When you see Congressional and presidential administration officials commenting on fiscal policy, and Federal Reserve officials commenting on monetary policy, that's normal.

But when you see Fed officials commenting on fiscal policy -- something they never do -- that's not normal and is indicative of extraordinary times.

San Francisco Federal Reserve Bank President Janet Yellen has done the latter, stating in no uncertain terms that the U.S. economy needs a fiscal stimulus package to deal with its most serious economic slump in her career.

"The current downturn is likely to be far longer and deeper than the 'garden-variety' recession," Yellen said, in a speech. "If ever, in my professional career, there was a time for active, discretionary fiscal stimulus, it is now." Yellen said the global financial crisis and economic recession pose a serious risk of a prolonged period of stagnation.

"It's worth pulling out all the stops to ensure those outcomes don't occur," Yellen added.

The unique characteristics of the global recession will require large, but focused, fiscal stimulus packages by nations around the globe, so says a leading international policy and research group.

The International Monetary Fund said the drop in demand requires a substantial fiscal stimulus of at least 2% of world domestic product (WDP), coordinated action, with a focus on spending and targeted tax cuts.

Roughly 2% of WDP would amount to $1.5-1.8 trillion in fiscal stimulus, according to research compiled by economist Peter Dawson.

"Fiscal stimulus by nations may have to be larger than that, given how much the global economy has slowed during the past year," Dawson said. "The IMF forecasts a WDP growth rate of 2.2% in 2009 but it will probably dip below that, which would suggest a need for an even larger fiscal stimulus, probably upwards of $2.0-2.3 trillion for 2009."

The unique factor driving the need for the above? For the first time in the post-World War II era, all major regions of the world -- U.S., E.U., China/Japan -- are in recession at the same time, as are the emerging market economies of India, Brazil, and Russia, Dawson said.

To say current economic conditions are challenging the acumen of those who are charged with adjusting to them or planning for them would be an understatement.

And it goes without saying that in these volatile times, investors, like business executives, have to keep an eye on the near-term and the long-term.

The U.S. Federal Reserve has embarked on various liquidity measures, including quantitative easing. Meanwhile, the U.S. Treasury, as a result of $350 billion in deployed TARP money (and another $350 billion available to be deployed if Congress approves), has stabilized the financial system, at least for the time being. And if economic history is any indicator, look for the bulk of the Fed's monetary stimulus to begin to take effect within three months of deployment.

Meanwhile, the Obama Administration and new U.S. Congress are expected to act quickly on a large fiscal stimulus package that could pump an additional $800 billion into the U.S. economy over two years. And if economic history is valid here, as well, look for the fiscal stimulus to begin to take effect within six months.

There's been no change in the U.S. economy's pulse, according to the most recent GDP data from the U.S. Commerce Department.

The U.S. economy contracted at a 0.5% annual rate in Q3, the Commerce Department announced, in its final reading on the quarter. The rate was unrevised from the previous estimate, but it was the weakest quarterly growth rate since Q1 2001.

Economists surveyed by Bloomberg News had expected the economy to contract at a 0.5% annualized rate in Q3.

One danger sign for the economy: consumer spending, which accounts for 60-65% of U.S. GDP, declined at a revised 3.8% annualized rate in Q3, worse than the 3.7% annualized decline estimate announced earlier.

Economist David H. Wang said the final Q3 GDP was a wash. "GDP came in as expected, but we can see the clear, continued drop in consumer spending, which is indicative of a prolonged recession," Wang said. "So it's stimulate with glee, to make the recession flee."

This is one increase the American people would no doubt welcome with open arms.

President-elect Barack Obama, faced with a deepening U.S. recession, is expanding his fiscal stimulus package to achieve the goal of creating or saving 3 million jobs over two years.

Job growth is priority No. 1

Obama has made job growth his first priority, with the new target revised up from the previous 2.5 million-job target, said Christina Romer, Chairman-designate for Obama's Council of Economic Advisors.

Economist Richard Felson told BloggingStocks it's a good thing the Obama Administration is aiming higher.

"The 3 million job creation total over two years is warranted. In fact, it's modest when one considers that the U.S. economy has already lost 2 million jobs since the recession started," Felson said. "Job growth is at the core of reversing negative trends in corporate revenue, earnings, and of course home mortgage foreclosures."

Almost everyone who can get a quote in the newspaper or five minutes on TV has a solution to the global economic meltdown. These range from more financial regulation to stimulation of housing to government programs to create new jobs.

The head of the IMF put all of that into context with his opinion that spending by nations around the world to help get it out of a deeper and deeper recession has not been nearly enough. According to Reuters, "The IMF has called for fiscal stimulus -- higher government spending and temporary tax cuts -- worth $120 trillion, or 2 percent of global annual economic output, to fill the gap caused by slumping private demand following the credit crunch."

The view is, to a large extent, mirrored by the plan Obama has suggested. Spend money now even if it puts the government into a huge debt hole. But, does it make any sense?

How'd you like to borrow money for 30 years at 2.95%?

The U.S. government can, and it's making it easier for the federal government to fund its increasing budget deficit, as well as help build the case for a large fiscal stimulus package.

Treasury prices continued to rise Tuesday, pushing the yield on the 30-year government bond down to 2.95% -- close to its lowest level since regular sales began in 1977. The 10-year note yielded 2.48%; the 5-year note, 1.47%.

Further, while it may seem like a contradiction to have long-term interest rates fall at a time the U.S. government is on-track to record at least a record $600 billion (and probably much higher) budget deficit this fiscal year, there's a method to institutional investors' madness, so says economist Richard Felson.

"The landscape for private investment is poor. We have a recession on all continents, and there's a lack of places to deploy capital productively. That dearth of opportunities for return on investment plus fear of losses from toxic assets is driving investors to the safer investments, and one of the safest is the U.S. Treasury," Felson said. "It's the preferred place to be until the major economies start to recover."

How big will the 2009 U.S. fiscal stimulus package be?

Well, to borrow a phrase popularized by actor William Shatner, 'really big.'

There's talk now in Washington that the Obama Administration outline for fiscal stimulus could reach $1 trillion, or higher, over two years, The Wall Street Journal reported (subscription required).

Further, House Speaker Nancy Pelosi, D-California, said the U.S. House is likely to act next month on a stimulus package totaling $500-600 billion, Bloomberg News reported.

President-elect Barack Obama has said he wants a fiscal stimulus package ready for him to sign on Inauguration Day, January 20, 2009. Moreover, while administration officials have not detailed specific program preferences with accompanying dollar amounts, there is general agreement between the Obama Administration and Congress Democratic leadership on the need for immediate job-creating infrastructure work, assistance to deficit-laden states, unemployment insurance extension and home mortgage relief.

Still, while the list of needs is long and large enough to occupy all of Pelosi's aforementioned $500-600 billion, that appropriation level probably won't be enough to "move the GDP needle by a large amount," so says economist David H. Wang.

This time of year, most people have holiday gift wish lists. Economists have holiday gift wish lists and fiscal stimulus spending wish lists.

BloggingStocks briefly interrupted economist Peter Dawson's Christmas gift shopping for his wife and two grade-school daughters to glean his ideal fiscal stimulus spending package.

Top priority: Infrastructure

First, Dawson would allocate $200 billion for the well-documented 'shovel-ready' infrastructure projects - - roads, highways, bridges, transit systems - - "basically anything that involves moving people." It's an area that can quickly put people to work and generate secondary and tertiary jobs, he said.

Second, Dawson would allocate $150 billion to the states to help make-up for revenue shortfalls. "More than 30 states are facing budget deficits and some, like California, are facing serious fiscal problems," Dawson said.

Here's where Dawson differs from many economists. For this third priority, Dawson said he would allocate - - separate from infrastructure projects - - $100 billion to build, rebuild, renovate, and expand the nation's schools. "This would include everything from upgrading science and computer labs, to adding whole libraries, to upgrading heating and air condition systems, to building new schools," Dawson said. "Basically, anything from grades K-12 that creates more, fully-equipped classrooms and libraries, including Internet access, would be eligible."

These days, investors large and not so large are following the financial markets more closely than they have perhaps in decades. Is the U.S. recession worsening? Are there any more problematic banks? Is the market bottoming? There's a lot to assess, particularly if you have a 401K.

In times like these investors/readers turn to the likes of Warren Buffett or George Soros to analyze the financial and economic state of things.

However, today we turn to another trusted source, for time-tested counsel, advice, and wisdom: Lawrence Peter 'Yogi' Berra, retired Hall of Fame catcher for the New York Yankees, owner of 10 World Series championship rings and author of 'yogiisms' - - incisive malapropisms that reveal eternal truths.

Those who know Yogi know that his northern New Jersey home is accessible via two different routes, starting from a fork in the road. Hence, when Yogi gives directions to his house he says, "When you come to the fork in the road, take it."

Yogi's adage applies to economics, as well. When you come to the (economic) fork in the road, take it.

The United States is coming to an economic fork in the road, of sorts: it can get to its destination - - economic recovery - - by one of two paths.

The first would involve primarily using the Federal Reserve and quantitative easing. The Fed has already said it will purchase more than $600 billion of private debt, including commercial paper, mortgage-backed securities, and other asset-baked securities. (In order to cover potential losses associated with the Fed's purchases, the U.S. Treasury has set aside $20 billion in TARP funds authorized by Congress.) However, while additional quantitative easing in the aforementioned commercial segments (especially mortgage-backed securities) may trigger an increase in economic activity, such as an increase in mortgaged-based home purchases, it may not represent the segment where the Fed wants the extra growth to be.

The world's largest economy is on pace to record its longest recession since 1947, a survey released Wednesday predicted.

A decline in consumer spending will push U.S. GDP down 2.4% in Q1 2009, and another 0.5% in Q2 2009, according to 51 economists surveyed by Bloomberg News.

If the above occurs, it would be the longest U.S. recession since 1947, so says economist Richard Felson, who did not participate in the Bloomberg survey.

"It would be a truly negative circumstance, the weakest economic conditions since the end of World War II and the weakest job market conditions since the 1981-1982 Reagan recession," Felson said. "A Q3 2009 recovery would give us a 20-22 month long recession, which is just dreadful. But you can understand why, with housing, manufacturing, exports, business investment, and consumer spending all trending in the wrong direction. It would be the 'mother of all contractions.' "

Another one of those dyed-in-the-wool liberals who "never did anything productive with his life," is backing a large fiscal stimulus package.

The above, of course, is a facetious intro for Microsoft (NASDAQ: MSFT) founder Bill Gates, whose Windows technology transformed business processes and set in motion a cycle of employee productivity gains that continues to this day.

Gates, taking read of the economic conditions facing the nation, said the U.S. government must increase spending to get the U.S. economy moving again, and to help its most vulnerable citizens, The Washington Post reported. Moreover, Gates, who now concentrates on philanthropy, said the United States should have a bigger goal than economic growth: it should think in terms of an expansion that increases the number of people who are contributing to the economy and benefiting from it.

If you're concerned about inflation heating up in the months ahead, that's the wrong problem to focus on.

Despite a large and increasing federal budget deficit and $8.2 trillion in obligations (loan, loan guarantees, investments, monetary liquidity actions) aimed at ending the credit crunch, deflation -- not inflation -- remains the primary concern for the U.S. economy, at least though 2009.

Deflation is dreaded

The above may appear to be a misread, but it's not after reviewing the data, so says economist David H. Wang. Core U.S. inflation, which excludes food and energy prices, is running at a 2.2% annual rate; overall inflation at about a 3.5% annual rate, he said. Both are likely to trend lower as the recession continues in 2009.

"Housing and commodity prices have fallen by large amounts. Stocks prices are at low levels, from a valuation standpoint. Businesses have no pricing power, and there is no wage pressure. In this environment, prices are more likely to fall than rise," Wang said.

Job layoffs are occurring across the economic spectrum. Home mortgage foreclosures are still at near-record highs. Consumers are paring-back spending. State government budgets are running increasingly in the red, even as they experience difficulties floating bonds. Business investment is at a tepid level. Concern about the dreaded 'deflationary scenario' are taking hold.

Amid the above, calls are growing for a $1 trillion fiscal stimulus that many economists say will be needed to reverse a negative cycle and get the U.S. economy on the sustainable growth track.

Prior to this month, the conventional wisdom in and around Washington was that the Obama Administration would pursue a $300-$500 billion fiscal stimulus package at the outset of the new administration.

But with payrolls plunging and housing and manufacturing showing little signs of life, the specter of large, ongoing rises in unemployment and a recession extending well into 2010 have changed the calculations.

Harvard economist Kenneth Rogoff, an advisor to Republican presidential candidate U.S. Sen. John McCain, R-Arizona, and Nobel Prize winning economist Joseph Stiglitz, who served in the Clinton Administration, are among those pushing for a $1 trillion stimulus package, Bloomberg New reported Thursday.

What's one reason for not jumping back in the market at this juncture?

Well, one could certainly cite end-of-the-year tax loss selling, which typically weighs on the market. Or the battle for Dow 8,000 between institutional bulls and bears. Or the fact that the Dow's path of least resistance, from a technical standpoint, remains down. (That's a major reason why the Dow drops so quickly: all that's required is a hedge fund manager to sneeze and the Dow drops 300 points, or so it seems.)

All of the above are valid reasons to remain on the sidelines.

Is Washington planning big changes?

But perhaps the best reason to not deploy new capital is the new era itself. The United States is preparing for a new presidential administration and one gets the sense that there could be a series of seismic shifts up ahead -- shifts that will affect money, markets, investing, and business trends.

It's true that after the U.S. government's allocation, via loans, loan guarantees, or investments, of about $8.2 trillion for the financial system, it's hard to picture shifts up ahead that could be as landscape-altering as those undertaken in the past year. But that could very well be the case nevertheless.

Those hoping for small change are likely to be disappointed. On January 20, President-elect Obama becomes President Obama and he is big change. U.S. Senator and now Secretary of State-designate Hillary Clinton, D-New York, was small change, and we saw how the electorate responded to her candidacy. Voters were so adamant for economic change (and other changes) after the United States' decade of descent that they not only blamed the Republican Party, they rejected anyone with even a hint of being a part of the economic policy mistakes, including Clinton.