President-elect Barack Obama's Chief of Staff-designate signalled on Sunday that the new Administration willfrom the outset launch a comprehensive programme of social and economic reform beyond an immediate emergency stimulus package. The budget deficit is expected to reach $1 trillion in 2009 and at the weekend, the US Treasury Department was in talks with the insurance giant AIG on further public support of $40 billion while the top US car makers are anxiously awaiting a $25 billion lifeline. On Wall Street, financial firms are reported to be planning to axe 70,000 more jobs.
Rahm Emanuel, the next White House chief of staff,said that the President-elect saw the financial meltdown as an historic opportunity to deliver the large-scale investments that Democrats had promised for years.
Appearing on CBS's Face The Nation, Emanuel told host Bob Schieffer that Obama is now “going through the names” for his economic team.
“He has been working tirelessly with the transition team on the development of his economic team. … He wants us to move with deliberate haste - emphasis on deliberate, as well as equal emphasis on haste."
He also said, in relation to the car industry's woes, that "Washington needs to look at fast-forwarding the $25 billion that has been provided for retooling the factories for, basically, a more fuel-efficient auto fleet.”
And while Obama has called for passage of an economic recovery act, Emanuel suggested that, during the transition period, Obama would not be participating in the lame-duck session of Congress, as a Senator from Illinois.
"I think that the basic approach has been he's going to be here in Chicago, setting up his economic - not only his economic team, but the policies he wants to outline for the country as soon as he gets sworn in, so we hit the ground running."
Emanuel said it is important that the public and Congress realise that Obama and his Administration are not in office yet.
"President-elect Obama has repeated that there's one president, one administration at a time, and so you don't want to get in front of that," Emanuel said.
In relation to the prospect of a $1 trillion deficit, Emanuel said:"Yeah. Bob, that's true. But let me then go at this point. Everybody-- Democratic and Republican economists, as President-elect Obama has cited--agree we need a short-term economic recovery act that helps Americans both go to work by building our roads, our bridges, our schools and our water systems that have all basically been denied funds over the years. Second, it also includes a tax rebate for middle-class families who have had strain. Over the long term, you must have an economic strategy that reforms our education, our health care, our energy, our tax code, as well as putting fiscal discipline back in our economic tool kit.
So you have an immediate problem as well as a long-term strategy for a sustained economic growth over the long term that strengths America rather than weaken it. And here is where the philosophy, I think, is important: the most--the crisis we have today, as he has said, is an opportunity to finally do what Washington for years has postponed and kicked down the road. You--we have postponed dealing with an energy crisis since 1974. We had a crisis, we kicked it down the can, and now we are exporting $700 billion of our wealth. We had a health care crisis. Health care costs were $5,300 for a median--for a house--middle-class family. Today the premiums are $12,000 for middle-class families.
These are--just taking those two examples, these are crises you can no longer afford to kick down the can. The crisis we have here, the American people know we have one and they are ready and willing to start to tackle those problems. You cannot afford now to kick those down the can any longer. We have a short-term need of getting the economy moving, which means getting Americans working."
Conservative columnist David Brooks of The New York Times, said on the same news programme that Emanuel gave him the impression that Democrats "want to do everything at once. They want, as you called it, the big-bang theory. I think that's a disastrous mistake. You're going to tell me you're going to solve an incredibly difficult economic crisis, at the same time you're going to reorganize 14 percent of the American economy? Health care? I think that would be a gigantic overreach."
Brooks argued that if Obama does not take a slower approach - tackling the economy and health care in stages over several months, building faith in Washington - "in my opinion you're going to freak out the country."
John Harris, editor of politics website Politico, also warned against overreach on the part of the incoming administration.
"I do think there are sort of two theories of presidential power at stake here," he said."One says you're never more powerful than on January 21st, the day after inauguration, and you spend down that account, and you better get as much as you can, because it's going down.
"The other, as David suggests, there's a slow but steady approach that says a president can, by doing modest things first, getting them done, being effective, build up reservoirs, and so you can actually have more leverage, more power in year two, three and four than you do in year one."
Harris pointed to President Bill Clinton as an example, with the result that he lost the majority in Congress two years after his inauguration. "There was a lot of overreach in that first year, where they did try to do too much. And his popularity went down and down and down. He actually had more power after he got his clock cleaned in 1994."
"Obama, I think, will avoid that mistake," Brooks said.
AIG needs more Cash
The Wall Street Journal reports today that the US government reached a deal Sunday night to scrap its original $123 billion bailout of American International Group Inc. and replace it with a new $150 billion package, according to people familiar with the matter.
The Journal says while the arrangement stands to considerably ease terms on the faltering insurer, it gives the government an unprecedented role as an actor in financial markets. It could also spark a political backlash, especially from congressional Democrats, because the Treasury, while adding to its AIG obligations, has thus far refused to extend a hand to the struggling Big Three auto makers.
Details of the revised deal could be announced as soon as Monday -- when the company is expected to report third-quarter earnings. Under the terms ironed out late Sunday, the government would give AIG more money, including $40 billion from the U.S. Treasury's $700 billion Troubled Asset Relief Program. It would also receive less interest than on the bulk of the original loan, while freeing AIG from exposure to some of the risky financial instruments that nearly caused it to file for bankruptcy protection.
The $150 billion in government aid consists of a $60 billion loan, a $40 billion preferred-stock investment and $50 billion in capital largely to purchase distressed assets which are to be placed into two separate financing entities.
Wall Street to axe 70,000 more jobs
The Financial Timesreportstoday that the financial industry is bracing for a fresh round of job cuts as Wall Street banks slash costs to cushion the blow of further market turbulence and deepening economic woes in 2009.
Executives and analysts say the redundancies – to be finalised this month as banks prepare next year's budgets – could top 70,000 among US groups alone and add to the estimated 150,000 jobs already lost by the financial sector worldwide.
The job losses are expected to be concentrated in the investment banking and trading businesses that have been hit hard by the near-freeze in capital markets and the collapse in takeover and financing activity.
| US Budget Deficit |
| The US budget deficit was $455 billion for the budget year that ended Sept. 30, 2008 - - nearly triple the $161.5 billion recorded in 2007. It was also about 3.2% of US GDP (Gross Domestic Product). The national debt was $10.5 trillion, almost double the debt that Bush inherited in 2001 and ten times the level when President Reagan took office in 1981 - - which was then about 20% of annual GDP.
In 2008, total spending rose 9.1% to $2.98 trillion from a year earlier, the biggest rise in annual outlays since a 9.6% gain in 1990. Revenue fell 1.2% to $2.52 trillion, the first decline since 2003.
US military spending in 2008 jumped 12.5% from the previous year to $594.7 billion
After peaking at $290 billion in 1992, deficits declined each year, dropping to a level of $22 billion in 1997. In 1998, the US recorded its first budget surplus ($69.3 billion) since 1969. As a percent of GDP, the budget bottom line went from a deficit of 4.7% in 1992 to a surplus of 0.8% in 1998, increasing to a 2.4% surplus in 2000.
In the United States, the federal government deficit on a unified budget basis averaged 3 1/2% of GDP during the 1980s and the early 1990s. As a result, the outstanding federal debt rose from 20% of GDP in 1981 to 49% of GDP in 1992.
The budget deficit was 6% of GDP in 1983 and a $1 trillion deficit in 2009 would amount to in the range 6 to 7% of GDP depending on the severity of the recession. The national debt ratio will be above 70% of GDP.
Ireland is expected to have budget a deficit of 8% of GDP in 2009, according to Goodbody Stockbrokers.
A rise in the national debt and budget deficit can push up long-term interest rates and related mortgage rates for example. However, the big public aid in 2008 in response to the financial crisis is reflected in a temporary increase in the annual deficit. At a time when dousing the fire is the priority, concerns about the national debt are not a front-burner priority. However, what is clear from past experience, once a deficit rises above the historical average, it is very hard to reduce the trend.
Historical Tables |
