Jeff Polhill

Commentary by Jeff Polhill, January 15, 2009

Several things are happening in the economy, none greater than the anticipation of what Barack Obama’s presidency will mean to an economy that is dropping faster and more erratically than a knuckleball.  We are now less than a week from when we will see a transfer of the presidency from Republican President George Bush to Democratic President-elect Barack Obama.  This week we saw the new U.S. Congress seated and political power firmly in the Democratic hands.

In the first-three months of the U.S. government’s 2009 budget year, the federal deficit is reported to be at $495 billion.  Retail sales in December was the worst in many years, layoffs or unpaid worker days off are announced daily, more retailers are going out of business or closing stores, bankruptcy filings - both business and individual - continue to spiral upward, unemployment compensation filings have skyrocketed, home foreclosures continue to accumulate as Americans lose their jobs and home values plummet and the stock market is still languishing in a bear market.  Consumers aren’t spending and businesses aren’t hiring.  And today it was reported by California government officials that the state will run out of money in late February and is considering delaying tax returns or issuing IOUs!  States are seeing a rapid decline in revenues and increasing deficits, forcing cutbacks in programs and government worker layoffs.

So is there any good news out there?  If you put a lot of miles on your vehicle or are a trucker or a trucking company, gas and diesel prices have dipped deeply from last July’s $4 a gallon or more even with a recent uptick in prices.  But with economic indicators pointing down, and a global recession, the worst in 30 years, what can we expect from the Obama administration and a Democratic-led Congress to get this economy turned around?

Obama’s emphatic message to Congress is get an $800 billion economic stimulus package ready for his signature in January, and House Speaker Nancy Pelosi recently gave a February 15th deadline for a bill to be on the president’s desk.  The remaining $350 billion bailout money is still unspent, with Congress unhappy with how the first $350 billion has been doled out to financial institutions, and is requiring more oversight on how this $350 billion will be spent.  President-elect Obama stated that these funds not be used for financial institution or any business bailout but to help homeowners avoid bankruptcy and obtain home mortgages.

Obama’s stated desire for having an $800 billion economic stimulus package passed by a large majority of both Democrats and Republicans may be going by the way-side as many Democrats are unhappy with the proposed tax cuts and Republicans wary of adding to the projected federal deficit and further alienating the  already disgruntled electorate.  Public opinion poles have shown that the American people are not happy with the original bailout and added taxpayer burden, although since this is not an election year, it may not factor in as much to the ultimate passage of a stimulus package, more to the size.

Peter Orszag, designated head of the Office and Management and Budget told the Senate Budget Committee on Wednesday to expect federal budget deficits to be about 5% of the size of the economy for the next 5-10 years.  What that would mean is deficits in the neighborhood of $750 billion in the next couple years, increasing to $1 trillion a year thereafter.  The $750 billion federal budget deficit he is predicting this year, seems rather conservative what with an almost $500 billion deficit in the first quarter and a stimulus package in the neighborhood of three-quarters of a billion.  There is going to have to be some large cuts in spending somewhere in the budget, which seems unlikely with a Democratic-controlled Congress.  To be fair, though, President Bush and Republican-controlled congresses ran up some huge deficits for most of the Bush administration years.

So hold onto your hats and wallets taxpayers.  No matter how effective or ineffective the final Obama stimulus package will be, you and I will be paying for it for a long, long time.