by John M. Curtis
(310) 204-8700

Copyright Oct. 2, 2009
All Rights Reserved.

             Losing sight of the big picture, President Barack Obama has spent too much time pushing health care reform than paying attention to what the White House must do for economic recovery.  While Barack’s $789 billion economic recovery plan was a good first start, new warning signs about future growth require his undivided attention.  Putting the nation’s 30-million or so unemployed back to work should be the president’s No. 1 priority, not whether he can wrangle quick-and-dirty health care reform out of the U.S. Congress.  With the economy still rocky, Obama must demonstrate his unequivocal commitment to economic growth, even where it means shelving his ambition plans that could add to growing budget deficits, something fingered by most economists as hurting long-term growth.  Former Federal Reserve Board Chairman Alan Greenspan expressed doubts about the U.S. stock market.

            Most economists agree that robust growth in the U.S. stock market is key to economic recovery.  Since the Dow Jones Industrials bottomed out March 6 at 6,500, it’s made a stunning recovery, closing Sept. 30 above 9,700.  To keep the market rolling, investors, especially influential investment banks like Goldman Sachs, must see more profits and better earnings down the road.  “The odds are we flatten out,” said Greenspan, referring to the stock market in 2010, raising the prospects of a double-dip recession.  Healthy stock market growth is essential for the nation’s biggest employers to begin rehiring laid-off workers.  When the stock market heads south, publicly-traded companies don’t have the capital to rehire laid-off workers or new hires.  Greenspan already forecast last month that Q-3 growth rate should be about 2.5%-3%, signaling an end to the current recession.

            Treasury Secretary Timothy Geithner and Fed Chairman Ben S. Bernanke must tailor economic policies, including whether it’s the right time to push national health care, to promote stock market growth.  Adding to budget deficits or the national debt drive investors out of equities, fearing slow future growth.  “That flattening out will put some sort of dull face on 2010,” said Greenspan, concerned that excessive government spending will upend the current bull market.  Federal, state and local government depend on future tax receipts from a rising stock market.  If markets peter out as Greenspan predicts, all levels of government will run bigger deficits.  Forecasting market corrections is always risky business because it’s easy to trigger panic selling.  Wall Street’s investment banks, working with the Treasury and the Fed, have tried to prevent another market sell-off.

            Greenspan sees a correction precisely because of anemic economic growth.  Today’s high unemployment has contributed to a disinflationary cycle that has left consumers out of the loop.  Without consumer spending fueling economic recovery, it’s difficult to increase business activity.  “We are still by any measure in a disinlfationary environment,” said Greenspan, worried that poor consumer demand would continue to drop prices.  He sees recovery in the real estate market as key to long-term economic recovery.  “This recession will not be over until home prices stabilize at a minimum,” said Greenspan Sept. 16 via video-link to a Deutsche Bank Securities Inc. conference in Tokyo.  While there’s been some improvement it real estate prices, existing home sales dipped 2.7% in August, calling into question whether current federal lending guidelines are too rigid.

            Consumer prices continue to fall because of the current unemployment situation.  Until large employers begin rehiring workers, consumer spending, accounting for roughly 70% of the nation’s Gross Domestic Product, will remain flat.  With weak consumer spending inventories rise, fueling more deflation in real estate and consumer goods.  Consumer prices have fallen for six consecutive months, the longest decline since the mid-1950s.  Solving the real estate conundrum involves a strong stock market, where employers can begin adding to payrolls.  Greenspan believes that the economy should dispose of excess inventories for the next six months, fueling GDP growth of about 3%-4%.  He worries that once inventories shrink, it could spell a round of inflation prompting the Fed to raise short-term rates.  Higher interest rates could, once again, slow down future GDP growth 

             Whatever happens to the president’s health care plans, he must turn his attention full-time to the nation’s economic recovery or face the consequences in next year’s mid-term election.  Apart from the political fallout, boosting the economy and improving the jobs’ picture for able-bodied Americans should be the president’s top priority.  While national security defined the presidency of President George W. Bush, Obama must keep his eye on economic recovery or face the music in 2012.  He faces a fateful decision debating with his national security team today whether or not to escalate the war in Afghanistan.  If he decides to boost the war, it could have disastrous consequences—as it did for Bush in Iraq—for his presidency.  With finite resources, Barack could find himself failing at both domestic and foreign policy.  He should learn from Bush’s past mistakes.

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.