My thoughts on a better stimulus package:

Borrow shit-tons of money via short-term T-bills at effectively 0% interest.
People are scared of risk and desire nothing more than to hand Uncle Sam their money for practically nothing in return. To be honest, as of February 12th, that 90 day T-bill rate was actually 0.3%. You can pull these numbers from the Federal Reserve here in case you don’t belirve me.

Buy as much commercial paper as you can (also short term) w/o distorting the market too badly.
Commercial paper is a form of a short-term unsecured loan to a company. As of February, 11th, A2/P2 non-financial commercial paper is generally giving 2.5% interest. Realize these aren’t shady, high-risk loans — companies that make A2/P2 status are generally really sound. Pre-2007 spreads on A2/P2 paper were below 0.25%.

As of the end of January, there were about $1,540.9 billion dollars of commercial paper outstanding, which means we could buy a whole lot of the stuff without seriously distorting the market.

Why do this? Because (a) provides basically solvent companies with badly needed credit — the higher spreads over T-bills as well as the general risk-aversion on the part of investors has made it hard for many companies to roll over their short term debt. (b) This matches short-term debt with short term credit. Uncle Sam isn’t stuck financing a long-term loan with short term credit. (c) This pushes down corporate paper yields so more companies can afford the credit they need. (d) Finally, this puts more money into Uncle Sam’s coffers w/o raising taxes.

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