The economy is sending mixed signals right now.

Unemployment is up, and consumer sentiment is down. Plenty of companies are posting profits, but they're taking advantage of lower expectations and cost-cutting rather than revenue growth from an economic recovery. Rents are under pressure – both residential and commercial.

This morning Warren Buffett was interviewed and said he would be in favor of the federal government passing legislation for a second stimulus bill -- increasing the money supply again by gargantuan proportions.

While "my pal" Warren got plenty of ink (and pixels) for his comments it left me wanting more. Buffett has the most to gain, and the most to lose -- and at the same time he cannot really lose.

Since Buffett has so many billions of dollars and controls billions more, and influences still more in the hundreds of billions, he clearly has been and continues to be negatively affected by our economic firestorm more than almost any other individual could be.

One of President Obama's accomplishments during his first 100 days was the passage of a $787 billion stimulus plan. I think the idea of economic stimulus makes sense when an economy is in the middle of a deflationary spiral. As I posted, that's when a drop in demand leads to excess productive capacity, causing companies to cut prices and fire workers, which in turn lowers demand as more workers -- whose consumer spending accounts for 70% of GDP growth -- have less to spend.

So far, only about 10% of the stimulus money has been doled out and it's not having much effect in counteracting this deflationary spiral. How so? First quarter GDP plunged 6.1% -- compared to a 6.3% decline in 2008's fourth quarter -- and the preliminary numbers are usually adjusted downward. The unemployment rate is expected to hit 8.9% in April from 8.5% in March.

Something like $275 billion of the proposed $900 billion stimulus plan is reserved for tax cuts. But the tax cuts will just add to the $1.2 trillion dollar deficit with little effect on consumer spending. The reason? Consumers generally save most of the money they get from tax cuts. But the latest savings rate statistics suggest that consumers are now saving on steroids. So I say, scrap the tax cuts.

Things have really changed in the last few years when it comes to savings. In 2007, consumers were spending more than they were making -- just as they did in 1929. To be specific, the savings rate was negative at -0.7% in 2007. Those were the days that consumers could get by on their stagnant incomes by borrowing to buy those flat screen TVs and snowmobiles.

If you own shares in Citigroup (NYSE: C) or Bank of America (NYSE: BAC), then you've suffered a huge loss this year -- 47% and 54% respectively. But both stocks are rallying today -- Citi is up 18% and Bank of America rose 13%. If you've been holding the stock, the question today is whether to sell into today's rally, hold, or buy on hopes that the stock will rise from here. The bottom line is that you should sell if you think that the bad bank will cram down common shareholders.

The reason for today's positive stock price movement comes from rumors that the FDIC may form a "bad bank" that will somehow relieve Citi and Bank of America of hundreds of billions worth of toxic waste on their balance sheets. Next week, the Obama administration may announce a plan that would let the FDIC manage the bad bank and sell FDIC-guaranteed bonds to finance the purchase of the toxic waste.

There's at least one problem with the bad bank idea. How much will the FDIC pay for the toxic waste? If the price is higher than the value of the assets on the banks' books, then the FDIC will take the loss when the asset is sold below that level. If the price is below the value on the banks' books, then the bank will have to take a write-off and it will need to raise capital, which it can't do. So it won't sell the asset.

How will President Obama's $825 billion plan to stimulate the economy work? It looks like it will create jobs for the people working on the projects. But how long will those jobs last and will they continue after the projects are over? And if there's something wrong with his plan, what would be a better alternative? I think that if these projects are investments that create revenue generating operations, they are worth doing -- especially if those revenues ultimately recoup the investment.

Here are some of the specific plan elements that I view as investments:

• Boost renewable energy supply. The plan seeks to double renewable energy generating capacity of over three years -- to power six million American homes. It would upgrade two million homes and 75% of all federal buildings to better protect against the heat and cold -- saving low-income homeowners $350 a year in utility costs and cutting government costs by $2 billion a year. It would also provide loan guarantees to boost the $100 billion in private sector investment in clean energy projects over three years.
• Upgrade 3,000 miles of transmission lines for a national electric grid to make more efficient use of energy.
• Build 1,300 waste-water projects which would provide an ongoing revenue source for cities and states and reduce the costs of cleaning up polluted water.

President-elect Obama has discussed a $775 billion stimulus plan that involves $300 billion in complex tax cuts and targeted government spending on roads and bridges, broadband in schools, healthcare information technology, and alternative energy. Will it succeed? I'd say it depends on how you define success.

My definition would be that the plan creates three million new jobs and gets GDP to grow again in the next few years – but also jump-starts economic activity so we don't need to keep borrowing and spending to keep the economy going.

By that standard my guess is that the plan has a 50% chance of succeeding. It will get economic activity going in the short-term but I am not sure if it's enough to revive economic activity in the longer-term. In my view, the plan has the following pros and cons:

• Positives. In general the idea of fixing roads and bridges is good and there are about $323 billion in plans prepared by the states that need funding. I think having broadband in schools is also a good investment in the future education of American students, and that spending on health care information technology could boost its efficiency. Finally, alternative energy is crucial if we hope to free ourselves from dependence on oil and gas from people who don't like us very much.
• Improvement opportunities. However, the problems of this plan are significant. First, getting involved with significant tax cuts to satisfy the Republicans in Congress will slow down the process of getting the legislation passed and it will ultimately bring the U.S. to annual budget deficits that could top $2 trillion.

President-elect Obama has said that he wants to rebuild our infrastructure as a way of jump starting our economy and creating jobs. What does this really mean? To better understand this concept, let's look at a single imaginary construction project. Let's also assume that the Federal Government acts to approve projects submitted by state and local governments. Which people and what skills are involved in it?

Well, first you need people who are skilled at creating and preparing budgets, who know Federal, State and Local laws and regulations and who also know environmental laws at the federal, state and local levels. You need people who know how to write and submit bids with reasonable time constraints. You need computer programmers to write the programs for the project.

Then you need contractors who can perform and complete the project. They, in turn, hire project managers, foremen/women and construction crews. You need civil engineers, architects, and surveyors. You need material suppliers and manufacturers. You also need inspectors, consultants, accountants, auditors and tax specialists. And throughout this process, there are a host of federal, state and local agencies and their employees who must be involved.

Typically, seeing an envelope with the letters "IRS" on it in your mailbox could be a cause for concern, but over the next week some 130 million homes in America will be receiving letters in the mail bringing good news from the Internal Revenue Service.

As you are probably already aware, in its attempt to keep the economy afloat, the US government passed a $168 billion economic stimulus plan, and as a result millions of households across the nation are going to be receiving a little extra cash this year from the US government.

Just to make sure that everyone knows what they can expect, the IRS is mailing over 100 million letters next week to make certain that everyone who may be eligible files their 2007 taxes so that they don't miss the chance to claim their stimulus payments.

It's still not clear whether we'll have a recession or not. But the Federal Reserve, Congress, and the president are definitely concerned -- and are taking swift action.

In fact, Congress and the president are pushing for some tax breaks for small businesses. "The features are similar to the incentive tax provisions of the Reagan era's 1981 Economic Recovery Tax Act, which provided business investment incentives," said Mary Canning, the Dean of the Schools of Taxation and Accounting at Golden Gate University.

So, what does this all mean? What can you do?

Let's take a look:

The proposal: The stimulus plan doubles the amount small businesses can write off for investments in 2008 -- from $125,000 to $250,000. What's more, the bill expands the cap for eligibility; that is, businesses making as much as $800,000 (the prior cap was $500,000).

The proposed bill also allows for accelerated depreciation on plant and equipment. Basically, you can write off as much as 50% of such investments in 2008.

An economic stimulus package would have been great ... if it had come in December. But the slow shuffle of shoes can be heard around Congress as it gets ready for a debate that will come too late.

Speaking of a program to help the economy, "Sen. Charles Schumer, a New York Democrat and chairman of the Joint Economic Committee, said he expects Democrats and Republicans to find common ground and there was already agreement that the plan should include tax cuts," according to Reuters. That means that the first quarter will pass without any effort from the government, save rate cuts by the Fed.

Most plans being considered right now would deliver $150 million in stimulants to the economy, many in the form of tax cuts. The programs would raise the Federal deficit, but that can be someone else's problem a few years from now. There is also talk of creating 500,000 new jobs by offering incentives to businesses to create new jobs.

Because of the glacier-like pace of the government's activity, nothing is likely to be in place before the second quarter. At that point, the economy could already be in a deep recession. It would take another two or three quarters for any set of incentives to take hold.

That is a long time for all of the people who could lose homes and jobs this year.

Douglas A. McIntyre is an editor at 247wallst.com.