Obama: Wall Street and Bush Administration Blamed for Crisis

President-elect Barack Obama warned on Thursday that the American economy could sink into a multi-year recession without significant government investment and tax relief, urging Congress to take “dramatic action” to quickly approve his stimulus package worth about $775 billion.

After facing sharp criticism for planning large government spending despite a budget deficit of $1.2 trillion in 2009, Obama conveyed to lawmakers and the public that without federal action, the national economy faces a prolonged recession. The American economy is at risk of losing one trillion dollars in GDP, or approximately $12,000 in income per four-person family, along with high unemployment, he warned.

“If nothing is done, the recession could last for years. The unemployment rate could reach double digits. I do not believe it is too late to change course, but it will be if we do not take dramatic action as soon as possible,” Obama said in a speech at George Mason University in Fairfax, near Washington. Obama’s grim forecasts should convince Congress to act quickly on adopting his “American Recovery and Reinvestment Plan,” which is expected to create three million jobs with about $400 billion in government investments in infrastructure, energy, education, and healthcare, and stimulate the economy with about $300 billion in tax relief. Approximately $75 billion is allocated for unemployment benefits and their health insurance. The stakes are high, the American economy is in the midst of a deep recession, and economists of all stripes agree that aggressive government action is needed.

A few hours before Obama’s speech, reports from the private sector and government indicated the effects of a year-long recession. Retail chains, including Wal-Mart, Macy’s, and Gap, lowered their revenue forecasts after the worst holiday shopping season in 40 years. Wal-Mart’s stock fell by 9.4 percent, and Macy’s reported a revenue drop of 4 percent and the closure of 11 department stores in nine states. Gap’s sales fell by 14 percent. The Labor Department announced that 4.6 million Americans are receiving unemployment benefits, the highest in the last 26 years. The same department is expected to report on Friday a loss of 510,000 jobs in December, bringing the total for 2008 to 2.4 million, the highest since 1945. The unemployment rate is likely to jump to 7 percent, the highest since 1993, according to a survey of economists conducted by Bloomberg.

In today’s speech, Obama blamed the economic crisis on the “deep irresponsibility” of Wall Street and the outgoing administration of President George W. Bush, which leaves him with a record budget deficit as a burden in implementing his major campaign promises. “The period of deep irresponsibility, which stretched from corporate boardrooms to the halls of government in Washington,” is responsible for the economic decline in the U.S., Obama said, who will take office in 12 days. He also directly addressed critics of his plan for large government investments. “The truth is that we cannot rely solely on the government to create jobs and long-term growth. However, at this particular moment, only the government can provide the short-term stimulus to pull us out of such a deep and difficult recession,” he emphasized. Obama promised that his administration would implement strict oversight of government spending and carry out budget reform that would ensure long-term balancing of government revenues and expenditures.

Obama’s economic stimulus package is expected to be approved as law by mid-February at the earliest. Among economists warning that America urgently needs a stimulus package of at least one trillion dollars is Nobel laureate Joseph Stiglitz. According to him, Obama’s plan is insufficient as it includes tax relief instead of increased spending. “It is clear that they will need more. With so much money going to tax relief, they will not achieve the effect they hope for,” Stiglitz, a professor of economics at Columbia University in New York, assessed.

The Congressional Budget Office on Wednesday projected that the budget deficit this year would amount to $1.18 trillion, not including Obama’s plan. Republicans and Democrats in Congress were taken aback by the deficit data, with some calling for austerity while others sought to assign blame. The only person who has not commented on the budget shortfall is President George W. Bush, who inherited a budget surplus in the White House but leaves behind massive expenditures and the largest deficit ever recorded, commented the conservative The Washington Times on Thursday. (H)