Globalization

Obama's Weekly Focuses on the Economy, Stimulus

The text: 

As the holiday season comes to end, we are thankful for family and
friends and all the blessings that make life worth living. But as we
mark the beginning of a new year, we also know that America faces great
and growing challenges—challenges that threaten our nation’s economy
and our dreams for the future.  Nearly two million Americans have lost
their jobs this past year—and millions more are working harder in jobs
that pay less and come with fewer benefits.  For too many families,
this new year brings new unease and uncertainty as bills pile up, debts
continue to mount and parents worry that their children won’t have the
same opportunities they had.

However we got here, the problems we face today are not Democratic
problems or Republican problems. The dreams of putting a child through
college, or staying in your home, or retiring with dignity and security
know no boundaries of party or ideology.

These are America’s problems, and we must come together as Americans
to meet them with the urgency this moment demands.  Economists from
across the political spectrum agree that if we don’t act swiftly and
boldly, we could see a much deeper economic downturn that could lead to
double digit unemployment and the American Dream slipping further and
further out of reach.

That’s why we need an American Recovery and Reinvestment Plan that
not only creates jobs in the short-term but spurs economic growth and
competitiveness in the long-term.  And this plan must be designed in a
new way—we can’t just fall into the old Washington habit of throwing
money at the problem.  We must make strategic investments that will
serve as a down payment on our long-term economic future. We must
demand vigorous oversight and strict accountability for achieving
results. And we must restore fiscal responsibility and make the tough
choices so that as the economy recovers, the deficit starts to come
down. That is how we will achieve the number one goal of my plan—which
is to create three million new jobs, more than eighty percent of them
in the private sector.

To put people back to work today and reduce our dependence on
foreign oil tomorrow, we will double renewable energy production and
renovate public buildings to make them more energy efficient.  To build
a 21st century economy, we must engage contractors across the nation to
create jobs rebuilding our crumbling roads, bridges, and schools.  To
save not only jobs, but money and lives, we will update and computerize
our health care system to cut red tape, prevent medical mistakes, and
help reduce health care costs by billions of dollars each year. To make
America, and our children, a success in this new global economy, we
will build 21st century classrooms, labs, and libraries. And to put
more money into the pockets of hardworking families, we will provide
direct tax relief to 95 percent of American workers.

I look forward to meeting next week in Washington with leaders from
both parties to discuss this plan.  I am optimistic that if we come
together to seek solutions that advance not the interests of any party,
or the agenda of any one group, but the aspirations of all Americans,
then we will meet the challenges of our time just as previous
generations have met the challenges of theirs.

There is no reason we can’t do this.  We are a people of boundless
industry and ingenuity.  We are innovators and entrepreneurs and have
the most dedicated and productive workers in the world.  And we have
always triumphed in moments of trial by drawing on that great American
spirit—that perseverance, determination and unyielding commitment to
opportunity on which our nation was founded.  And in this new year, let
us resolve to do so once again. Thank you.

See the video here.

For more on NDN's recent work on the economy and stimulus click here, and for our recommendation on including a national effort to give all American workers computer training visit here.

FT: "US stocks suffer worst year since Great Depression"

George W. Bush's remarkable record as President - a drop in median income, rising rates of poverty and the uninsured, the loss of a major American city, perhaps the worst foreign policy mistake in US history, a lazy response to the Al Qaeda threat which left the door open to 9/11, extraordinary levels of public corruption, warrentless spying on American citizens and knowing and willful violation of the Geneva Conventions, insufficient action taken on global warming and the coming retirement of the baby boom, and an election victory decided by a 5-4 partisan Supreme Court decision - earned this extraordinary new distinction today:

"US stocks suffer worst year since Great Depression" 

No matter how Iraq turns out it sure seems likely that history will judge W. to be the worst President in America's long and storied history. 

Krugman on Backstopping the States

For months President-Elect Obama has been arguing for including aid to the states in the next stimulus.  Paul Krugman does an excellent job today explaining why it is so important to do so.

Levels of Global Trade Decline

From the Washington Post today:

Sharply lower consumer spending in the United States and other high-income countries is stalling global trade, causing a surprise downturn in exports from China that is dramatically slowing its economy and rippling through other countries that rely on international commerce.

With recessions hitting the United States, Europe and Japan at the same time, China yesterday said its November exports took their biggest dive in seven years. Weak holiday spending is taking a particularly hard toll on toymakers: Two-thirds of China's small-toy exporters closed in the first nine months of 2008, according to government statistics. At the same time, tight credit and falling global demand are setting off the first decline in world trade in a quarter century, touching off a wave of job losses in rich and poor countries alike.

The drop in trade is both sharper and faster than many analysts had predicted only weeks ago, with freight lines that were sailing full this summer now slashing prices by as much as 90 percent as cargo traffic plummets and unsold goods pile up at ports from Baltimore to Shanghai. The World Bank this week said global trade is set to fall by 2.1 percent in 2009, marking the first decline since 1982. The drop is contributing to a more dire outlook for the world economy, which the World Bank said is close to falling into a global recession.

The slowdown illustrates how globalization, which fed rapid growth during times of plenty, can quickly turn against nations during times of bust. Depressed car sales in the United States, for instance, are spreading through the global supply chain, eliminating jobs for contract auto workers in Japan and laborers in South Africa who mine the metals used in car parts.

The impact on China, one of the rare lights in an otherwise gloomy global economy, is particularly troubling. Beijing announced yesterday that its November exports dropped 2.2 percent after a 19.2 percent surge in October. Imports took an even steeper drop, falling 17.9 percent. Analysts now say growth there is slowing to its lowest level since 1990, curbing Chinese demand.

Update: I reflected on what all this might mean for how the Obama Administration thinks about handling the global economic portfolio in this recent post.

$1 Trillion Deficit Projected Next Year

At this point there is almost nothing that Bush touched that he didn't break:

Congressional leaders and both presidential candidates are proposing billions of dollars in tax breaks and other measures to stoke economic growth, a surge in spending that could send the federal deficit soaring toward $1 trillion this year, creating the deepest well of red ink since the end of World War II.

The government already has embarked on an unprecedented spending spree to halt the implosion of the U.S. financial system and is borrowing money at levels that some economists fear could undermine the nation's economic security for years to come. Congress could consider additional spending as soon as next month, potentially digging the nation's hole even deeper.

"We're going to make Ronald Reagan look like a piker in terms of deficit creation, I think," said Rudolph Penner, a senior fellow at the Urban Institute who served as director of the Congressional Budget Office during the Reagan administration.

The numbers are adding up fast. Since President Bush signed an economic stimulus package in February, authorizing billions of dollars in rebates for American taxpayers, the government has pledged as much as $1.5 trillion to prop up the teetering economy. It has approved new mortgages for struggling homeowners, salvage operations for faltering financial institutions and a historic $700 billion bailout plan to pump money into banks paralyzed by the financial crisis.

The Treasury Department so far has borrowed nearly $500 billion from pension plans, foreign governments and other investors to replenish the coffers of the Federal Reserve. Since the end of August, the national debt has jumped from $9.6 trillion to $10.3 trillion, with borrowing for the bank bailout yet to come.

Meanwhile, the budget deficit -- the annual difference between government spending and tax collections -- has risen rapidly. It jumped from $162 billion last year to $455 billion in the fiscal year that ended in September, largely because of the cost of the stimulus package, as well as slowing tax revenues and rising expenses in Iraq and Afghanistan.

The budget picture looking forward is even bleaker. While the deficit is projected to be about $550 billion for the fiscal year that began Oct. 1, budget analysts have yet to figure in the effects of a recession, which could easily tack on another $100 billion. They also have not included the first $250 billion being spent on the bailout plan, which the White House budget office said this week must be added, even though much if not all of the money is eventually expected to be returned to the Treasury.

And with options for a second round of stimulus spending starting at $52 billion -- the size of the package proposed earlier this week by Republican presidential candidate John McCain -- it's not hard to imagine the deficit rising to $1 trillion. That would approach 7 percent of the economy, a yawning budget hole not seen since 1946.

Some economists say that prospect should dampen talk of further spending. Others say it's better to spend the money now in an effort to protect jobs and smooth over the harshest effects of a recession than to lose the money later through sharply lower tax collections and higher unemployment payments. Economists advising House Democrats are urging a spending package of as much as $300 billion, arguing that the economy could shrink by about that much over the next year.

Read the rest of the story from the Washington Post here.

Awesome Headline

As of 445pm today, the website of the New York Times led with this headline:

Stocks Plunge 8% on Economic Gloom

Pearlstein on Wall Street's Responsibility

Steven Pearlstein has a wonderful close to his column today:

In putting several trillion dollars in government funds on the line, the country has now done just about everything that Wall Street could have asked to address the financial crisis. The question now, as John Kennedy might have put it, is what Wall Street is ready to do for its country. So far, the answer is not much.

After getting their closed-door briefing yesterday from Paulson on the government's latest initiatives, Wall Street's finest literally ran from the Treasury to their waiting limousines, bypassing a media scrum eager to convey any scrap of wisdom or insight.

Court reporters will tell you they can always tell the innocent from the guilty on these kinds of perp walks, and the Wall Street crowd yesterday looked particularly guilty, unable even to conjure up a soothing word to a nation fretting over its shrunken 401(k)s, or a simple thank you to taxpayers for having saved their bacon. Their silence and invisibility throughout this crisis attests to the moral and political bankruptcy of a financial elite that is the perfect match for the financial bankruptcy they have now visited upon their investors, their creditors and their customers.

After yesterday's "historic" meeting, we are told by industry apologists that we are supposed to be grateful to nine leading banks for having "volunteered" to accept additional capital from the Treasury, along with a government guarantee for newly issued bank debt, even if it means having to accept a dilution of existing shares and a few harmless restrictions on their operations.

Pardon me if I'm less than blown over by this munificent offer, but it hardly seems commensurate either with the severity of the current crisis or the depth of the banks' culpability in fomenting it.

If Wall Street were truly serious about convincing Main Street that we're all in this together, its top executives would have stepped before the cameras yesterday and promised not to cut lines of credits to long-standing business customers who have never missed a payment.

They would have committed themselves not to foreclose on any homeowner who is willing and able to refinance into a new, government-guaranteed, fixed-rate mortgage set at 85 percent of the current value of the property.

They would have offered to suspend dividend payments until capital levels had been restored to pre-crisis levels.

They would have given us their solemn promise not to advise clients to hold on to their own investments while quietly dumping whatever they can from their own portfolios and shorting every security in sight.

With the Treasury now desperate for help in managing its new rescue efforts, they would have volunteered, at no cost to taxpayers, the services of some of those investment bankers and financial wizards who now don't have much else to do.

And the maharajas of finance could have set a wonderful example if they had all gotten together and agreed to work for a dollar a year until the crisis has passed.

There's a word that captures the instinct to take these kind of bold moves in the midst of a national crisis -- it's called leadership. We've seen quite a bit of it these past few weeks from public officials like Hank Paulson, Ben Bernanke, Tim Geithner, Sheila Bair, Nancy Pelosi, Barney Frank, John Boehner -- even George Bush. Wall Street, by contrast, has served up a nothing sandwich, a lack of leadership that's been stunning.

 

Krugman Praises Brown, Questions Bush and Paulson

On the day it was announced that he had won the Nobel Prize for Economics, Paul Krugman joins NDN in singing the praise of Gordon Brown and in asking the question the public, the media and Congress must be asking - why did this White House get it so wrong?

At a special European summit meeting on Sunday, the major economies of continental Europe in effect declared themselves ready to follow Britain's lead, injecting hundreds of billions of dollars into banks while guaranteeing their debts. And whaddya know, Mr. Paulson - after arguably wasting several precious weeks - has also reversed course, and now plans to buy equity stakes rather than bad mortgage securities (although he still seems to be moving with painful slowness).

As I said, we still don't know whether these moves will work. But policy is, finally, being driven by a clear view of what needs to be done. Which raises the question, why did that clear view have to come from London rather than Washington?

It's hard to avoid the sense that Mr. Paulson's initial response was distorted by ideology. Remember, he works for an administration whose philosophy of government can be summed up as "private good, public bad," which must have made it hard to face up to the need for partial government ownership of the financial sector.

I also wonder how much the Femafication of government under President Bush contributed to Mr. Paulson's fumble. All across the executive branch, knowledgeable professionals have been driven out; there may not have been anyone left at Treasury with the stature and background to tell Mr. Paulson that he wasn't making sense.

Luckily for the world economy, however, Gordon Brown and his officials are making sense. And they may have shown us the way through this crisis.

 

Gordon Brown Steps Up To the Plate

The major Western nations are on the verge of adopting a strategy to deal with the financial crisis pioneered by Gordon Brown earlier this week.  The FT has an interesting piece today that reflects on what this means for the previously struggling British Prime Minister.

As he has over the last few weeks Joe Nocera does a great job putting these extraordinary events in perspective.  And yet another story warns of the possible devasting impact of credit default swaps, a subject that needs immediate attention from Washington's policymakers.

One in Six American Homeowners Now Underwater

From the WSJ tomorrow (via MSNBC) an article that offers more evidence that much more pain is to come, and that we must find a way to keep people in their homes:

The relentless slide in home prices has left nearly one in six U.S. homeowners owing more on a mortgage than the home is worth, raising the possibility of a rise in defaults - the very misfortune that touched off the credit crisis last year.

The result of homeowners being "underwater" is more pressure on an economy that is already in a downturn. No longer having equity in their homes makes people feel less rich and thus less inclined to shop at the mall.

And having more homeowners underwater is likely to mean more eventual foreclosures, because it is hard for borrowers in financial trouble to refinance or sell their homes and pay off their mortgage if their debt exceeds the home's value. A foreclosed home, in turn, tends to lower the value of other homes in its neighborhood.

About 75.5 million U.S. households own the homes they live in. After a housing slump that has pushed values down 30 percent in some areas, roughly 12 million households, or 16 percent, owe more than their homes are worth, according to Moody's Economy.com.

The comparable figures were roughly 4 percent underwater in 2006 and 6 percent last year, says the firm's chief economist, Mark Zandi, who adds that "it is very possible that there will ultimately be more homeowners underwater in this period than any time in our history."

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