By Neil Irwin
Washington Post Staff Writer
Wednesday, March 4, 2009
The Obama administration yesterday made a concerted push to boost confidence in downward-spiraling financial markets, assuring Americans that officials are taking the steps necessary to contain the worsening economic damage and to restore the nation's long-term fiscal health.
A day after the markets hit crisis lows, the administration sought to restore calm. The Treasury Department and the Federal Reserve launched a long-awaited program to pump money into consumer lending. Aides, including the White House budget director, vowed that the president's spending plan would benefit the vast majority of working Americans. And officials in various public venues used soothing language in an effort to inspire hope.
"What I'm looking at is not the day-to-day gyrations of the stock market," said President Obama, speaking to reporters at the White House, "but the long-term ability for the United States and the entire world economy to regain its footing."
The nation is caught in a dangerous cycle in which an endless stream of grim news -- waves of layoff announcements, signs that banks are teetering financially and negative economic data -- has contributed to anxiety among American consumers and businesses. That, in turn, has caused further economic weakness. The White House appears to be moving to arrest that cycle.
But words weren't enough to end the raft of bad news yesterday.
Among the items on the business news ticker: U.S. auto sales fell further in February, with General Motors sales down 53 percent from a year before. An index for pending home sales dropped more than expected in January, to a new low. And shares of General Electric fell sharply as investors worried that its credit rating could be cut.
After trading higher early in the day, the stock market ended down 0.6 percent, as measured by the Standard & Poor's 500-stock index, now at its lowest level since 1996. The index dropped 9 percent over the preceding four days.
Obama urged Americans not to obsess over the stock market, which he likened to a political tracking poll. "You know, it bobs up and down day to day," the president said. "And if you spend all your time worrying about that, then you're probably going to get the long-term strategy wrong."
He even seemed to make an unusual foray into investment advice. "What you're now seeing is 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," he said.
A key aide, meanwhile, argued that government spending could have an unusually strong impact on the economy given the current weakness. At a time when Americans are strapped, they may be more likely to spend extra dollars received as government stimulus than they would in normal times, said Christina Romer, chairman of the Council of Economic Advisers.
"I think it is possible that fiscal policy will have even more oomph in this situation," Romer said at the National Association for Business Economics conference in Arlington.
Federal Reserve Chairman Ben S. Bernanke offered a more mixed assessment of the potential impact of stimulus. Testifying before the Senate Budget Committee, he said that while the scenario outlined by Romer is possible, it is also possible that "heightened economic uncertainties and the desire to increase precautionary saving or pay down debt might reduce households' propensity to spend," which would make the stimulus less effective.
Moreover, he said, it is hard to tell how long it will take for the spending to ripple through the economy. While it should provide a boost over the next two years, he said, "the timing and the magnitude of the macroeconomic effects of the fiscal program are subject to considerable uncertainty reflecting both the state of economic knowledge and the unusual economic circumstances that we face."
Bernanke repeated his call for continued government action to bolster the financial system, which he described as crucial for a sustainable recovery to take hold.
"Historical experience strongly suggests that without a reasonable degree of financial stability, a sustainable recovery will not occur," Bernanke said.
Today, the Obama administration is expected to unveil more of its economic recovery plans, with new details of its $75 billion plan to help people at risk of foreclosure stay in their homes. Just yesterday, Citigroup announced a plan to reduce what mortgage borrowers must pay each month if they lose their jobs. Such borrowers would be eligible to make a reduced payment for three months.
Obama's aides yesterday continued to try to drum up support for his budget. The Treasury secretary, Timothy F. Geithner, and the director of the Office of Management and Budget, Peter R. Orszag, argued that the spending plan, to the tune of $3.6 trillion, would prove fiscally responsible in the long run.
"When recovery is firmly established," Geithner said, "we bring the deficits down the point where they are sustainable.
Congressional Republicans expressed deep skepticism. "When I look at this budget, I see a net tax increase of about $1.4 trillion, a tax increase that will fall especially hard on job-creating small businesses and charitable organizations," said Rep. Wally Herger (R-Calif.). "But in spite of this tax increase, this budget also manages to increase the debt held by the public by $7 trillion over the next 10 years."