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Stimulus may soften, not end, recession

The most optimistic estimates foresee shaving two percentage points from joblessness rates.

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Though consumers such as these in Boston aren't totally clamping down on spending, the US is mired in one of its worst recessions to date.

Mary Knox Merrill/Staff

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President Obama’s mammoth stimulus plan may be the largest single bill Congress has ever considered. But that doesn’t mean it will solve all the economic problems facing the US.

The nation is mired in one of its worst recessions, and is likely to shed so many jobs and so much business production that even an unprecedented jolt of government spending wouldn’t by itself be able to replace the losses.

In a best-case scenario, by the end of 2010 the recovery package would plug about half the gap between actual Gross Domestic Product and what the GDP would be if the economy were healthy, according to the Congressional Budget Office. The corresponding unemployment rate might be 6.8 percent, in CBO’s judgement – two percentage points lower than it otherwise would have been.

“So even with a [stimulus] package of that size, there’s still a substantial shortfall in economic activity relative to what we could be doing,” said CBO director Douglas Elmendorf in Jan. 27 testimony before Congress.

With the Senate set to take up the stimulus bill this week, Mr. Obama is stepping up his efforts to win bipartisan support for the $800 billion-plus legislation. The House of Representatives passed its version of the stimulus package on Jan. 28 without a single Republican vote.

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