The Great Comeback, Part 6: Environmental Assessment: Government Involvement

In this installment of my series of posts on the Great Comeback, I'm going to outline the worldwide government actions and plans that you need to consider when planning for your organization's post-recession strategy.

Already I have outlined a five-part process for the Great Comeback, or returning to increased market share, growth and prosperity when the Great Recession ends. This post explains more about the environmental assessment part of that process and specifically, how government involvement can affect your business.

There has been much presented on the specifics of the approaches taken by the major industrialized nations of the world, so a discussion here of the dollars allocated does not add much value. What is of value, however, is to understand the underlying philosophy of economic stimulus in the different countries.

The United States, several countries in Europe, China and many other countries have all created a stimulus spending plan and have a strong desire to stabilize the banking system.

The three main economic stimulus weapons these governments will use are:

* Interest rate cuts

* Tax cuts

* Direct government spending

The quickest and most certain stimulus weapon is direct government spending. The vast majority of the government stimulus in the United States and China is direct government spending; whereas in Europe, the majority is in tax cuts.

Let's break down each country or region specifically, and also consider the impact of the G-20 Summit and its financial strategies:

United States -- The United States government has characterized its efforts to reverse the economy's downturn as a three-legged stool:

* Economic stimulus

* Minimize home foreclosures

* Bring stability to the banking system


Real U.S. government spending will grow between 2.5% and 3% in 2009 and into 2010. The impact of this spending will be a growth in 2009 GDP of 0.6% to 0.9%, and in 2010, a GDP of 1% to 2%.

This U.S. government spending points to a budget deficit in 2009 and 2010 of over $1 trillion. This budget deficit presents a real threat of inflation which must too be considered when developing the Comeback Plan.

In the United States the dual objectives are to preserve and create jobs (transportation, infrastructure and health care) and to pursue the agenda of "Change" of the new administration (financial industry recovery, energy/green initiatives, tax burdens, trade regulations and labor.)

The United States Treasury has put in place plans that are assuring both investors and banks of its commitment to resolve the banking crisis. Good progress is apparent here, which further enhances the claim that the worst of the Great Recession is behind us, and we are beginning the recovery. Just yesterday Treasury Secretary Timothy Geithner provided the assessment that "the vast majority" of the banks could be considered well-capitalized.

Jim

Tompkins Associates