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Obama warns economy likely to get worse

Image: US President elect Barack Obama introduces economic team
President-elect Barack Obama introduces his top economic advisers Monday in Chicago. From left: Timothy Geithner as treasury secretary; Christina Romer as chair of the Council of Economic Advisers; Lawrence Summers as National Economic Council director; and Melody Barnes as Domestic Policy Council director. Vice president-elect Joe Biden is at far right.Tannen Maury / EPA
/ Source: news services

President-elect Barack Obama on Monday unveiled his economic team and warned that "the economy is likely to get worse before it gets better." 

"I've sought leaders who could offer both sound judgment and fresh thinking, both a depth of experience and a wealth of bold new ideas — and most of all, who share my fundamental belief that we cannot have a thriving Wall Street while Main Street suffers," Obama told reporters.

Obama said that recent news "has made it even more clear that we are facing an economic crisis of historic proportions." Offering a grim prediction, he added, that "most experts now believe that we could lose millions of jobs next year."

He declined to say how big a spending package he wants to revive the economy, adding that he was awaiting a recommendation from his economic team. Some Democratic lawmakers are speculating about a two-year measure as large as $700 billion. Obama would only say that "it's going to be costly."

The president-elect was mildly critical of the Big Three automakers, saying he was surprised they did not have "a better thought out proposal" for their future before asking Congress to approve $25 billion in emergency loans.

He added that once he sees a plan, he expects "we're going to be able to shape a rescue."

Five team members named
As expected, the president-elect named Timothy Geithner, the New York Federal Reserve president, as his treasury secretary. Wall Street stocks jumped on Friday when word of Geithner's appointment began to leak.

Geithner, 47, will team with Lawrence Summers, a treasury secretary under former President Bill Clinton and former Harvard University president, who will take over the National Economic Council.

Obama also named three others on his economic team:

  • Christina Romer as director of the Council of Economic Advisers. Romer is a U.C. Berkeley professor of economics, and co-director of monetary economics at the National Bureau of Economic Research.
  • Melody Barnes as director of the Domestic Policy Council. She has been co-director of the Agency Review Working Group for the Obama transition team, and also served as the senior domestic policy advisor to Obama during the campaign. Barnes previously worked at the Center for American Progress and as chief counsel to Sen. Ted Kennedy.
  • Heather Higginbottom as deputy director of the Domestic Policy Council. She was Obama's policy director during the campaign and earlier served as Sen. John Kerry's legislative director.

Democratic officials also said Obama plans to name New Mexico Gov. Bill Richardson as commerce secretary, adding a prominent Hispanic and one-time Democratic presidential rival to his Cabinet. Richardson served as U.N. ambassador in the Clinton administration and later as energy secretary.

Obama spoke against a backdrop of increasing calls for him to assert himself well before he takes office Jan. 20 in the midst of the most severe U.S. financial crisis in eight decades.

In the latest bailout, the U.S. government announced late Sunday it had agreed to shoulder hundreds of billions of dollars in possible losses at the banking giant Citigroup, and to put a fresh $20 billion into the stricken company.

What's ahead?Obama's team will confront an economic crisis that continues to deepen in spite of hundreds of billions of dollars in federal emergency spending in recent weeks.

"The stakes are high," said Julian Zelizer, professor of history and public affairs at Princeton University. "This is a really dangerous moment ... for the economy. It’s almost as if no one’s in control. Now people are looking to (Obama) to find out at least what’s going to happen in the next few months, if not the next few weeks."

Other members of Obama’s broader economic team are likely to include:

  • Peter Orszag, a former Clinton administration economic aide, as the White House budget director. Orszag has been director of the Congressional Budget Office since January 2007.
  • Jason Furman, Obama’s top economic policy coordinator during the presidential campaign, is likely to get a senior role, probably as the No. 2 official at the National Economic Council.

Top aides said Sunday that Obama wants Congress to use its large Democratic majority when it convenes Jan. 6 to prepare tax cuts for low- and middle-income earners as part of the massive government intervention designed to pull the country out of its frightening economic nosedive.

Some economists have endorsed spending up to $600 billion to revive the economy. Sen. Charles Schumer, a New York Democrat, and Clinton-era Labor Secretary Robert Reich, a member of Obama's economic advisory board, both suggested $500 billion to $700 billion.

Before winning the presidency Nov. 4, Obama had said he looked to create a $175 billion stimulus package. While the new plan will be significantly larger, it was expected to incorporate his campaign ideas for tax cuts and new jobs in energy technologies to lessen dependence on foreign oil and to reduce carbon emissions.

"I don't know what the number is going to be, but it's going to be a big number," Obama economic adviser Austan Goolsbee said on Sunday. "It has to be. The point is to, kind of, get people back on track and startle the thing into submission."

Over the weekend, Obama directed his team to construct a plan to create 2.5 million new jobs by the end of 2010, and aides said his broader economic program was designed to quickly offer tax relief to lower- and middle-income earners.

No tax hike on wealthiest for now
Significantly the plan would not offer an immediate tax increase on wealthy taxpayers. During the campaign, Obama said he would raise taxes on people making more than $250,000.

"There won’t be any tax increases in the January package," said one Obama aide, who spoke on condition of anonymity because the details of the Obama package have not been fleshed out.

Obama could delay any tax increase to 2011, when current Bush administration tax cuts expire.
House Republican leader John Boehner of Ohio urged Obama to make that explicit. "Why wouldn’t we have the president-elect say, 'I am not going to raise taxes on any American in my first two years in office?'"

At the press conference Monday, Obama declined to specify whether he would pursue a tax increase for the wealthy or simply allow the 2001 tax cuts to expire after tax year 2010 as scheduled.