' action, i.e. bold action by President Obama to make up for lost time, infrastructure-wise, and he believes 'Obi 44' has a rare opportunity to act in a big way, given the economic crisis facing our nation, his high public approval rating, and the general desire of public officials across the spectrum to see him succeed.

President Obama (it's going to take a while to get used to typing and saying that), shared a word with former President Bill Clinton after Tuesday's historic inauguration.

Further, anyone who knows 'The Comeback Kid' knows that he often likes to share a quick joke upon meeting. Perhaps Clinton whispered something like this to Obama:

"Mr. Obama, congratulations. You are now president of these U-nited States, yes you are," Clinton perhaps said. "Now here's the bad news. You are now president of these U-nited States, yes you are."

Time to tackle only three issues in 2009

Few deny that the nation faces a veritable smorgasbord of challenges in the years ahead. What should the Obama administration prioritize in 2009?

Obviously, the fiscal stimulus package is first, at least $700 billion and preferably more than $1 trillion in size, comprised of useful, value-adding infrastructure programs, assistance to the states, unemployment insurance extension, and tax cuts aimed at encouraging investment and business expansion, among other measures.

Nobody expects Prince to show up. But maybe he should.

For those under the age of 25 (or maybe even under age 30?) Prince is Prince Rogers Nelson, who, way back in the 20th century made a record or two of sociological import.

Prince should attend because all this week in Washington, and especially on Tuesday, Inauguration Day, January 20, 2009, they're going to party like it's ... well, like it's 1999.

Hail to the Chief

Ten official presidential inauguration balls will be held, with numerous other official gatherings - - just about every embassy and state delegation (many U.S. states have residences / offices where they hold receptions) - - will be throwing official parties. Then there are the countless private parties held inside and around the beltway.

A colleague living in Washington whom yours truly worked with during my three years (1996-1998) inside the beltway summed it up best this way: he never knew he had so many friends.

"I got a call from someone who said he knew me in college. Couldn't place the name," said Bill, my colleague. "It turned out he lived in my dorm at college. Maybe I spoke with him once or twice in the cafeteria. I didn't know him from Adam. Now he calls me as if we're best buddies."

And the reason this distant dorm-mate is acting like a close friend? "I've got an extra ticket or two to the inauguration," Bill said. "I guess word got around."

Shortly after President-elect Barack Obama, D-Illinois, is inaugurated as the 44th president of the United States, congressional policymakers are likely to act on the largest fiscal stimulus package in U.S. history, and send the bill to the new president's desk, hopefully before mid-February.

The bulk of the package provides stimulus aimed at generating economic growth -- i.e. an effort to help pull the U.S. economy out of its worst recession since at least the Reagan era recession in 1981-82.

Equation: job growth = earnings growth

Moreover, the likely programs -- infrastructure projects, energy system improvements, business investment tax credits, and aid to the states, among others -- must have as their primary focus GDP growth and the reason is obvious enough. Consumer spending and business investment cutbacks, along with declining asset prices, have reduced demand to such a degree that absent stimulus targeted to increase demand the U.S. economy will remain in recession through 2009 and well into 2010, many economists agree.

Still, what the nation does not want is a fiscal stimulus package that does not call for additional hiring, so says economist Peter Dawson.

It is a Newtonian law of physics. A body in motion tends to stay in motion. A body at rest tends to stay at rest.

Further, as followers of business activity know, it's also a law of economics, and that's yet another argument for a large fiscal stimulus package.

Moreover, it's also a rejoinder to the fiscal stimulus plan's critics. Market absolutists and economic conservatives will frequently state that the stimulus plan isn't needed; all the nation needs to do is "let the business cycle play out, and the recovery will automatically follow the recession" or "let the market take care of things and a recovery will appear, naturally."

Not so, according to John Maynard Keynes. Keynes demonstrated that business cycles sometimes don't cycle. In fact, Keynes demonstrated that, absent key stimulus, commercial activity can be down -- and remain down -- for years. A classic example would be President Herbert Hoover's response to the 1929 stock market and the gargantuan economic slump that followed: the Great Depression. Hoover did very little, from a fiscal policy standpoint, to stimulate the economy in 1929, 1930, 1931, and 1932, and the U.S. economy collapsed in 1929, and remained in contraction in 1930, 1931, and 1932. By 1932, the Great Depression had spread across the globe.

Can the U.S. government run $1 trillion budget deficits for two, three years? Indeed it can, Financial Times columnist Martin Wolf argues, and the deficits can even be higher, for a while. After that, there's more work ahead.

The specter of $1 trillion budget deficits may be vociferously opposed by Republicans and other economic conservatives, but Wolf, in so many words, says what other choice does the United States have? What would be the alternative? Simultaneously raising taxes now to lower the deficit? Hardly prudent. Doing nothing? Another dreadful idea. So, it's prime the pump, or sit there at the well and await nothing.

Up ahead: two bigger tasks

What's more, Wolf sees two additional tasks (structural changes) that are just as important to the goal of U.S. economic recovery -- but that may be even harder to implement: removing toxic assets from the banking system and reducing the U.S.'s structural current account deficit (the trade deficit).

The first is the forced write-off of bad assets, fiscal recapitalization of the banks, or debt-for-equity tactic, and it should be done comprehensively and quickly. Slow, gradual bad-debt reduction is not the correct policy, Wolf argues, as it would delay the economic recovery.

Two internationally known economists converged Tuesday on a common point regarding the link between stimulus and the U.S. economy's recovery -- but from different vantage points.

U.S. Federal Reserve Chairman Ben Bernanke, in a speech before the London School of Economics, said fiscal stimulus won't be enough to create a lasting recovery, unless it is accompanied by strong measures to stabilize the financial system.

Meanwhile, New York Times economist Paul Krugman underscored the need for both a large fiscal stimulus capable of providing an immediate boost to the economy and providing stimulus 18 and 24 months out.

In a CNBC interview Tuesday, Krugman underscored the need for a large fiscal stimulus -- a critical mass of fiscal stimulus, if you will -- to counteract the massive amount of stimulus taken out of the economy from declines in consumer spending, business investment, home price depreciation, constrained credit by banks, and stock market declines.

Krugman added that the $700-850 billion proposed fiscal stimulus package is too small. Earlier, in his column in The Times, Krugman said both shovel-ready and longer-term infrastructure projects were required to keep a lid on rising unemployment for the next two years.

With the U.S. economy in recession and getting weaker by the month, and with the financial system stabilized but credit conditions hardly ideal, the United States over the next few months will embark on policy initiatives that are likely to be historic.

Both fiscal and monetary policy will be used. The incoming Obama Administration is expected seek approval from the new U.S. Congress of a record $700-$850 billion fiscal stimulus package. Meanwhile, the U.S. Federal Reserve will continue with its quantitative easing plan, including $500 billion in purchases of mortgage/asset-backed securities instruments as part of its effort to improve credit market liquidity.

The need for stimulus: incontrovertible

The above initiatives will forward a pair of numbers that some Americans will undoubtedly find hard to imagine, let alone accept: a budget deficit for this year and the next of at least $1 trillion and a Fed balance sheet rising past $2.5 trillion. Most economists argue that the actions are needed to jump-start a U.S. economy that shows almost no signs of pulling out of its deepest and longest recession in decades: corporate earnings are forecast to decline, job losses continue at an alarming rate, with unemployment rising.

President-elect Barack Obama has provided the outline for his 2009 fiscal stimulus package, and a legitimate question for investors is: "Hey, how am I going to benefit from the plan as an investor?"

I'll systematically review the Obama plan as individual programs are specified, but for an overall critique, read an article by my BloggingStocks colleague Peter Cohan, who provided a good axis by which investors can evaluate the merits of Obama's stimulus plan. Cohan argued for stimulus components that serve as investments, as opposed to those that are just costs.

For example, most investors are aware of the poor condition of the nation's roads, highways, and bridges, not to mention its inadequate (and in some cases dilapidated) mass transit systems. Infrastructure work is a top priority in the Obama stimulus plan, and one can see how better highways, roads and transit systems will enhance commerce by making travel faster and safer. Further, electric grid and solar/wind power work also is included in this category: most know that the electric grid must be expanded, and made smart to meet the needs of our growing, dynamic nation, and that alternative energy source development will make the U.S. less-dependent on foreign oil.

What would make the strongest case for a large fiscal stimulus package - - upwards of $1 trillion for infrastructure, energy, education programs, and for aid to the states, for a new electric grid, for the building of hospitals, schools, for improved water and sewerage systems, for the biggest build-out in the United States since the Great Society?

Investors could probably think of dozens, but economist David H. Wang has a compelling one: the condition of the U.S. consumer himself / herself, or what Wang calls the "consumer's dilemma."

Has the U.S. economy changed?

Now Wang proceeds with the assumption that the U.S. consumption-based economy will largely continue. If one disagrees with that premise, then Wang's thesis is mute moot, and we then also have a different U.S. economy that will require very different prescriptions to achieve sustainable growth.

But let's, for the sake of argument, assume that the consumer-based economy - - one that historically has accounted for roughly 60-65% of U.S. GDP - - is not going the way of the Edsel. That creates Wang's "consumer's dilemma." Namely, the U.S. economy requires the consumer to spend (buy things) to grow at capacity, but consumers have already consumed at too high a level for too long - - in some cases saving nothing at all -- and hence many will now increase their rate of savings to begin to make up for their many years of inadequate savings.

It looks like tomorrow could very well become yet another 'brace yourself Friday' or another edition of 'As The U.S. Economy Turns.'

Still, hopefully it won't become a new rendition of 'down goes the Dow' with another visit by our old friend, you guessed it - - Dow 8,000. But analysts and economists haven't ruled the latter out.

The reason? The December 2008 jobs report, to be released by the U.S. Labor Department at 8:30 a.m. EST.

December jobs data won't be pretty

President-elect Barack Obama, D-Illinois, and House Speaker Nancy Pelosi, D-California, said they are bracing for a 'sobering' jobs report, Reuters reported.

Sobering is one way to lower expectations: economists surveyed by Bloomberg News expect the December 2008 jobs report to show a loss of 500,000 jobs. If that occurs, the U.S. economy will have shed more than 2.5 million jobs in 2008 and a staggering 1 million jobs in the last two months alone, November / December 2008. It would also make 2008 the largest job loss year for the United States since World War II.

Economist Peter Dawson told BloggingStocks economists are becoming "very concerned" for two reasons. First, a trend line for job cuts has increased for more than six months. Second, ADP's (NYSE: ADP) private sector job report showed the loss of a staggering 693,000 jobs, and even though the ADP report has not correlated well with the Labor Department report, it still is setting off alarm bells in economists' circles.

No one likes a budget deficit, but run a deficit - - and a large one - - the U.S. must, and for two years, due to the depth and seriousness of the U.S. recession, so says an economist.

"We will likely have to run $1 trillion deficits for each of the next two years in order to provide adequate fiscal stimulus for the U.S. economy," economist David H. Wang told BloggingStocks Wednesday.

A large problem requires a large stimulus

What's driving the need for a large fiscal stimulus? The worst consumer and business demand conditions in more than 25 years, Wang said. "Every major demand factor in the economy...consumer, business, and capital investment, is retreating. The demand has to occur somewhere, and if the U.S. government does not create it, the recession with lengthen and deepen."

The U.S. recession, which began in December 2007, is already in its 14th month and there's no end in sight, based on leading economic indicators or economic fundamentals. One tell-tale stat: the job market. Or should one say, the 'non-job market.' ADP (NYSE: ADP) announced Wednesday that private employers cut another 693,000 jobs in December 2008. Meanwhile, many economists expect Friday's U.S. Labor Department job report to show a 500,000-job loss in December 2008. If it does, then the U.S. economy will have lost at least 2.5 million jobs in 2008.

Wang said continued monthly job losses above 200,000 would indicate to him "that the economy is entering a vicious cycle of corporate revenue declines, job lay-offs, decreased demand, leading to further corporate revenue declines - - that must be avoided."

He's a new Dem and you can tell. He's also a smart professional.

Those inside the beltway expecting President-elect Barack Obama to be a carbon copy of President Bill Clinton are likely to be in for a surprise. Obama has shown a penchant to reach out -- and to reach out quick -- to forge coalitions.

The semi-circle of debate

Moreover, "you can see his style," so says economist Peter Dawson. "It's a variation of the Harvard Law School seminar model," Dawson said. And the initial evidence bears Dawson out: Obama has shown a tendency to assemble smart people around him from a variety of viewpoints, encouraging rigorous debate with opposing arguments, move forth with the value that every one counts in U.S. society, and then forge a viable solution based on the above, with solutions tailored to meet the task/challenge.

"What Republicans have to keep in mind is that Obama's 'everybody counts' also includes the poor and the working poor," Dawson said. "What Democrats have to keep in mind is that it also means investors and corporate America."

Record-high U.S. budget deficit? Declining corporate earnings? Unemployment likely to rise through at least May?

Don't mention those potential scenarios to the foreign exchange, as currency traders sent the dollar rocketing higher versus the euro early Monday, up 3 cents -- an enormous move in the currency market -- on the belief the Obama Administration's fiscal stimulus package will help the U.S. economy recover from the recession.

The dollar strengthened 3 cents to $1.3566 versus the euro and rose 1.64 yen to 93.50 versus Japan's yen. The dollar has rose 3 cents to $1.1097 versus the Swiss franc, and strengthened about one-half cent to $1.4494 versus the British pound.

Currency trader Andrew Resnick told BloggingStocks Monday trading desks are back at full strength after the holiday and they're clearly signaling that they expect the worst of the U.S. recession to be over by mid-year.

It goes without saying that the current U.S. recession is a serious economic condition that requires extraordinary actions.

The Fed, via its new "tool box," the Treasury via tactical investments under the TARP, and the prospective, largest fiscal stimulus package in U.S. history all represent extraordinary measures.

But should the United States consider still another, extraordinary action? Namely, temporarily suspending the federal income tax?

Attacking the recession from both "sides"

Experienced investors know that one great divide in economics concerns those economists who emphasize supply side (top-down) factors and those who emphasize demand side (bottom-up) factors. Passing a federal income tax holiday would add supply-side stimulus to likely demand-side stimulus via a fiscal stimulus package in 2009.

However, economist Richard Felson told BloggingStocks Tuesday while a federal income tax holiday would be politically-attractive, particularly for U.S. Representatives and Senators up for re-election in 2010, he doesn't favor the approach.