"In this economic environment in which monetary policy is providing only limited support, the lift from fiscal policy should be helpful in avoiding a deeper downturn," Feroli said in a written interview with Beijing Review.

With details of the second stimulus plan yet to come from Obama and his economic advisors, neither economists nor the American public know for sure what it will look like.

The first $168 billion stimulus package passed by Congress in February was mostly tax rebates. The one that Obama and House Democrats have been urging will "probably get something like that again," but also include more spending for state and local government construction programs as well as aid to the flailing auto industry, Feroli said. He predicted that the second stimulus plan would be "larger and more diverse" than the first one.

This package, Feroli wrote in the economic research note, could contain an infrastructure program to fund construction projects, consumer tax relief, extended unemployment benefits and additional auto industry relief. The auto industry is "the backbone of American manufacturing and a critical part of our attempt to reduce our dependence on foreign oil," Obama said.

All these efforts are aimed at getting the economy moving, Feroli said.

The most important role of this stimulus package is to restore the confidence of Americans who have been worried about the future economic situation and their job security, said Chen Zhiwu, a professor of finance at Yale University.

It's not that Americans have too little money in their pockets, but that they lack confidence about the future, Chen said. So the second stimulus plan should boost people's confidence, he said.

"Many people hope that this stimulus package will come out before President Bush leaves office, but I think it will probably get finalized after Obama takes office on January 20," Chen said. "It's at the top of Obama's agenda."

Feroli said that the stimulus package could come in two waves. According to him, the first would address issues on which Congress and the Bush administration agree and could be passed when Congress returns later this month. For those measures to which Bush objects, the Democrats will submit a second stimulus bill that the new Congress can pass after it convenes in January.

Both Chen and Feroli said they thought this stimulus package would probably pass in Congress, as the election has increased the Democratic majority in both houses.

Money, money, money

But where will all this money come from? The only answer is to borrow. "The U.S. Government is on course for an unprecedented borrowing binge in coming months," said a Wall Street Journal report.

The widespread financial crisis is costing the United States hundreds of billions of dollars in various government interventions. There is the $700 billion Troubled Assets Relief Program, the $200 billion bailout of mortgage giants Fannie Mae and Freddie Mac, and other bailouts that may be yet to come.

The Treasury Department has already increased borrowing to support the Federal Reserve's financial rescue efforts. It announced on November 3 that it would seek to borrow a record $550 billion in the fourth quarter to help stabilize the financial sector. The fourth-quarter borrowing estimate was much higher than the $408 billion announced in July. The Treasury also said the government would need to borrow another $368 billion in the first three months of 2009 by issuing Treasury securities.

According to the Wall Street Journal, economists forecast that total government borrowing of the United States could exceed $1.5 trillion in the fiscal year, which ends next September.

While that is a large number, "it is probably cheaper than incurring an even sharper recession," Feroli said.

During a short period of economic crisis, the U.S. Government uses its own credit to issue more Treasury bonds, from which the government raises the funds necessary to subsidize low-income families and save companies in key industries threatened by bankruptcy, Chen said. "This is not necessarily a bad thing and it can be an effective measure."

Chen also pointed out that currently the U.S. Government has a greater ability to raise money than any company, bank or individual by issuing Treasury securities, because investors have been reluctant to hold riskier assets.

"Right now there is plenty of demand for the Treasury debt," said Brad Setser, a fellow at the Center for Geoeconomic Studies at the Council on Foreign Relations. Unlike the past several years, when the United States relied heavily on foreign investors and central banks around the world, the country is able to borrow more money from its citizens in the current environment, Setser said. The projection that the U.S. economy will slow quite sharply means, in some sense, that Americans will consume less and save more, he said.

"My assumption is that there are now increasing savings flowing to the Treasury," Setser said.

(Reporting from New York)