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By Jason Simpkins
And William Patalon III
Money Morning Editors
The first 100 days of President Barack Obama's administration officially begin today (Wednesday). But the reality is that President Obama already has a solid head start, as he and his advisor have been working for months to establish the groundwork for one of the most ambitious - and most important - economic-stimulus plans in U.S. history.
President Obama's team was hard at work weeks before his Jan. 20 inauguration, crafting an ambitious $825 billion economic stimulus plan, parlaying with the U.S. Treasury Department and Congress to ensure its speedy implementation, and assembling the team the nation's 44th chief executive felt he needed to get the job done.
The current package, which has been endorsed by House Appropriations Committee, has yet to get overall congressional approval, but ultimately, the plan's focus on job creation, infrastructure development, increased regulatory oversight, tax relief for businesses and America's middle class, and aid to states struggling with budget shortfalls will remain intact.
In his inaugural address yesterday (Tuesday), President Obama made it very clear that he understands the scale of the challenge that his White House team faces. To a crowd that was repeatedly chanting "O-BA-MA, O-BA-MA," the newly sworn-in president detailed the broad-ranging initiatives his administration plans to pursue.
"The state of the economy calls for action, bold and swift, and we will act - not only to create new jobs, but to lay a new foundation for growth. We will build the roads and bridges, the electric grids and digital lines that feed our commerce and bind us together," President Obama told the gathered throng. "We will restore science to its rightful place, and wield technology's wonders to raise health care's quality and lower its cost. We will harness the sun and the winds and the soil to fuel our cars and run our factories. And we will transform our schools and colleges and universities to meet the demands of a new age. All this we can do. And all this we will do."
Will Spending + Tax Cuts = Jobs?
The House bill contains $550 billion in federal spending and $275 billion in tax cuts. In an effort to spur job creation, House Democrats have slated $90 billion for highway, transit, and public works projects. On top of that, the bill allots $102 billion to helping workers find new jobs and retaining employer-provided healthcare.
"High unemployment and rising costs have outpaced Americans paychecks," a summary of the bill read. "We will help workers train and find jobs and help struggling families make ends meet."
Specifically, some of the plan's highlights include:
- $79 billion for states to fund schools and educational programs.
- $18.5 billion for renewable energy and energy efficiency research and improvements.
- $16 billion in college financial aid and higher student loan limits.
- $13 billion in K-12 education spending.
- $6 billion for mass transit improvement and expansion.
- $5 billion for public housing construction and improvement.
- $10.1 billion in water-system improvements.
- $3.8 billion to build new military and veterans' hospitals.
- $4.5 billion for defense-construction projects.
- $6 billion for federal building construction and repair.
- $4 billion for governments and housing agencies to deal with foreclosed and abandoned homes.
Hard-Hitting Parts of the Plan
Lawrence Summers, the director of the National Economic Council, said earlier this week that he expects the stimulus package will pass within a month. But he, along with many analysts, have been quick to point out that the road to recovery will be long, and the total effect of the stimulus will not be immediately felt.
"These problems weren't made in a week or a month or a year and they're not going to be fixed in a week or a month or a year," Summers said. "There's almost no question the economy is going to decline for some time to come."
Less than half of the $30 billion in highway construction funds outlined by the plan would be funneled into the economy over the next four years, according to an analysis by the Congressional Budget Office (CBO). Less than $4 billion in highway construction money would reach the economy by September 2010, The Associated Press reported.
Only $26 billion, or 7%, of the total $274 billion dedicated to infrastructure spending would infiltrate the economy by Sept. 30, the end of the budget year.
However, other features of the plan will have a more immediate impact. The $275 billion in tax cuts the administration has planned for 95% of tax filers, and additional aid for social programs and state governments will take effect much faster.
"Some of the adjustments will take place almost immediately," Summers explained. "People will see income in their paychecks, state and local governments will get support to prevent layoffs ... and there are a ton of shovel-ready projects that are out there that aren't going to have to be cancelled when this program passes."
One of the first measures to be included in the plan will almost certainly be President Obama's "Making Work Pay" tax perk, which provides $500 to individual taxpayers and $1,000 to couples. This measure is widely expected to take the form of a credit on payroll taxes.
"If you send people a check for $500, they can put it in the bank," Clint Stretch, managing principal of tax policy at Deloitte & Touche USA LLP told MarketWatch.com. "If you raise everybody's paycheck by $10 or $20 a week, they will spend it."
The House proposal calls for tax credits to be extended to small businesses. The 2008 stimulus bill let small businesses to deduct as much as $250,000 of certain expenses, and the current stimulus package would temporarily extend that measure.
Also, companies could enjoy an extended bonus-depreciation provision, which would allow them to immediately write off one-half of the cost of certain capital expenses and deduct the rest over time.
The Obama administration has also pledged to keep stricter tabs on the $700 billion Troubled Assets Relief Program (TARP). The first $350 billion authorized by Congress has all but vaporized at this point. But there is no way to tell what effect the money has had, as the banks that refused capital infusions are refusing to disclose how they spent it.
"There's going to be a very different level of rigor in the evaluation of institutions," Summers said. "The institutions that are healthy and don't need [the money] to survive are going to be expected to lend."
Summers said the new administration intends to create a Web site that will detail where the bailout money has gone, as well as details of the banks' repayment obligations and the expected repayment schedule.
President Obama on Jan. 12 asked Congress for the second half of the bailout funds. Summers insisted the administration would take a "more proactive approach" to managing the funds, ensuring they are not focused "on the needs of banks, but on the need of the economy for credit."
David Axelrod, another top advisor to the Obama administration, echoed those claims on ABC television program "This Week," saying Obama would "have a strong message for the bankers."
"We want credit flowing again," he said. "We don't want them to sit on any money that they get from taxpayers."
The administration is also expected to clamp down on executive pay for companies in line for bailout funds.
Said Axelrod: "We have to make sure the money doesn't go to excessive CEO pay and dividends when it should be going to lending."
Key Cabinet Members
President Obama has already made many of his key appointments - crucial if his new administration is to hit the ground running. Now those nominees must run the gauntlet of U.S. Senate confirmation.
The Senate confirmed six cabinet members yesterday afternoon, but delayed the confirmation of Sen. Hillary R. Clinton as the U.S. secretary of state. Those confirmed, and their new posts, consisted of:
- Steven Chu, energy secretary.
- Tom Vilsack, agriculture secretary.
- Arne Duncan, education secretary.
- Ken Salazar, interior secretary.
- Janet Napolitano, secretary of homeland security.
- Peter Orszag, head of the White House budget office.
Sen. Clinton's confirmation was held up by the objections of a single Republican senator, John Cornyn, R-Tex., who continues to have concerns over non-Americans who might be making large donations to the charitable foundation run by Clinton's husband, former U.S. President Bill Clinton, the Canadian Broadcasting Corp. reported late yesterday.
That means there will be a roll call vote today to confirm Clinton as Obama's foreign envoy, the CBC said. Last week, the U.S. Senate foreign relations committee voted 16-1 to endorse Clinton as the next secretary of state. A Republican senator from Louisiana on the committee cast the only vote against her nomination.
Clinton was President Obama's chief rival during the Democratic presidential primary.
Among the other nominees who must still be confirmed, the key nominees may well be Mary Schapiro, Barack Obama's choice to head the U.S. Securities and Exchange Commission, and Timothy Geithner, the president of the New York Federal Reserve who has been tapped to take over as U.S. Treasury secretary, succeeding Henry M. "Hank" Paulson Jr., the architect of much of the Bush administration bailout plan. Money Morning has reported extensively on both nominees.
Schapiro, currently the chief executive of the Financial Industry Regulatory Authority, the securities and brokerage industry's self-policing organization, has been tapped to head the SEC - just as the embattled agency is being called on to help restore investor confidence shattered by the worst financial crisis since the Great Depression.
Although she's a seasoned regulator, critics question her toughness: Schapiro nevertheless spent much of last year cracking down on small brokerages and minor players - even as the mortgage storm swirled and Bernie Madoff's Ponzi scheme went undetected, The Wall Street Journal reported.
Schapiro - regarded as a "strong investor advocate" - told the Senate Banking Committee last Thursday that her tenure would "have a laser-like focus on fraud and investor protection," Reuters reported. "With investor confidence shaken, it is imperative that the SEC be given the resources and the support it needs to investigate and go after those who cut corners, cheat investors and break the law."
Money Morning experts wonder if she's not being brought in to merge one or more other regulatory agencies with the SEC in order to create a "super-agency" with unified oversight of the U.S. financial-services industry.
On the Geithner matter, Stuart Levey, the Treasury Department's undersecretary for terrorism and financial intelligence, has agreed to stay on until the Senate confirms a permanent successor, published reports state.
Revelations that Geithner failed to pay $34,000 in taxes while employed by the International Monetary Fund (IMF) several years ago derailed Senate Democrats' plans for a speedy approval for Geithner. Bipartisan backing was still strong, but the delay in his confirmation hearing always opens up the possibility that opposition could build.
Senate Republicans, who have been mostly deferential to Obama's nominees, were blocking efforts to fast-track Geithner's nomination, with at least one Finance Committee member saying the tax questions deserved greater scrutiny.
Obama had hoped for approval by yesterday, but the GOP objections made that impossible, meaning Geithner's confirmation hearing will be held today.
Two Republicans formally objected to scheduling the hearing this Friday after the panel disclosed that Geithner had failed to pay some taxes he owed between 2001 and 2004.
"Look, is this an embarrassment for him? Yes. He said so himself. But it was an innocent mistake," Obama said when the tax troubles surfaced a week ago. "My expectation is that Tim Geithner will be confirmed."
According to recent published reports, several Democrat and Republican senators on the Finance Committee voiced strong support for Geithner, who actually placed phone calls to individual senators, hoping to persuade them his tax problems were the result of innocent errors. Many members of Congress on both sides of the aisle believe he's the very best candidate for this job - which is going to take someone with superlative skills and qualifications, given that the financial crisis continues to grow in complexity with each passing week.
[Editor's Note: Money Morning Contributing Editor R. Shah Gilani, like Martin Hutchinson, a former Wall Streeter who now decodes the financial markets for investors, will be hosing a post-Inauguration "Web summit" that talks about the regime change in Washington and what it will mean for investors in the coming months.
The session this Thursday (Jan. 22) - entitled "The Regime Change in Washington Triggers War on Wall Street" - is free of charge to investors who register in advance. It will start at 7 p.m. EST.
Gilani, the editor of the "Trigger Event Strategist," and a commentator who is known for his deep connections inside the investment-banking world of Wall Street, says those who tune in can expect to get candid insights not available on your favorite cable-TV finance show or in the business section of your local newspaper.
"Wall Street doubletalk got us into this crisis," Gilani said. "I hear more excuses than straight talk. Most of the dialogue is noise. The truth may be difficult to swallow, but without hearing it, there's not much hope for finding the right way out of the maze."
For more information on the free Webinar, please click here. For more information on the "Trigger Event Strategist," trading service, which seeks to profit from the new investing rules that have emerged from this financial crisis.]
News and Related Story Links:
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MarketWatch:
Obama advisor sees stimulus effects next month
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The Associated Press:
Much in Obama stimulus bill won't hit economy soon
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Phoenix Business Journal:
House Dems offer their version of Obama stimulus
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Money Morning:
Congressional Watchdog Criticizes Treasury for Failing to Track $350 Billion in Bank Bailout Money
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Money Morning:
Obama Requests Release of Second Half of $350 Billion TARP
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Money Morning:
An Open Letter to President-Elect Barack Obama: How a Regulatory Makeover Can Fix the Financial Crisis.
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Canadian Broadcasting Corp. (CBC):
Senate confirms 6 for Obama's cabinet, but makes Clinton wait.
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Money Morning:
Obamanomics: President-Elect Taps Career Regulator Mary Schapiro to Head SEC, Proposes $775 Billion Stimulus.
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Money Morning:
Could Tax Problems Trip up the Confirmation of the Best Candidate for Treasury Secretary?
About the Author
Before he moved into the investment-research business in 2005, William (Bill) Patalon III spent 22 years as an award-winning financial reporter, columnist, and editor. Today he is the Executive Editor and Senior Research Analyst for Money Morning at Money Map Press.
Do Obama's plans for job creation include plans for job protection from foreign outsourcing?
Outsourcing American jobs to foreign countries does not help the US economy.
HOW can these issues be solved when the LIB DEM IDIOTS who CAUSED this MESS are NOW in charge!! The inmates are now in charge of the asylum, that's FACT!! Unfortunately LESS than half of the country are MORONS and put him in office! The huge loss in the market is just the beginning of the OBAMAPRESSION!
The problem I see with this is that it is not just an economic stimulus plan; it is also traditional liberal left programs and issues. It seems to me that Obama is pushing the usual liberal agenda, but has repackaged it as a stimulus plan. Is he trying to avoid the usual debate for each issue, by bundling it and calling it a stimulus plan?
Shouldn't there be a debate and approval of universal health care? But in his plan he is creating jobs to computerize medical records; something he said was part of his universal health care plan.
Shouldn't there be a debate on alternative energy? But in his plan he is creating alternative energy jobs and smart grid jobs; both part of his global warming agenda.
Shouldn't there be a debate on enlarging goverment? But in his plan he is creating thousands of new goverment jobs.
And I think anyone who is thinking would agree that all this talk of road projects, will be manditory union labor contracts. How big a pay back for the union vote is that!
It seems to me that Obama has taken the liberal lefts traditional agenda, bigger goverment, universal health care, global warming, big union and reworked it to emphasis job creation; and then called it an "economic recovery"!
I think this is why he is telling us we have to move fast on it. He wants to get it passed before anyone notices! But it would seem to me that these liberal left agenda issues all deserve free and open debate!
[…] Jason Simpkins and William Patalon III Money Morning addthis_pub = 'jutiagroup'; addthis_logo = 'http://www.jutiagroup.com/favicon.ico'; addthis_brand […]
If Geithner gets to be Treasury Secretary in charge of the IRS, out government leaders are truly brain dead. Why would you allow an appointment of someone who can not even handle his own finances. And you want him to handle the Country's finances? We are looking for help – not more corruption. We have had enough corruption to last a life time. Thanks
[…] Original article by Jason Simpkins and William Patalon III – Money Morning : The Obama Blueprint for Solving the U.S. Financial Crisis […]
As an economist educated in the early 90's with an MBA in International Business, I understand the complexities of economies both domestic and foreign.
Having said that however, I must add that as a student of Economics, evaluating the various points of view, the recurring theme, in a free market economy, is that the consumer knows best and when left to his freedom to choose, the consumer(s) will make the right choice, the choice that yields most utility.
So, I believe that to give the consumer/tax payer his hard earned tax dollar and let him decide where the money should go will bring about the most efficient and effective monetary policy. After all, the consumers are most numerous and at tax time, the refunded tax dollars would be spent or saved by the broadest base possible which would prevent bureaucratic/aristocratic misuse and misallocations of the money.
How about that??? Taxpayer money back to the taxpayer… a novel idea!!!
LC in New Hampshire
[…] also noted that a talk of a higher capital gains tax could resurface, should the Obama administration economic plan begin to stimulate growth this year, meaning companies would have incentives to close […]
Do you think $500.00 for individuals or $1000.00 for a couple will make any difference to many people? What about a couple who have a child or children who's income is down by half because of all this? And credit, how do you get credit flowing when people are struggling just to maintain their current bills and cannot afford anything on credit? How about others that have homes and are current on their mortgage yet their home of years is now worth less than what they paid for it in 2003. I think we need to look at the people whom are current (by the grace of god) and give something back to them!!!!!!!!
How about that??? Taxpayer money back to the taxpayer… a novel idea!!!
[…] also noted that a talk of a higher capital gains tax could resurface, should the Obama administration economic plan begin to stimulate growth this year, meaning companies would have incentives to close […]
[…] reminder of how urgently action is needed" to revive the nation's staggering economy. His administration is planning a stimulus package costing upwards of $800 billion, consisting of tax cuts and other ways to try to help individuals and […]
We Americans do not have or want a gov in the business of business. This includes the production of electrical generation. We have wisely set fourth the affairs of gov in business only to regulate necessary inspection of prescribed standards insuring our health and prevention of criminal elements.
Using the Energy Information Administration, Form EIA-906, “Power Plant Report” and EIA 920, “Combined Heat and Power Plant Report.” The reader will note hydra power accounts for 6.9% of our power and all other renewable combined only account for 2.3%. This includes solar, wind, tidal, and Geo. I could not find any new hydra projects currently being developed here. Fact is lots of old smaller hydra stations are being taken out as they in part interfere with plastic paddle boats.
If it were possible, it is not, to increase this 2.3% tenfold it would still only have us only getting 23% of our energy by renewable. If you think this high percentage is possible I'd like to talk to you about a bridge I have for sale. President Obama has very clearly stated he plans on doubling the amount of energy that could be produced from renewable resources within the next three years totaling 4.6% or an annual increase of only .77 of one present which will not even keep up with our increased needs. This is not effective leadership it is rather Mollycoddling us as children.
We Americans have been so dumbed down and misguided by our Legislators with fat money from the lobbies of oil, gas, coal and now it appears solar and wind generation we have now lost our ability to separate fact from fraud.
The actual real answer to future electrical generation is safe, safe, super safe nuclear power. Today we get twenty present of our power this way and we have not build a new plant since 1978! This reawakened reality would cost the taxpayer not a dime, this is the business of private business, employ millions, get us off the fossil fuel burning technology of yesterday, could be accomplished in short order and make us energy free as a nation in very short order. Those of you who may find objection to nuclear powers please let me again remind you how we have allowed ourselves to be dumbed down and last of all do some homework on the topic.
[…] plan – detailed in a Money Morning report last week – could potentially pass the Democrat-dominated House without Republican support, The New […]
[…] forecast focuses even more attention on the details of President Barack Obama's $825 billion economic stimulus plan and, in particular, what it might hold for infrastructure […]
[…] news ratchets up the pressure on the Obama administration and Congress as lawmakers debate an $825 billion stimulus package intended to save or create millions of […]
[…] President Barack Obama’s stimulus plan, targeted towards lower-income households and hard-hit areas, may help Fifth Third’s business […]
[…] Money Morning News Analysis: The Obama Blueprint for Solving the U.S. Financial Crisis […]
[…] will also be crucial to the implementation of President Obama's $825 billion stimulus package. When not fielding questions about his tax returns, Geithner has been working with the rest of […]
[…] About one-third of President Barack Obama’s $825 billion stimulus package will go to infrastructure with $30 billion allocated for roads and $10 billion for mass transit and railways. […]
[…] About one-third of President Obama's $800 billion-plus stimulus package will go to infrastructure, with $30 billion allocated for U.S. roads and highways and another $10 billion earmarked for railways and mass-transit systems. […]
does obama plan to actually help the economy???
[…] the $850 billion stimulus package, a good portion is sure to find its way into green energy, but will only get spent by late 2010. In the meantime, it will be too risky to cripple the […]
[…] also noted that a talk of a higher capital gains tax could resurface, should the Obama administration economic plan begin to stimulate growth this year, meaning companies would have incentives to close deals […]