Obama tries to pump up confidence in the economy
WASHINGTON ” Trying to pump up the nation’s confidence, President Barack Obama said Tuesday that Wall Street has been hammered so hard that “buying stocks is a potentially good deal,” and he dispatched top aides to Capitol Hill to defend his plans for pulling the economy out of its deep recession. The stock market slipped ever lower, and Republicans suggested Obama was “cooking the books” in rosy recovery predictions.
After being accused for weeks of being too negative about the economy, Obama recently has shifted to a more positive tone. He and his aides still say recovery won’t come quickly, but they are becoming more aggressive in declaring that the government’s efforts will work.
They better work, Federal Reserve Chairman Ben Bernanke said. The country faces “a prolonged episode of economic stagnation” without bold policy moves, he told the Senate Banking Committee.
Separately, the Fed announced a long-awaited program to spur lending for autos, education, credit cards and other consumer loans by providing up to $200 billion in financing to investors to buy up the debt. If the program succeeds, it should help break economy-crippling credit clogs and make it easier for Americans to finance purchases large and small at lower rates, Bernanke said.
“What the economy requires, what the American people demand is that we move as aggressively as we can to get growth back on track,” Treasury Secretary Timothy Geithner told the tax-writing House Ways and Means Committee. “I’m confident this is the right path for the country.”
Republicans were not so sure, accusing the new administration of raising taxes during a recession ” on many ordinary Americans as well as on the wealthy.
Underscoring the economy’s weakness, Detroit’s Big Three automakers reported huge U.S. sales declines for February from a year earlier ” 53 percent for General Motors Corp., 48 percent for Ford Motor Co. and 44 percent for Chrysler LLC.
On Wall Street, the Dow Jones industrials lost 37 points, but stocks have been falling so fast ” 300 points on Monday alone ” that the new decline seemed quite modest.
Obama’s plan envisions a deficit of $1.7 trillion this year followed by several more years of trillion-dollar shortfalls.
“The new administration has inherited an economic crisis unlike any we have seen in our lifetimes,” White House Budget Director Peter Orszag told the House Budget Committee.
The administration acknowledges that its energy proposal would increase costs for consumers but argues that the vast majority of people will get tax breaks elsewhere in Obama’s budget package.
“Now, if people don’t change how they use energy, then they will face higher costs for energy,” Geithner acknowledged.
Obama, meanwhile, was asked about the stock market’s swoon in recent days to levels not seen since 1997.
“What I’m looking for is not the day-to-day gyrations of the stock market, but the long-term ability for the United States and the entire world economy to regain its footing,” Obama said after meeting in the Oval Office with British Prime Minister Gordon Brown.
“You know, it bobs up and down,” he said, comparing stock market movements to daily tracking polls during political campaigns. “The banking system has been dealt a heavy blow,” he added. “There are a lot of losses that are working their way through the system. And it’s not surprising that the market is hurting as a consequence.”
Sounding ever more like an analyst, he said that “profit and earning ratios are starting to get to the point where buying stocks is a potentially good deal if you’ve got a long-term perspective on it.”
The president predicted a recovery “but it’s not going to happen overnight.”
He got a boost from Bernanke, who was appointed to the top Fed job in 2006 by President George W. Bush. Bernanke said Obama’s recently enacted $787 billion stimulus package of increased federal spending and tax cuts should help revive consumer spending, boost factory production and “mitigate the overall loss of employment and income that would otherwise occur.”
Bernanke testified that an economic recovery depends on the government’s ability to stabilize weak financial markets.
Geithner and Orszag were grilled by Republicans on the tax portion of the budget.
In particular, GOP lawmakers complained about a section that would require polluters to purchase permits from the government for their greenhouse gas emissions, suggesting it would essentially impose huge new energy costs on all consumers and businesses. They also criticized a section limiting the charitable deductions that households earning over $250,000 a year can claim, saying it would burden charities.
“The president’s budget increases taxes on every American, and does so during a recession,” Rep. Dave Camp, R-Mich., told Geithner.
Geithner said the budget reflects what Obama views as “a deep moral imperative to make our society more just. But it’s very good economic policy, too. It will mean there is again a fairer, more equitably shared tax burden on the vast majority of Americans.”
Higher taxes for affluent Americans would not come until 2011 once “we are safely into recovery,” Geithner said.
But some lawmakers challenged the administration’s predictions for such a speedy recovery.
The budget forecasts that the economy, as measured by the gross domestic product, would shrink by just 1.2 percent this year and then snap back and grow by a solid 3.2 percent in 2010, followed by several years over 4 percent.
That’s more optimistic than most private forecasts, and comes despite a new government report showing the economy contracted by 6.2 percent in late 2008, far more than the 3.2 percent drop first reported.
“It looks like somebody’s cooking the books,” Rep. Kevin Brady, R-Texas, told Geithner.
The Obama plan “does predict a somewhat more rapid recovery” than other forecasts, Geithner acknowledged. But, he added, “I believe this is a realistic forecast.”
Questioning was pretty much along party lines. Democrats for the most part praised Obama’s proposal.
“It is making the tax code more fair,” Rep. John Lewis, D-Ga., told Geithner.
Obama’s budget faces a difficult path through Congress because of its many controversial proposals on health care, taxes and global warming.
Associated Press Writers Stephen Ohlemacher, Andrew Taylor, Jeannine Aversa and Jennifer Loven contributed to this report from Washington, Tom Krisher and Bree Fowler from Detroit.