Last month's surprise resignation of US Treasury secretary Paul O'Neill and White House economic adviser Lawrence Lindsey smacks of desperation in the Bush administration. Only two weeks earlier, O'Neill had indicated that a costly stimulus package was unnecessary as the US economy was recovering nicely. He suggested that a simplification of the tax code was his sole priority and that government funds should be directed only to troubled sectors, such as the airlines.
However, economic data had begun to show that the US economy was not looking so rosy. The monthly survey of manufacturing activity suggested a recession and the jump in retail sales at the start of Thanksgiving tailed off sharply. Above all, there was the hugely disappointing employment report for November.
So president George W Bush has decided to go for another fiscal binge. The US budget deficit is much smaller than those in Europe, and with the US 10-year bond yield low it will be easy to finance extra borrowing.
Bush clearly saw O'Neill as part of the problem rather than the solution in getting a fiscal stimulus package implemented quickly. He wants a bigger stimulus packaged than previously envisaged for 2003.