Obama's Economic Shot

by John M. Curtis
(310) 204-8700

Copyright January 24, 2009
All Rights Reserved.                    

           Lobbying hard for his economic recovery plan, President Barack Obama pressed Congress to pass his $825 billion program by Feb. 15.  With former President Bush’s $700 billion plan only half spent, there’s little evidence yet that the first $350 billion has made a dent on the economic meltdown, called a once-in-a-century event by former Federal Reserve Board Chairman Alan Greenspan.  When Countrywide, Lehman Bros., Citibank, Bear Stearns, Fannie Mae, Freddie Mack, IndyMac, AIG Insurance, etc. collapsed late last year, the U.S. began an economic disaster rivaling the great depression.  Had it not been for Fed Chairman Ben S. Bernanke bailing out most of the big banks and AIG, things could be a lot worse.  Bernanke refused to identify the financial institutions receiving bailout money, fearing adverse consequences to the already shaky U.S. stock and real estate markets.

            No one knows for sure whether Bush’s first $350 billion, originally designed to retire so-called “toxic assets,” worked to unfreeze frozen credit markets, leaving banks unable to lend.  When former Treasury Secretary Hank Paulson decided Nov. 12 that the Toxic Asset Relief Program [TARP] was no longer working, he gave banks latitude to invest TARP money anyway they saw fit.  Paulson and Bernanke sold Congress Sept. 26 on passing a $700 billion bailout plan, designed to retire bad debt or so-called “toxic assets.”  Instead of retiring bad debt, Banks used bailout money on mergers, acquisitions and, even extravagant executive compensation.  Despite the hefty infusion of capital, banks saw little relief reviving credit markets, leaving businesses and consumers without the promised cash.  Now Obama wants another $825 billion without any guarantees to credit markets.

            Economists know the U.S. economy can’t recover only from government largess.  U.S. stock and real estate markets must recover before consumers—accounting for two-thirds of U.S. Gross Domestic Product—have the means to revive the economy.  Obama talks about creating a new public works project comparable to the one started by President Franklin D. Roosevelt following the great depression.  Economists largely attribute the nation’s economic recovery to massive defense spending on WW II.  Without any proof, Obama wants Congress to believe that somehow his economic recovery program differs from President Bush’s.  Obama’s new Treasury Secretary Timothy Geithner, a protégé of Paulson, promises to follow the same blueprint.  Whether he has any new tricks up his sleeve is anyone’s guess   So far, there’s little difference between the two.

            There’s no doubt that something must be done to resuscitate the failing economy.  Obama wants Congress to hand over $825 billion without a healthy debate over how best to stem the hemorrhage in the stock and real estate markets.  “ In short, if we do not act boldly and swiftly, a bad situation could become dramatically worse,” said Obama, warning of dire consequences should his stimulus plan not pass.  Apart from promising to spend more on infrastructure and alternative fuels, Barack has not explained how his plan differs from Paulson’s, or, for that matter, how it jumpstarts the stock and real estate markets.  GOP lawmakers reacted skeptically to Obama’s mammoth spending plan, uncertain how it works.  House Minority Leader John Boehner (R-Ohio) wants more tax cuts, especially for small businesses, unable to add more jobs because of anemic business activity.

            House Republicans believe Obama’s stimulus plan will take too long to filter into the economy.  They seek the immediate relief to individuals and businesses that comes from tax cuts.  “We let families, entrepreneurs, small businesses and the self-employed keep more of what they earn to encourage investment and create million of new private-sector jobs,” said Boehner, expressing doubts about Obama’s plan.  With the Fed spending trillions to bail out troubled banks, there’s little room to make more mistakes.  Before Congress rubber-stamps the president’s plan, it should receive expert testimony from the nation’s leading economists.  Before taxpayers incur more debt, they must be convinced the combination of spending and tax cuts will lead to more credit and new jobs.  “We cannot borrow and spend our way back to prosperity,” said Boehner, sounding a note of common sense.

            Without raining on Barack’s parade, his new $825 billion plan needs more due diligence before adopted.  While there’s urgency today, it’s more important that Congress get it right this time around.  Public works projects and new energy development can only go so far in restarting the flagging real estate and stock markets.  There’s little talk about retiring bad debt or dealing with the foreclosure problem.  Unless the plan addresses mortgage foreclosures and provides relief to struggling homeowners, there’s little chance of reviving the real estate market.  Developing alternative energy, upgrading schools, improving port security, providing more science fellowships and helping government become energy efficiency all are important goals but won’t jumpstart the real estate and stock markets.  Barack’s plan must do more than make empty promises:  It must fix the real estate and stock markets.

John M. Curtis writes politically neutral commentary analyzing spin in national and global news.  He's editor of OnlineColumnist.com and author of Dodging The Bullet and Operation Charisma.

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