* * * * * * * * * * * * * * * * * * * * * * * * *

... our economy has been driven by consumer spending for a very long time. That is not sustainable if all we are doing is spending and not making things, then over time, other countries will get tired of lending us money, and eventually the party is going to be over. In fact, the party now is over.

In the first press conference of his administration on Tuesday, Feb 10, 2009, President Barack Obama addressed members of the media to discuss varying topics such as foreign policy, Iran, the war in Afghanistan, steroids in baseball, and the economic stimulus package. The press conference was covered by all major television news stations.

The emphasis of the press conference was to urge Congress to pass his economic stimulus plan. He said that this was a “rare moment” and that the “citizens of our country and all countries are watching and waiting for us to lead.” He labeled the current credit crisis as the “winter of our hardship.”

The president said that any further delay by Washington from acting on the current economic crisis would create the potential for a negative spiral precipitating the crisis which would be far more difficult to recover from in the future. He supported his position with alarming facts. “We have lost 3.6 million jobs , but what is more disturbing is that almost half of those job losses have taken place over the last three months, which means the problems are accelerating,” he said. The president is confident that the stimulus package will have a positive impact on the economy, by either ending or checking the growth of the recession. He further said that failing to act would be the worst of all choices.

“I inherited the one trillion dollar deficit and the economic crisis we have now. I would love not to have to spend money right now. I did not envision my presidency beginning with spending $800 billion. But we have to adapt to existing circumstances,” he said.

He further said that the economic mess that we are now in was created by banks who took exorbitant risks on shaky assets that lead to unheard-of losses and bank failures. Then the private investment sector began to withdraw capital out of fear. This was followed by a contraction of credit which made it impossible for businesses to get loans to make payroll and invest. Without capital from which to operate, businesses began laying-off workers to survive.

Unemployment has a double sided impact on the economy. Many of those who are laid off need help to meet day to day expenses so they apply for unemployment insurance and other government services. So, local, state and federal coffers are dipped into which diminish or deplete tax dollars that have been collected. Additionally, a laid off worker is no earning an income and paying taxes and must reduce his or her consumption or dip into savings. Since the now unemployed worker is no longer consuming at the level he once was the businesses he or she frequented begin to feel the effect. Those businesses can tolerate temporarlily losing one or two good customers, but if those numbers increase or become prolonged, then the business has to eventually begin laying off their employees also, and thus the negative spiral begins.

The Bush administration based their economic policies on consumer spending rather than consumer saving. Our monetary system is based upon the fractional reserve requirement where banks create money based upon our savings. In an economy where the fractional reserve requirement is ten percent of savings the expansion of the money supply is ten to one. Consequently, with increased savings, banks have more funds available for consumer loans and business investment capital.

“Our savings rate has declined and our economy has been driven by consumer spending for a very long time. That is not sustainable if all we are doing is spending and not making things, then over time, other countries will get tired of lending us money, and eventually the party is going to be over. In fact, the party now is over,” said the president.

Mr. Obama's plan is completely different from the stimulus packages enacted by the Bush Administration. Under the former president, many Americans simply received a check similar to a tax rebate to use in any way they wished. The plan was for consumers to spend the rebate to create more demand in the marketplace which would in turn stimulate business investment theoretically creating new jobs.

The plan was a dismal failure.

Mr. Obama’s plan is to stimulate the economy by retrofitting and improving the infrastructure of roads, building, and services in America. He said that by retrofitting federal buildings and weatherizing many homes the energy savings would put more money into the pockets of many Americans while simultaneously reducing our dependency on foreign oil imported from the Middle East. Moreover, the plan would also immediately create or save up to four million jobs. An increase in jobs would create new demand in the marketplace which is of great concern to economist. The president warned that the economy could suffer two consecutive annual trillion dollar reductions in demand if Congress fails to act. The Bureau of Economic Affairs reported on January 31st of this year that there was a 3.8 percent decrease in GDP for the fourth quarter of 2008.

The plan would also replace antiquated regulations in industries such as healthcare. The cost of healthcare is “crippling business and making us less competitive in the world marketplace and breaking the banks of families with illnesses. We have the most inefficient healthcare system imaginable – we are still using paper forms in triplicate instead of using electronic medical records,” he said.

The president also wants to build or improve schools. He said that he visited a school in South Carolina that was built in the 1850s and that the teacher’s instructions were frequently interrupted when a train went past the school because the building shook. He wants to build state of the art schools with science labs and updated equipment.

It would appear that the president is also thinking long term with this stimulus package. Improving infrastructure has long lasting benefits. Improved education makes our children more employable. Reducing dependency on foreign hydrocarbons has both economic and environmental benefits. Reducing unemployment increases tax revenues to pay for government services and reduces government expenditures to care for those who have temporary needs.

No one knows for sure if this plan will or will not work, however, it is a clear departure from the policies of the last administration.