WASHINGTON – President Barack Obama is marking the fifth anniversary of the Lehman Brothers collapse by trying to lay claim to an economic turnaround and warning Republicans against moves that he contends would risk a backslide.
His message to the GOP: don’t oppose raising the nation’s debt limit, don’t threaten to close down the government in a budget fight, and don’t push to delay the health care law or starve it of federal money.
The economic emphasis, after weeks devoted to the Syrian crisis, begins coming into focus in a series of events kicked off by a Rose Garden speech Monday. It’s a determined effort to confront public skepticism about his stewardship of the economy and to put down his marker for budget clashes with Congress in the weeks ahead.
The White House argues that a better capitalized and better regulated financial sector is extending more credit, fueling an economy now able to withstand headwinds such as spending cuts and tax increases.
“You can draw this straight line from the health of the financial system to the ways the financial system impacts the economy,” said Jason Furman, the chairman of Obama’s Council of Economic Advisers.
Obama can point to a growing economy, rising housing prices, 35 straight months of hiring, a rebounding stock market and other signs of recovery.
Five years after the federal government stepped in and infused banks with $245 billion in taxpayer money to avert a financial meltdown, the government has been paid back nearly in full.
Sunday is the fifth anniversary of Lehman’s bankruptcy, which was the largest in U.S. history. The firm’s demise marked the beginning of the global financial crisis and was a major catalyst of the financial meltdown.
“We’ve put more people back to work, but we’ve also cleared away the rubble of crisis and laid the foundation for stronger and more durable economic growth,” Obama said during his recent trip to Russia.
“And as Congress takes up important decisions in the coming months, I’m going to keep making the case for the smart investments and fiscal responsibility that keep our economy growing, creates jobs and keeps the U.S. competitive. That includes making sure we don’t risk a U.S. default over paying bills we’ve already racked up.”
Obama intends to highlight that progress to economists and other guests at the White House on Monday, and his National Economic Council is set to release a report detailing the economic advances.
Obama planned to discuss the economy as part of an interview airing Sunday on ABC’s “This Week” and scheduled a speech Wednesday to the Business Roundtable, an association of CEOs from the biggest U.S. companies.
But the public is not convinced that the economy is on the mend. Only one-third say the economic system is more secure now than in 2008, and 52 per cent say they disapprove of Obama’s handling of the economy, according to a Pew Research Center poll. There is still plenty of pain to justify their pessimism.
Despite job growth, the unemployment rate remains high at 7.3 per cent. Though the rate has fallen, one of the reasons is because some people have dropped out of the labour force and no longer are counted as job seekers. The income gap between the very rich and the rest of the population is the biggest since 1928.
“We have genuinely made progress. We genuinely have more work to do,” said Furman.
What’s more, some banks that received government aid because they were deemed “too big to fail” are now bigger than they were in 2008, but they are smaller as a share of the economy than the largest banks in other big economies. Three years after Obama signed a sweeping overhaul of lending and high-finance rules, execution of the law is behind schedule.
“We should not accept a financial system that allows the biggest banks to emerge from a crisis in record-setting shape while ordinary Americans continue to struggle,” said Sen. Elizabeth Warren, a Massachusetts Democrat who watched over the bank bailout as head of a special oversight panel.
This glass-half-empty-glass-half-full state of the economy has produced competing story lines about the role Obama’s administration has played in getting the country to this point. Did Obama’s approach validate the philosophy of spending your way out of crisis or did some of his policies actually slow the recovery?
The bank bailout, which started during the closing weeks of President George W. Bush’s term, was highly unpopular but is generally credited with stabilizing the financial system.
Obama continued the program and ultimately used some of the $700 billion that had been allocated to prop up the financial system to bail out General Motors and Chrysler, a move generally accepted as a success.
Still, voters in 2009 and 2010 rebelled, and the bank bailout vote cost some lawmakers their seats.
Former Rep. Barney Frank, the Massachusetts Democrat who headed the House Financial Services Committee, noted the other day that “you don’t get credit for disaster averted.”
Some conservative economists say the $800 billion stimulus Obama pushed for in 2009 initially did help reverse the plunging economy, even though some liberals insist the dollar amount should have been even bigger.
But much of the credit for the current recovery, tepid as it may be, goes to the Federal Reserve. It has held short-term interests rates near zero and has undertaken a massive bond purchase program that has supported spending, lifted stocks and kept home mortgage rates at near record lows.
“The Fed was the single biggest policy move in the crisis. No question about it,” said Douglas Holtz-Eakin, a former director of the Congressional Budget Office and top economic adviser to Republican Sen. John McCain’s 2008 presidential campaign.
The question that defines the debate is not so much whether government steps helped, but whether it could have done more to accelerate the recovery. Many Democrats and liberal-leaning economists say the economy needed more stimulus. But Republicans, worried about skyrocketing deficits, cut back on spending instead.
Now many say the economy needs long term measures that would reduce spending on entitlement programs such as Medicare and Social Security and that would overhaul and simplify the tax system.
“We’ve done too much temporary targeted intervention, we’re passed the time for that,” said Holtz-Eakin, who now heads the American Action Forum, a conservative public policy institute. “It’s no longer 2008 when things were falling like a rock. It’s time to have long-term growth policies. We don’t have them.”
Obama and Republicans are at a stalemate, however.
Obama has proposed some changes that would reduce spending on Social Security and Medicare, including an adjustment that would lower cost-of-living adjustments. But he has insisted on more tax revenue by closing what he says are loopholes for the rich, a step Republicans won’t take.
The impasse has revived threats of a government shutdown after the current budget year ends Sept. 30 and, more economically damaging, a default if Congress can’t agree to raise the debt ceiling later in October.
Some conservative Republicans say they will only extend current spending levels or increase the debt ceiling if Obama delays putting in place his health care law, a condition Obama has flatly rejected.
House Speaker John Boehner, R-Ohio, has tried to keep the focus on spending reductions, even as some on his right insist on defunding or delaying the health care law.
“This year the federal government will bring in more revenue than any year in the history of our government, and yet we will still have nearly a $700 billion budget deficit,” he said. “We have a spending problem. It must be addressed, period.”