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February 17th, 2009
09:50 AM ET

Obama Faces Growing Economic Storms

Program Note: Tune in to hear more from David Gergen tonight on the AC360° at 10 p.m. ET. And watch him on the CNN Money Summit on Friday at 11 p.m. ET.

David Gergen | Bio
AC360° Contributor
CNN Senior Political Analyst

This is a good moment to look ahead at the extraordinary challenges facing President Obama and how he and his team will try to solve them. Based on what has appeared in the public press as well as personal conversations in Washington, here is my best take:

In winning passage of the stimulus package, the President managed his way successfully through his first storm but he and his team recognize there are darker, more treacherous ones ahead. The economy has been deteriorating at such an accelerating rate in recent months that the administration had to expand the size of the stimulus package far beyond what they originally envisioned. If the economy continues to sink – and signs around the globe point in that direction – even this package will not be big enough. And economists of almost every stripe complain that its impact was weakened during the political wrangling.

For now, administration insiders believe that the package will begin to help quickly in saving jobs that might have been lost (e.g., with infusions of fresh money, state governments will not have to fire as many people). But insiders are not really expecting the stimulus to start creating many new jobs - or at least those that will show up in statistics – until early next year. Moreover, they recognize that they may have to come back for additional installments of stimulus in the months ahead. No future package should be as large, but there is likely to be a clear need to expand unemployment benefits again. So, look for more stimulus down the road – we just don't know how much.

Here, in a nutshell, is a take on other issues rushing at the administration:

The auto crisis – As General Motors and Chrysler send their reports to Washington, scheduled today, there is a sense in the administration that no good choices lie ahead. The options are likely to boil down to a big, new infusion of money from the feds or a structured bankruptcy of the companies. Either way, there will be pain for auto workers, creditors, shareholders and others. In contrast to a few weeks ago, when the Obama team seemed extremely reluctant to allow a structured bankruptcy, I sense that they may be more open to the idea today. The fact that the President did not appoint a "car czar" suggests that they are not looking to have the tough medicine administered by the administration – as Democrats, do they really want to slice wages and close plants? – but rather, they might prefer to have it done by the courts or some other independent force.

The housing crisis – The President is scheduled to announce a relief plan this Wednesday in hard-hit Phoenix. The first question will be whether it has enough details to judge what it will do – something sadly lacking in the bank bailout "plan" announced by Treasury Secretary Geithner a few days ago. (He got badly hurt in that episode but can still rehabilitate the policy and himself.) The other issue is how the administration will provide mortgage relief to homeowners – if it is through cash infusions, that will be expensive, but if it is through judicial interventions, that could send up interest rates. My bet: more money. One good thing about a housing solution: it adds to stimulus.

The banking crisis – This is the lollapalooza. The cost of a banking bailout will be at least three times as big as the stimulus package. In the estimate of many experts, much of the banking industry (not all) is insolvent – its liabilities now exceed the value of its marked-down assets. So far, the government is ducking the question of how to get those toxic assets off the books of the banks. There is a growing sense in Washington and on Wall Street that we are moving toward nationalization of some major banks. That's not what the administration wants, but experts believe that is where we are heading – and overseas, there is a growing chorus that the sooner the better. This is a very, very tough problem for the administration.

Federal deficits - Toward the end of February, the administration will announce its budget forecasts. My bet is that the predicted deficits will be eye-popping in size and longevity. That is partly because the Obama team will introduce more truth in budgeting, showing – unlike the Bush administration – what the real costs will be of Iraq and Afghanistan as well as other looming domestic initiatives. The White House clearly wants to move full steam ahead on health care reform and reform of energy policies this year – both costly. The hard political question in the country will soon be: how much more can we really afford? Is bailout fatigue going to set in, too?

Nobody knows the answers to all the questions just over the horizon. What insiders do recognize is that President Obama will need the political skills of an FDR and the tenacity of a Lincoln to help the country navigate through the storms that are coming.


Filed under: CNN Money Summit • David Gergen • Economy
soundoff (225 Responses)
  1. Karen

    The newly signed American Recovery and Reinvestment Act includes a provision for the Temporary Suspension of Taxation for Unemployment Benefits, but the provision states that it is for taxable year 2009. Is this an error? I can't help but wonder why this provision wouldn't cover those who were unemployed this past year
    (2008) and are now facing a federal tax bill?

    February 18, 2009 at 5:41 pm |
  2. Ethel

    Lastrep,

    Your post got me thinking. Seems to me that it is about fed control over everything, from banks, to businessess, to state government. Do you see what, it looks like, is shaping up here?

    February 18, 2009 at 5:15 pm |
  3. JIM FALLBROOK CA

    The stimulus package won't work. It was a excuse to get tax and programs passed like Harry Reid's $8 billion bullet train from LA to Vegas. Our socialist president Barack Hussein Obama claimed tax cuts don't work History would prove him wrong. Ronald Reagan and George W. Bush got us out of 2 democrat recessions by giving tax cuts. They liberals always maintained that Franklin Roosevelt got out of the depression through a stimulus called WPA. History shows the recession ended in World War II. Even Gene Penszynski from Vermont knows that. I believe that Obama's approach will extend the recession through out his term. He will follow in the footsteps of Jimmy Carter worst president in history and lose his bid for a second term by a landslide.

    February 18, 2009 at 5:04 pm |
  4. Gloria

    Hi Anderson!

    Love your show!

    I have a very serious concern! My Cobra plan comes to an end at the end of this month. There was no extension passed for Cobra dealing with people 55-65years old. What do we do? I am 59 and my husband is 63 years old. WE WILL LOSE OUR INSURANCE?

    I am unemployed and he is self-employed. The insurance companies are impossible to deal with for private coverage. They either want to deny you or exclude things as important as your heart!!!! Outrageous!!!!!

    It would be nice if Congress would dive into, in very short order, a way to provide ALL citizens affordable health coverage minus the pre-existing conditions. It is very important to all Americans at all ages!!!!!

    Can you visit this issue on your show?

    Hopefully,

    Gloria

    February 18, 2009 at 4:29 pm |
  5. jc

    the other question is since the loan will be over 80%ltv is the PMI going away? or are we going to be obligated to pay PMI since we owe more than the house is worth due to falling home prices?

    February 18, 2009 at 4:06 pm |
  6. jc

    the question I have is how can an individual find out if there current mortgage is held or guarantee by fannie mae and freddie mac?
    from what I have been reading those held or gurarantee by fannie and freddie are the only ones that qualify to refinance if you are current and you owe more than what your house is worth. Meaning you are over the 80%ltv.

    February 18, 2009 at 3:53 pm |
  7. Lastrep

    I read no further than this sentence. "For now, administration insiders believe that the package will begin to help quickly in saving jobs that might have been lost (e.g., with infusions of fresh money, state governments will not have to fire as many people)." Great, just freaking great. Government people get to keep their tax paid jobs with more taxpayer money. I guess government and union members are more important than taxpayers. How pathetic.

    February 18, 2009 at 3:00 pm |
  8. Zippy Gorky

    Spending your way out of this crisis is like drilling another hole in the bottom of the boat to let the water that is leaking in drain out. Let 's see; Geithner is Larry, Obama is Moe and Rahm is Curly. Yeah that' the ticket.
    That Moe, he sure is a good thinker.

    February 18, 2009 at 2:12 pm |
  9. Bill Sanford

    This is a typical CNN biased & slanted article. Gergen is a Tank Media propagandist.

    Why is it, "Obama Team" and 'Bush Administration"?

    Why are the Iraq & Afgan wars driving up the deficit, but 'stimulus' pork is not?

    CNN, Gergen – worthless. I only read this here as part ot the real clear politics page.

    February 18, 2009 at 12:47 pm |
  10. jarrod Newark, Ohio

    Hey he said change now were going into a focused war in afganistan, the one in Iraq, how long have we been in japan....and ohh by the way why are paying to fly are politicians all over the world somone needs to let them know we have what they call a telephone, internet, video conferencing, and didn't cnn succesfully do a hologram interview....wouldn't that be more cost effective than paying for the security measures, jet fuel, safety shall i go on. its sounds to me like world tour vacation at our expense

    February 18, 2009 at 12:31 pm |
  11. CtBob

    O, NYC – You spoke of bi-partisanship. Tell that to Pelosi & Company. They shut Republicans out of the crafting of this so called Stimulus Bill. The big O's attitude is "we won". What should have been added was, "so screw you Republicans".

    February 18, 2009 at 12:20 pm |
  12. Travis

    Tammy from Berwick, LA:

    "We whine when the government nanny can’t wipe our butts, give us a six-figure paying job and food, and let us keep our over the top lifestyles. Wake up America before our own selfishness does us all in".

    WELL SAID! I cannot agree more. The residents of this country have become so spoiled rotten and incapable of taking care of themselves that we even expect the government to pay for the houses we couldn't afford in the first place! We want to know, "Where is my check"? "Who is to blame"? Newsflash! It wasn't all George Bush's fault! Democrats played a part in it. Independents played a part in it. We all played a part in it.

    Look in the mirror people. You will see the the reason for the deficit and the answer to the problem. Taxes MUST go up and spending MUST go down. To pretend otherwise will just accelerate the oncoming train wreck.

    February 18, 2009 at 12:17 pm |
  13. llabesab

    To all Liberals who voted for Obama. Please follow instructions:

    1. Get sheet of paper.
    2. On paper write "..Why did I vote for Obama?"
    3. Place sheet on envelope.
    4. Seal envelope.
    5. On face of envelope write "..To be opened on February 18, 2010,
    while on way to Unemployment Office."

    February 18, 2009 at 12:07 pm |
  14. ChriSarasota

    Let me get this straight...Go into debt in order to make it easier for people to go into debt....and then go into debt to pay for the debt that made it easier for people to go into debt...all because it was too easy for people to go into debt.

    My McMansion says yes, but my braiin says capitalize the military and go to Mars.

    February 18, 2009 at 12:01 pm |
  15. Frank LdR

    With all due respect Mr.Gergen,I have yet to see Mr.Obama demonstrate any of the political or leadership qualities of a Reagan,FDR or Lincoln.Although,having seen you on CNN you've
    tried hard, to projection those qualities on him.My guess is at best w/
    dealing with a Carter II here.Good luck to us all!

    February 18, 2009 at 11:56 am |
  16. Mike M.

    Biased media? I posted a comment about the Democrats controlling the house and senate the last two years and its not posted? Congress the house and senate controlled by the Dems slipped some stuff in on OBAMA in the bill he signed yesterday. Does he get the blame like BUSH does the last two years. The Democrats controlled the house and senate the last two years but all I read here is "8 years of Bush". Post this so the facts can be shared.

    Dont take my word for it. look up "Historical Democratic control of congress"

    Bush has his share of the blame. The Democrats need to stand up and take their share as well. What were the Democratic congressmen doing the last two years when this melt down started? Ask that question.

    February 18, 2009 at 11:48 am |
  17. Phil R.

    In regard to the GM bailout.....I thought we were going to retain and create jobs with this ridiculous stimulus package.

    GM is going to close 5 more plants, eliminate 1000's of dealerships, and eliminate 47,000 jobs. Why in the world would anyone consider giving these idiots more money unless they keep jobs. Plus, think of all the jobs from suppliers and all the peripheral companies that will be lost.
    So much for job creation.

    February 18, 2009 at 11:31 am |
  18. gliderdriver

    Toyta, Nissian and Hynda don't seem to be in a crisis mode.

    I bought a house I can afford in a location I can afford. My adjustable rate mortage went down this year from 5.7% to 3.75 %. Why?

    I bought what I can afford.

    So if I make good decisions, pay my bills, live within my means without asking for a hand out, IS THERE A GIOVERNMENT PROGRAM FOR ME???

    Of course not.

    February 18, 2009 at 11:25 am |
  19. Steve

    The story of this administration will be what it does to the Bill of Rights and the U.S. Constitution. There have never been as many enemies of our liberty in high positions of power as there are now. Freedom of Speech? Freedom to bear arms? The Ninth and Tenth Amendments?
    The right to own and use property? The God-given right for a child to survive to birth? The currency may very well collapse, all the banks nationalized, and the national capital moved to Crook Co., Illinois, but the damage he does to Freedom may very well haunt Obama the Unready's reputation forever.

    February 18, 2009 at 11:12 am |
  20. Lydia in NJ

    Everything Obama does results in a loss of confidence both in the stock markets as well as consumer confidence. Free markets are not perfect, but they beat the alternatives – socialism, communism... that Obama and the liberals seem to favor... Lets get the liberals out and let the grownups fix the system again like they always do. And don't get all "George Bush did it" on me. George Bush's failing were where he sided with liberals – spending, environment, etc... George Bush went to Washington and became an enabler of liberals. So, I'm not saying Bush – I'm saying Reagan. I like what I see starting to rise up on the right – Cantor, Steele... these are the faces of hope for me. Read the WSJ. Read drudgereport.com. Educate yourselves...

    February 18, 2009 at 11:05 am |
  21. Matthew

    David Gergen is a joke! He is a biased apologist and propagandist for the Democrats. All during the campaign I continued to listen to his biased and ill formed opinions. Now that it is becoming clear that social engineering by the Democrats (forcing loans to high risk individuals) and endless attacks on our Capitalist system are destroying the greatest nation ever created, perhaps we can get back to the Truth. For all the criticisms of the Bush Administration and the spending and the tax cuts, Democrats alternatives involved even more money than President Bush proposed.

    My wife and I have taught our daughter the value of hard work, only buying what we can afford and the greatness of America. If more Americans acted responsibly and deferred their need for instant gratification we would not have gotten into this mess in the first place. Having stated the obvious I will finish with one final obvious point. America will overcome this recission, regardless of the ill conceived decisions by the current President.

    God bless and keep the United States safe.

    February 18, 2009 at 11:04 am |
  22. mike v

    David, all you and others talk about is "infastructure," do you or anyone you really know have a son or daughter who will get a job out of the infastructure? Thought not. Be honest with us. The state crews won't get bigger without illegals who dominate the construction industry. Look around...

    Be positive,

    Mike

    February 18, 2009 at 10:56 am |
  23. Randy

    The big question is what will California do when the massive earthquake hits and devistates the economy even more...?

    February 18, 2009 at 10:46 am |
  24. lee

    Spencer

    It is because the media has been mesermerized by Obama..........remember the "tingling up my leg" comment by Chris Matthews, MSNBC.......................what a joke.

    February 18, 2009 at 10:40 am |
  25. Kristi

    Sometimes it is really hard to listen to all this commentary. Reason being is that most of you are stupid. "Republicans ran us into this mess". The last 4 years of Bush's presidency there was a democratic senate and house. I think there is a lot of blame to go around, not just to Bush.

    Also, do not forget that Clinton's surplus he left the Bush administration was also helped by a Republican Senate and House.

    Take some time to learn how government works before you start talking. Also Als........ lets not forget our great Governor (Grey Davis)that was actually booted out before we elected Schwarzenegger.

    February 18, 2009 at 10:39 am |
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