Reply #3: Addendum (I missed the editing period):

[Kurt_and_Hunter]

Example of self-negating potential.

Treasury put out a projection of the next few years GDP, housing prices, etc. that is the basis of the Bank Stress Test. It was VERY rosy. It, or very similar projections, also made up the WH side of the budget deficit projections.

In that general projection 1) the deficits implied by the budget are smaller because it assumes a strong V-shaped recovery and 2) no bank is likely to fail the stress test because it isn't very stressful and in a strong V-shaped recovery banks can grow out of many of their problems.

That kills two birds. The administration doesn't want to be forced to deal with the banks (which would politically preclude other agenda items) and the administration wants to minimize the projected deficits in the budget.

But it strengthens another bird, the "we don't need more short-term economic action" bird. Why would anyone looking at the WH GDP projections support additional stimulus? The WH says that GDP will be running strong next year, unemployment will never crack 10% and the housing price index will decline only 3% in 2010.

So, what if we need more short-term action? Then not doing it will cause the future economy to be worse, pressing the bank question on us and increasing the long-term deficit numbers.

Tricky.

Well, as the saying goes: If it was easy everybody would be doing it.