For U.S., European Economies - the $2 Trillion Solution

It was President John F. Kennedy who said (someone said it before him) that he appreciated candor almost as much as he appreciated good news.

Hence with above as a backdrop, put the information below firmly in the category of candor.

The U.S. economic recovery is showing signs of strengthening. Jobless claims are declining and are apparently vectoring toward 350,000 or even lower. The manufacturing sector continues to expand. U.S. auto sales are rising. Corporate earnings growth, while not great, is adequate, and corporations are flush with cash: they have about $2 trillion on their books. Consumer sentiment, while not ebullient, is improving. And now it appears the housing sector is showing signs of stabilizing: housing starts unexpectedly jumped 9.3 percent to a 685,000-unit annual rate in November -- a sign that the construction sector may contribute to GDP growth in 2012.

Add the above up and one could make the case that just leaving the economic recovery on the glide path would be sufficient -- i.e. that the market will be able to take care of all of the nation's economic and social problems.

Well, here's to the private sector building on current momentum to generate even more commercial economic activity, moving forward.

However, the reality of the facts on the ground, to borrow a phrase often cited by former Israeli Prime Minister and General Ariel Sharon, is that major problems, or hurdles, remain for the U.S. economy -- and as of now, private sector commercial activity may not be strong enough to solve them.

A Solution for Each Side of the Atlantic

In other words, we're looking at a $2 trillion solution -- $1 trillion on this side of the Atlantic, $1 trillion on the other side of the Atlantic, in Europe.

In Europe, Eurozone leaders have made progress addressing the large debt of its southern European countries, particularly Greece and Italy. They've increased the lending capacity of the European Financial Stability Facility (EFSF) to €440 billion or $575 billion, including allowing the facility to buy sovereign bonds on the primary or secondary markets.

However, even when combined with Italy's €30 billion or $39 billion in probable spending cuts and increased taxes, Italy may still end up using a considerable portion of the EFSF's resources.

Point: That suggests European leaders will have to increase the size of the facility again. Ideally: They should increase it by $1 trillion, but we'll settle for $500 billion.

Meanwhile, over here on the state-side of the Atlantic, the United States remains short about 13.1 million to 13.9 million full-time jobs. The job deficit is much larger if you include those who have stopped looking for work because they feel they won't be able to find one: these adults technically aren't counted as unemployed because they're not looking for work. Add them in to the jobless equation and it's indisputable that the nation leads a lot more than 13.9 million full-time jobs.

Moreover, given the magnitude and length of the jobs deficit -- 5.7 million adults have been unemployed for more than six months -- more fiscal stimulus is needed: the additional stimulus would supplement private sector investment to get the U.S. economy growing at a faster rate.

President Barack Obama favors it, and Congressional Republicans -- particularly the Tea Party-dominated House Republican caucus -- opposes it. Hence, voters know which party to blame if you believe the federal government can play a role in creating jobs via fiscal stimulus

Point: Ideally, Congress should approve another $1 trillion in fiscal stimulus, but we'll settle for $500 billion.

Public Policy/Economic Analysis: Hence, investors and job seekers alike can see the solution, which is staring policy makers in the face. There's no mystery concerning what can stabilize Europe's economy (along with keeping credit markets liquid) and get the U.S. economy moving again at a growth rate above 3.5 percent: $1 trillion in Europe and $1 trillion in the United States. It is the $2 trillion solution, but we'll settle for $1 trillion.

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