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.

Two questions of macroeconomic importance for investors and executives alike? How deep will the U.S. recession be, and how much fiscal stimulus will be needed to get the economy on a sustainable growth track?

On the first, the recession will not be mild if case precedent holds, particularly if the Economic Cycle Research Institute's (ECRI) weekly leading index is predictive. The index fell to a record-low -29.2% last week from -28.2% registered earlier in the month. It was the index's lowest reading since 1949.

A turn in the ECRI's leading index would suggest that the U.S. economic cycle has bottomed, so says economist David H. Wang. So far, there's little indication of a turn.

On the policy front, a consensus appears to be forming that the Obama Administration's fiscal stimulus package should be upwards of $400-500 billion. If that's the case, it would please Wang.

"Given the amount of wealth and income taken out of the economy by the decline in housing and stock prices and job lay-offs, we will need a stimulus of at least $500 billion to counteract the major contraction forces affecting the economy," Wang said. "And the more concentrated the stimulus, from a time standpoint, the better. A $500 billion infusion over three months would create more GDP bang for the buck than two $250 billion packages spread over five or six months."

Nouriel Roubini, the once obscure New York University economics professor who two years ago predicted the current global financial crisis, now says the United States will likely face its worst recession in 50 years.

"I expect the worst recession in 50 years," Roubini told Bloomberg News. "There will be a cumulative fall of output of 4% from the peak, and unemployment will jump to 9%."

Further, predicting that future U.S. Federal Reserve interest cuts will be ineffective, Roubini also reiterated that the U.S. economy needs "a major, aggressive fiscal stimulus, a $300-400 billion package, because private demand is collapsing."

Roubini's forecasts were once considered to be 'too harsh' or 'implausible,' due to what many economists and analysts argued were premises that were incorrect or off-the-mark. These conclusions earned Roubini the nickname 'Dr. Doom.' However, in less than two years, and especially in 2008, U.S. financial and economic fundamentals have deteriorated to such an extent, that at least in some metrics, conditions are closer to Roubini's forecasts than those of the many, mainstream economists who had scoffed at his predictions.

With credit markets remaining under stress, and with uncertainty growing regarding the status of megabank Citigroup (NYSE: C), the U.S. Congress may have to take more action to maintain financial system stability and prevent the U.S. economy from spiraling into a deeper recession, so says economist David H. Wang.

"The U.S. Congress may have to approve a 'TARP 2,'" Wang told BloggingStocks Friday. "Whether Congress does it as part of a fiscal stimulus package, or separately, it is clear we will need more money to purchase toxic assets, improve bank capitalization and allocate funds for home mortgage refinance programs, and other financial stabilization measures. At this stage of the crisis, the $700 billion TARP is not going to be enough, in my interpretation."

Bank sector stress remains

Wang said that if Citigroup, whose CEO Vikram Pandit said has adequate capital, for some reason cannot, when needed, find additional capital in the private sector, then "the Fed and or U.S. Treasury will step in, and take necessary measures to stabilize the bank," Wang said. If the U.S. Treasury is the primary funder, "that action, and other forthcoming, planned actions by the Treasury may use up a considerable amount of TARP funds, requiring a TARP 2."

The case for a large fiscal stimulus package has received a shot in the arm, but as with so many economic developments during this decade, there's an upside and a downside.

A group of about 100 CEOs has urged President-elect Barack Obama to "quickly implement" a stimulus package of roughly $500 billion. The CEOs said the package should emphasize investment in infrastructure, including roads, bridges and other construction, as well as alternative energy projects. Their second priority: improving education.

Economist David H. Wang has extracted positive and negative threads from the CEOs' statement.

"On the one hand, the added CEO support will be welcome, I am sure, by the Obama Administration, as it builds the case for its stimulus package," Wang said.

"On the other hand, the fact that CEOs are calling for government spending, which is not a traditional CEO stance, tells you about the seriousness of our economic problem," Wang said. "The U.S. economy is in rough shape and there are few signs of improvement."

New York Times columnist and Nobel Prize-winning economist Paul Krugman underscores that those who are thinking in terms of a balanced federal budget now are doing a serious disservice to the economy, and, by extension, to the nation.

It's important for the U.S. Government to return to a balanced budget when the economy returns to health, but it is critically important for Congress to approve a large fiscal stimulus to help the U.S. economy recover from the current recession, he said.

Sees danger of vicious cycle

That's because doing so will help end what Krugman argues is a vicious cycle of contraction that's beginning to play itself out in the economy. Rising unemployment will lead to further reductions in consumer spending, which will lead to further business cutbacks in production and more job cuts, which will lead to further reductions in consumer spending, contracting the economy even more, and so on. It's a destructive cycle that has to be stopped, and fiscal stimulus is part of the healing: it will get momentum headed in the constructive direction.

For those who doubt the harm that prematurely trying to balance a budget can do to the U.S. economy, Krugman offered FDR's premature attempt to balance the budget in 1937: it almost destroyed the New Deal and the economic recovery taking place in the nation at that time.

It's being hailed as the unofficial start of a new financial or economic order, sort of a postmodern Bretton Woods, but if the accomplishments are more modest, but substantive, it will be deemed a success, so says an economist.

With the global financial crisis slow growth everywhere, G-20 summit leaders meeting in Washington on Saturday would be wise to focus on one critical and consequential policy action: fiscal stimulus, so says economist David H. Wang.

Economist: focus on fiscal stimulus

"Forget this trivial fixation on 'Who's leading the summit? Is the United States still on top? Is the meeting differing from a G-8 meeting?' The summit has to focus on getting all nations with the resources to do so to commit to fiscal stimulus," Wang said. "There's also a chance for an agreement on cross-border supervision of banks and leverage regulation, but really, it will take months to work out those complex regulations, so the summit should concentrate on the broad picture, and what show of fiscal force they can make for the business community."

That means detailed, and binding, commitments to spend public dollars to stimulate growth, Wang said. China has led the way, approving a $586 billion stimulus package earlier this month. Germany has committed $62 billion. Now it's up to the United States, the European Union, and emerging market powers to announce their commitments, he said.

It's one of those statistics, or 'numbers' as they are called in Wall Street circles, that's likely to be etched in the memory of those who were around during the United States' difficult decade - - its decade of descent.

The U.S. Government's budget deficit soared to a record $237.2 billion in one month -- October -- as the federal government invested more than $136 billion in bank and related rescue programs, the U.S. Treasury Department announced.

Bank rescue: one-time charges (hopefully)

Of course, the federal government isn't expected to borrow and invest an additional $136 billion every month -- a large amount of borrowing was expected at the start of the U.S. Government's effort to end the financial crisis -- but this past October's total is four times the size of the $56.8 billion in borrowing required in October 2007.

In July, the Bush Administration estimated that this year's budget deficit, fiscal 2009, would total $482 billion, but that projection was formulated before Congress passed the $700 billion rescue program on October 3.

China's decision to spend about $586 billion or 4 trillion yuan in fiscal stimulus is likely to increase international commercial activity and global GDP, economists generally agree, but there may be a downside for the United States.

"There is the potential that U.S. interest rates could rise," economist David H. Wang told BloggingStocks Tuesday.

Wang said a key variable in U.S. interest movement will be whether China will need to repatriate capital deployed in the U.S. for investment back home in China.

"Right now, the initial models suggest investment pools in China will be sufficient to meet the additional capital that will be needed for the increase in public works projects," Wang said. However, Wang added that only five of his economic models have been completed in his study of investment flows, and five other scenarios with different assumptions still have to be run.

"Assuming what we know about U.S., European, Chinese and other economic growth rates for the first half of 2009, we should only see a slight increase in U.S. interest rates," Wang said. "On the other hand, China may seek to repatriate some U.S. investments as a safety mechanism of 'just in case things go worse than we plan.' "

All House Speaker Nancy Pelosi, D-California, wants for Christmas -- happiness for her grandchildren aside -- is a tax cut.

The incoming Obama Administration, driven by the U.S.'s large economic problems and by prudence, is expected to seek quick approval of a major fiscal stimulus package soon after Inauguration Day on January 20. Even so, Speaker Pelosi may do the administration one better: Pelosi will seek to include a tax cut in a fiscal stimulus package, Pelosi's spokesman told Bloomberg News.

In addition, Congressional Democrats are considering passing two fiscal stimulus packages: one during the current lame-duck session and another after the Obama Administration and new Congress take office in January.

Pelosi favors a tax cut over the earlier stimulus version of tax rebates because the latter would take too long to administer, taxs-news.com reported. Pelosi will seek Senate agreement on a modified-version of a roughly $61 billion stimulus measure the House approved earlier in September, before seeking approval from President Bush.

Democrats, both hopeful and likely to gain seats in Tuesday's U.S. election, are facing growing calls to pass a large fiscal stimulus package to help the economy avert a major recession.

Economists Martin Feldstein and Larry Hatheway, the latter chief economist at UBS AG (NYSE: UBS), say a large fiscal stimulus is needed to prevent a deep recession, Bloomberg News reported Tuesday. Feldstein wants a $300 billion package; Roubini said the package may have to be as large as $400 billion.

Also. NYU's 'Dr. Doom' Prof. Nouriel Roubini said that that without a large stimulus package, the U.S. recession could last as long as 18-24 months, with unemployment soaring above 9%.

Economist David H. Wang agreed that a large fiscal stimulus is needed, given current trends in consumer spending and business investment. "There is a major crater that has to be filled here. The consumer is in retrenchment mode, and business spending is pulling back. Trade activity is showing signs of sluggishness. Without a fiscal stimulus, macroeconomic conditions will continue to deteriorate," Wang said.

New York Times (NYSE: NYT) columnist and Nobel Prize-winning economist Paul Krugman argues that the recent statistics on consumer spending offer disappointing news for those who believe U.S. economic growth will resume via spontaneous generation.

Growth, Krugman argues, will not magically appear and the consumer pull-back provides testimony: real consumer spending fell at an annual rate of 3.1% in Q3, with major declines in durable goods purchases.

Further, as Krugman notes, the last time consumer spending fell as sharply was 1980, when the economy was enduring a severe recession with double-digit inflation.

Foreboding consumer spending

Consumers are in pull-back mode, Krugman states, and that fact, combined with general economic slowness - - U.S. GDP contracted in Q3 by 0.3% - - and the lending constraints stemming from the credit crunch, creates a climate that's not for the squeamish: consumers are belt-tightening for justifiable reasons, individually, but their collective belt-tightening could lead to a disaster - - a deeper recession.

That's because, as economist John Maynard Keynes taught, a savings rate is required for a productive, healthy economy, but if every citizen saved everything he/she could all the time, it would be a disaster.

What financial services/banking reforms and related measures should the new U.S. Congress consider when it convenes in January 2009?

How much time do you have?

Yes, without question, the Congress is going to have a full plate when its first 2009 session starts, and there is a sincere wish -- a really, really sincere wish -- that none of these items has to be addressed sooner. That's the hope, anyway. We'll see.

Task 1: Credit default swaps/derivatives regulation and reform

Simply, all credit default swaps/derivatives -- direct and those with counterparties based in the United States -- must be regulated by the U.S. government through the Securities and Exchange Commission, or by the creation of a new Derivatives Regulatory Commission.

Among other powers, this agency would establish capital requirements, list pricing data, and limit leverage ratios for all parties. Banks protected by the FDIC would be banned from owning or selling derivatives or swaps.

The global derivatives market was more then $530 trillion as of June 2008. Of this amount, credit default swaps -- it's really credit default insurance -- totaled more than $55 trillion, according to the International Swaps and Derivatives Association.

First the good news: Congressional Democrats are talking up the idea of a second fiscal stimulus package to help jump start the U.S. economy.

Now the bad news: Congressional Democrats are talking up the idea of a second fiscal stimulus package to help jump start the U.S. economy.

U.S. House Speaker Nancy Pelosi, D-California, said she would raise the prospect of a second stimulus bill when she and other Congressional leaders meet with President Bush this week, CNN reported Monday.

Anemic U.S. economy

Speaker Pelosi did not provide specifics but said March 2008's "disturbing unemployment numbers" which indicated the nation's economy lost 80,000 jobs "compels the President to work with Congress on a second stimulus package to get our economy back on track, create jobs, and speed assistance to families struggling to make ends meet," CNN said.

On Monday, the Bush Administration said it was too soon to talk about the need for a second economic stimulus package because the first one had not been fully implemented yet, Reuters reported.