Financial Times columnist and economist Martin Wolf forwards the paradoxical, but nevertheless economically valid theory that "we can only cut debt by borrowing more."

Economic conservatives, including supply-side economics advocates and Tea Party backers, will no-doubt look aghast at the above, but investors should keep in mind that most of the conservative camp has shown concern primarily for: 1) cutting taxes and 2) cutting government spending -- not for the plight of the more than 15 million Americans without work. Now, if in the process of cutting taxes and spending U.S. unemployment goes to 15% or 20% -- which would likely be the consequence of spending cuts that reduce already low aggregate demand further -- so be it. In other words, if the free market says unemployment should be that high, then unemployment will rise. Just cut taxes and cut spending.

New York Times (NYT) Columnist Paul Krugman, among others, has pointed out that it's way too early to think in terms of ending fiscal/stimulus. The economic expansion has barely begun -- let alone achieved self-sustaining status -- and the premature withdrawal of stimulus increases the likelihood of a double-dip recession, Krugman said.

Further, the view from here argues that investors need to keep in mind that U.S. economic fundamentals have not placed the economy on a steady-growth track -- not yet. What we have is one quarter (Q3 2009) of GDP growth. That's it.

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.

Readers of this space know that the emphasis is placed on the economic, on commerce, and business trends, with a general avoidance of goings-on inside the beltway.

However, the financial crisis (which spawned federal bank bail-out legislation) and the nation's pronounced recession (which requires fiscal stimulus to end), has meant that things occurring in Washington once again have great relevance for investors.

And one current D.C. development must be evaluated: the House Republican leadership's decision to seek a federal spending freeze for the fiscal 2010 federal budget, The AP reported.

Investors received yet another indicator Monday that this is not your father's recession.

The global economy will likely contract in 2009 for the first time since World War II -- including a decline in trade - - the World Bank announced in its most recent report.

China apparently will announce a new fiscal stimulus package in an attempt to jump-start growth in the world's third largest economy.

Chinese Premier Wen Jiabao is expected to announce "a new stimulus package" in his annual address to the nation's legislature, Li Deshui, ex-statistics bureau head told reporters in Beijing Wednesday, Bloomberg News reported.

Most investors know about the United States' anti-state political culture: in America it's private sector solution first, public sector solution second.

And, most also know that what state that does exist is anti-central government: it dates back to our federalist origination. We're even reluctant to call something 'central' for this reason: we have a central bank, but it's called the Federal Reserve, not the Central Reserve. And it's the Internal Revenue Service, not the Central Revenue Service.

The most sweeping fiscal stimulus in a generation is about to be signed into law by President Obama. It amounts to $787 billion and includes tax incentives, infrastructure projects, renewable energy developments, and payment to state and local authorities.

However, investors appear to be skeptical as indicated by the performance of the markets today for a variety of reasons:

• Some estimate that as much as 75% of the spending will not reach the economy until 2010.
• There are questions as to how many jobs in the United States will actually be created.
• People are uncertain as to how productive the spending bill will be and how much is actually just wasteful "pork."

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.

The manager of the world's largest bond fund, PIMCO, has laid-out in unambiguous terms the problem facing the global economy in the quarters ahead: The U.S. and global recession will worsen -- with a "second wave" of turmoil -- unless governments increase fiscal stimulus and spending plans.

"The economic setback is still in its early stages," Koyo Ozeki, head of Asia-Pacific credit research at Pimco's Tokyo office, wrote in a report published on PIMCO's web site. "Any further decline in housing prices could accelerate the downturn, intensifying the pernicious feedback loop and possibly leading to a second wave in the financial crisis in the next six to 12 months."

Financial Times columnist Martin Wolf reminds investors that, contrary to some views expressed in the United States, depressions are neither good for us, nor unavoidable.

Further, despite the recent year's many reverberations, the United States remains, Wolf argues (and the U.S. Central Intelligence Agency agrees), the world's preeminent economy in the global economic system it has created and promoted. Moreover, U.S. policy errors had much to do with the current crisis, even if aided by policy errors abroad. By extension, the healing and recovery starts in the U.S. -- with America as the leader of determined, globally-coordinated action.

Senate debate resumed Tuesday on the fiscal stimulus package, and as it did several economists offered their policy advice for the august members of the world's greatest deliberative body.

The biggest change should concern size, so says economist David H. Wang. "It's too small. A $900 billion plan is good, but the stimulus plans that most effectively increase GDP are ones that are large, and the bigger the package, the bigger bang you'll get for your buck, from a GDP standpoint," Wang said. Wang said he would add at least $300 billion in spending to the plan.

You have to appreciate the cleverness of this era's financial humor. (Note that I said, appreciate the cleverness, not love, or enjoy. That's because, depending on your perspective, the humor is either on-the-mark, or not that funny. But that is part of the subjective nature of humor.)

One joke making the rounds:

Question: What's the capital of Iceland?
Answer: $25.

Another: In the old days, banks lent money to people. These days, people lend money to banks.

New York Times (NYSE: NYT) columnist and Nobel Prize-winning economist Paul Krugman discusses bank capital and lending in his most recent column, and argues that the apparent likely Obama administration fix for the banking sector -- a combination of U.S. government purchase of toxic assets and guarantees against losses on other assets, each on terms favorable to the banks -- represents a lousy deal for the U.S. taxpayer, who'll end up "footing the bill for rescuing the banks."

The nutshell on the 2009 World Economic Forum held in Davos? It was a conference where nearly everyone agreed that the financial crisis started in and is primarily the result of U.S. policy errors, but agreed on little else after that.

Further, the Davos gathering produced almost no new insights regarding the nature of the crisis beyond what is already known: that excessive leverage throughout the system, arcane and in some cases Frankenstein-like derivatives, inadequate national-level financial regulation, and the collapse of demand, set in motion first the U.S. recession, then the credit crunch, then the global recession.

Here's one tax cut/credit that Democrats and Republicans apparently agree on. Or, in Washingtonspeak, 'left has met right, so let's get this bill out the door.'

It appears the U.S. Senate is posed to add a provision to reduce taxes, at least temporarily, on corporate profits earned abroad. The Washington Post reported Thursday that further Senatorial changes could follow, and the Senate stimulus bill would have to be reconciled via a conference committee with a House version passed Wednesday, but the current Senate proposal would dramatically reduce taxes, from 35% to 5.25%, on foreign corporate profits repatriated to the United States.