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(Agencies)
Updated: 2008-02-14 10:35

To pay for the rebates, which are estimated to cost about US$117 billion over the next two years, the US government will have to borrow more money, enlarging the budget deficit.

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The Bush administration and some private economists are hopeful the rebates, tax breaks and aggressive interest rate reductions by the Federal Reserve will help the country narrowly dodge a recession. An increasing number of economists, however, believe the country has already fallen into its first recession since 2001, and they are simply hopeful the rescue package will limit the damage. Most people, 61 percent, say the economy is now in a recession, according to the AP-Ipsos poll.

"I do think this will give the economy a shot of adrenaline," said Stuart Hoffman, chief economist at PNC Financial Services Group.

The National Bureau of Economic Research, a private research organization, looked at what people did with their 2001 rebates. The study found that "households spent about 20 to 40 percent of their rebates on nondurable goods", which can include things like food and clothing, in the first three months. They spent roughly another third in the following three months.

With the current stimulus, the economy will log growth in the range of 2.25 percent to 2.50 percent in the second half of this year, roughly one full percentage point higher than without the bracing tonic, Hoffman estimated. That would be closer to a more normal rate of around 3 percent, he said.

That in turn should encourage businesses to step up hiring. Nervous employers cut 17,000 jobs in January, the first nationwide loss of jobs in more than four years.

Edward Lazear, chairman of the White House Council of Economic Advisers, predicted, "The stimulus will have the effect of increasing jobs by about half a million above the number that would have been the case in the absence of that."

Still, even with the rescue efforts, some analysts fear the economy could backslide and flirt with recession again in 2009.

To help the severely depressed housing market, the stimulus package would raise temporarily to US$729,750 the limit on Federal Housing Administration loans and also raise the cap on loans that mortgage giants Fannie Mae and Freddie Mac can buy.

Raising those limits, should provide relief in the market for "jumbo" mortgages, those exceeding US$417,000. The credit crunch hit that market hard, making it very difficult, if not impossible, for people to get those loans. That has plunged the housing market even deeper into turmoil.

House Speaker Nancy Pelosi of California said the provisions will provide "families a second chance at the American dream of homeownership by helping them refinance their mortgages and avoid foreclosure."

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