Two days after arriving in Martha's Vineyard, President Barack Obama is taking a break from his vacation to make some news: he will announce that he is nominating Ben Bernanke to a second term as chairman of the Federal Reserve.

Investors have given Bernanke, whose current term expires on Jan. 31, 2010, high marks and had widely expected his reappointment.

But the announcement is being made earlier than expected and comes not just during Obama's family vacation but also on the day that the White House Office of Management and Budget and the non-partisan Congressional Budget Office both release their midyear budget updates.

The reports are expected to show the government will spend a record $1.6 trillion more than it collects this year and nearly double its outstanding debt over the next 10 years.

The grim fiscal picture could provide fodder for opponents of Obama's costly plan to overhaul the healthcare system.

So why is Obama interrupting his vacation to announce Bernanke's renomination? Does he hope to inject a sense of continuity and stability by erasing doubt over who might lead the Fed?

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Photo credit: REUTERS/Jason Reed (Obama and friend Eric Whitaker wave as they golf on Martha's Vineyard)

If you thought the Obama administration's $787 billion economic stimulus program was meant to provide one big jolt to the economy, you've got it all wrong, Vice President Joe Biden says.

"The act was intended to provide steady support for our economy over an extended period -- not a jolt that would last only a few months," he wrote in an op-ed piece in Sunday's New York Times.

More than a third of it is tax cuts for 95 percent of working Americans, he says. Another chunk of it goes for extended unemployment insurance and healthcare for those hardest hit by the recession.

"The bottom line is that two-thirds of the Recovery Act doesn't finance 'programs,' but goes directly to tax cuts, state governments and families in need, without red tape or delays," Biden says.

The final third of the funds goes for infrastructure projects, including what the vice president calls the "largest investment in roads since the creation of the Interstate highway system."

So no big economic jolt -- more of a big long-run infusion.

But hang on, says Don Stewart, a spokesman for Senate Republican leader Mitch McConnell. That's not how the Obama administration sold the package to the public.

President-elect Obama said in November there was consensus among conservative and liberal economists that "we need a big stimulus package that will jolt the economy back into shape."

At the end of March, Biden told a gathering in Chile the recently passed Recovery Act "provides a necessary jolt to our economy to implement what we refer as 'shovel-ready projects."

And as late as June, he was telling business leaders in New York the stimulus package was "an initial big jolt to give the economy a real head start."

Stewart suggests the vice president's op-ed is aimed at resetting "the purpose of the trillion-dollar stimulus bill, I guess to help explain why unemployment continues to go up."

But Biden isn't the first to say the stimulus was a longer-term program. The White House back in May referred to the Recovery Act as a two-year program.

And Obama said in his weekly radio address a couple of weeks ago it "was not designed to work in four months -- it was designed to work over two years."

So what do you think? Is the administration changing its tune on how fast the stimulus was expected to work?

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Photo credit: Reuters/David Mdzinarishvili (Biden speaking to the Georgian parliament in Tbilisi July 23)

Despite their outward modernity, many people across the Nordics find their moral compass in Jante Law, an early 20th century concept which basically says: You are no better, no smarter and no more important than anyone else.

A touch of such humility, according to Finland’s central bank governor Erkki Liikanen, is being adopted by the most unlikely of audiences — European and American policymakers.

And it is already bringing benefits, Liikanen said. “Because it has hit us all and so much is new in the collapse of the international financial system — it has made people humble,” said Liikanen, who sits on the European Central Bank’s rate-setting Governing Council.

“There is nobody lecturing now, people want to find solutions. This kind convergence of views has been overwhelming compared to any other experience in my past,” he said in a speech in Oslo on Friday.

U.S. President Barack Obama came to Europe “to listen” instead of preach, as his predecessor was accused of doing. And joint global action, Liikanen says, has already done much to bring back financial market liquidity in the wake of last year’s crunch and is now tackling the problem of banks’ capital.

Liikanen said the crisis could also refine the way central banks make decisions, perhaps place more emphasis on issues such as asset price bubbles and the real economy in addition to closely analysing monetary aggregates detailing money flows.

“I am sure that when we get out of this crisis, all those who think we need one model by which to run our monetary policy will be more humble,” he said in a thinly veiled swipe at monetarists. “In monetary policy, it is good to look at all the data you have, it is good to learn.”

But he said conducting monetary policy without giving money a role is like studying theology without giving God a role. 

The ECB itself took first steps on a new path on Thursday, when it decided to start buying covered bonds for $80 billion.

 So are the global media underplaying humility and a spirit of cooperation learnt from the crisis? Or is Liikanen just being polite?

When things are down and out people tend to go in search of higher powers.

And President Barack Obama is, after all, a person (and does not walk on water like some fans might believe).

His speech on the economy, given in a hall with painted religious figures at Georgetown University, a Jesuit school, was sprinkled with religious metaphors. Perhaps he's hoping for some divine intervention out of the country's financial mess.

(The religious metaphors come on the heels of Obama's first attendance at a Sunday church service since he became president. Coincidence?)

"There is a parable at the end of the Sermon on the Mount that tells the story of two men. The first built his house on a pile of sand, and it was destroyed as soon as the storm hit," Obama said.

"But the second is known as the wise man, for when '...the rain descended, and the floods came, and the winds blew, and beat upon that house...it fell not: for it was founded upon a rock."

And wait for it... here it comes... the tying of the Sermon on the Mount to the U.S. economy...

"We cannot rebuild this economy on the same pile of sand. We must build our house upon a rock," Obama said.

And the president isn't the only one in government getting religion on the economy.

Federal Reserve Chairman Ben Bernanke gave a speech titled "Four Questions about the Financial Crisis" -- a reference to the Jewish holiday of Passover.

"As you may know, a highlight of the traditional Passover meal occurs when the youngest child asks four questions, the answers to which tell the history of the Jews when they were slaves in Egypt and during their exodus to the Promised Land," the head of the U.S. central bank said.

"In the spirit of the holiday, today I will pose and answer four important questions about the financial crisis," Bernanke said.

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Photo credit: Reuters/Larry Downing (Obama at Georgetown University), Reuters/Str Old (Aerial view near Sea of Galilee of hill where Jesus gave Sermon on the Mount)

He loves the Queen and the British people. Truth be told, President Obama was always going to be a hit on his first overseas trip.

But Gordon Brown probably could not believe his luck. The prime minister just could not stop grinning as he stood next to the new president at a news conference in the Foreign Office ahead of the G20 summit.

He must have always been hoping for a bit of the Obama magic to rub off on him and revive his battered ratings but he can’t have expected the ringing endorsement he got.

Tony Blair and George W Bush. Ronald Reagan and Margaret Thatcher. Britain has always liked to make much of the special relationship between it and America and any doubts it was in danger under Obama could be put to rest this week.

Obama looked on intently as Brown made his opening statement, referring to him by title.

But the formality dropped as soon as it was Obama’s turn, as he thanked his hosts “Gordon and Sarah” and said he had been discussing dinosaurs with their two sons.

The United States and United Kingdom have always stuck together, he said. That’s why he was pleased that his first overseas trip was to visit Brown.

Brown’s face immediately lit up. Soon he was calling the president “Barack”, joking that he was keen to introduce him to
his friends in the British press.

Even a question about Brown’s regular remark that the crisis was made in America passed without a hitch, as Obama readily accepted the United States had to share some of the blame.

Asked what advice he would give to Brown on winning an election, Obama said: “The only advice I would give him Gordon is the same advice I gave myself — good policies are good politics.”

But the presidential hand on Brown’s back as the two men left the podium may be the biggest helping hand of all.

On Monday, Nobel-laureate Paul Krugman wrote that Treasury Secretary Timothy Geithner’s plan was not only doomed to fail, it was, in fact, filling him with despair.

But life can’t be all despair for the Princeton prof. Earlier this month, an enterprising songwriter named Jonathan Mann wrote a catchy little diddy wondering why the New York Times columnist wasn’t in the corner office at 1500 Pennsylvania Avenue.

Tell us what you think. Should Obama dump Tim and put in Paul?

How do you buy $750 billion of toxic bank assets with only $250 billion of taxpayer money?

If you know to play U.S. budget rules like a violin.

President Barack Obama told Congress in passing this week he might need more money than lawmakers have already approved to stabilize banks and pull the economy out of the ditch. 

How much? His budget virtuoso Peter Orszag said on Thursday he could support buying up to $750 billion in bad assets but only needed to set aside $250 billion to do it.

Regular US budget rules assume government credit subsidies will recoup some of their value. Appropriators budget for such items according to how much they think the government will lose -- not the full amount of the credit.

Orszag explained his thinking on Thursday:

"Honest budgeting suggests, when you pay a dollar for a financial asset, that doesn't make the government worse off by a dollar," he said at a news conference. "It's not the same thing as a net cost of a dollar, because you are getting something in exchange for it."

Why didn't they do this earlier? Well, in the knock-down-drag-out fight to get Congress to approve the first bailout plan, the $700 billion TARP, the Treasury Department had to agree that money used would be counted dollar for dollar against the total. Thus, when the Treasury had committed $247 billion of the first half by the end of 2008, it counted as an increase of the debt held by the public of $247 billion.  

Some thought this approach overstated the costs of the bailout, including the venerable Congressional Budget Office.

 "The budget should only record the subsidy cost of those purchases (an estimated $64 billion)," the independent agency wrote in January, referring to the $247 billion that had been spent by the end of the previous year.

New administration, new outlook. Asked whether he was taking leave to do something a little different, Orszag, who ran the CBO until Obama named him budget director,  replied:

"That is the way the Congressional Budget Office - which, since I used to run it, would say it has a very good reputation for doing things honestly and well -- that's the way it does it, and that's the way we're doing it also." 

In the end Congress will have to decide whether it is in tune  with the Obama administration's get-three-for-the-price-of-one way scoring of the next bank bailout initiative. 

REUTERS/Jim Young (President Barack Obama makes statement on 2010 Federal Budget)

If you're among those upset that your taxpayer dollars may be spent in volume to rescue people who -- for whatever reason -- can't make their mortgage payments, Federal Financial Analytics analyst Karen Shaw Petrou recommends thinking about it this way:

"Preventing foreclosures has a lot in common with treating syphilis. In both cases, you help some who are undeserving, but – in an economic collapse or a public-health emergency – one acts nonetheless. "

Just as in an serious epidemic, you'd take care of the problem and leave moral judgements to others, the right course of action is to take action to halt the housing crisis and leave the debate about moral hazard to economists, she wrote in a note to clients on Friday.

Yes, it's possible that under President Obama's plan to prevent mortgage foreclosures, some borrowers who could make their current payments may score a "quickie refi" at potential taxpayer risk, Petrou says.  Others may abuse a provision that allows judges to reduce the amount of principal on some loans, she adds.

But give the Obama plan credit for trying to be fair by trying to weed out the the undeserving by limiting relief in certain ways, Petrou writes.

And in any case, the current crisis is the "the financial equivalent of a mortal epidemic," she says.

Plenty of time to lecture about practicing safe credit later.

Simon Johnson is a former chief economist at the International Monetary Fund and is currently a professor at MIT and a senior fellow at the Peterson Institute for International Economics. Reuters is not responsible for this content and any views expressed are the author’s alone.
 

Senator Barack Obama won the presidency on Tuesday and comes to Washington in January. But before he even takes office, leaders from around the world descend on Washington November 15th for a Group of 20 summit to tackle the global financial crisis.

The US is saying that a statement of principles (or is that platitudes?) and the establishment of some working groups would constitute success.  The Europeans, particularly Messrs. Brown and Sarkozy, want to establish a process that moves towards some sort of new international financial/economic system (”Bretton Woods II” is the jargon), although they are still quite divided on what this would mean in terms of regulation for financial institutions or - the key point - capital flows.  The emerging markets, who will be very important participants, are not yet putting their cards on the table.

There is another, more pressing potential agenda item currently being discussed (mostly behind closed doors).  While this may not to come to the forefront in public discussion, as markets are now relatively quiet, if there is a major downturn in sentiment or if the news about the real economy in the US and elsewhere is sufficiently dire, this issue (and all that goes with it) may well find itself right in the middle of the negotiating table - perhaps as early as the G20 finance ministers and central bank governors meeting in Brazil this weekend.  (Remember: this meeting used to the culmination of the annual G20 process; the heads of government meeting is an innovation, and really needs to deliver something out-of-the-ordinary in order to be worthwhile.)

Here is the main item on the shadow agenda: the IMF needs a lot more money.

The powers-that-be (read: US, UK, France; probably not Germany) have over the past week or two made their approach to the globalization of the crisis clear - they want the IMF to fund continuing growth in emerging markets.  In the age-old choice between “adjustment” (tight money, painful fiscal contraction, etc) and “financing” (borrow more) to deal with external payments problems, the G7 and their friends would like the emerging markets to finance, big time.  This will keep world growth higher and thus keep the G7 (and their banks) from getting into even deeper water.

It’s risky, of course, because global deleveraging - the big contraction in global credit that is likely already underway - means lower asset prices, including lower commodity prices, and most likely a reduction in global growth for the foreseeable future.  Cushioning the blow is fine, but commodity exporters need to do some adjusting and all emerging markets may need to cut back, to some degree, in order to keep things sustainable.  And someone (in or around the IMF) has to decide how much growth in emerging markets is “right” for this situation.

In particular, in the global strategy we now see forming, a key issue for sizing IMF (and related) resources is credit growth in emerging markets.  This has been high, fuelled in part by loans taken out in foreign currency, i.e., borrowing from abroad.  The effects of this now, in terms of slowing growth, are most obvious in East-Central Europe, but are beginning to be felt in many emerging markets.  The private sector is cutting back on its lending to emerging markets.  How much does the IMF want to step up and fill this gap?  The publicly available information on the Hungarian program suggests an answer: a lot.  (The final program details will likely be published early next week, then we can run the numbers properly.)

Now, there are many options for increasing the resources for IMF programs, including the funds that it brings as a so-called catalyst (this could be from the European Union for EU members like Hungary, or from other countries/groups on a case-by-case basis).  But given the nature of this crisis, it would be good to announce at least some of the resources that are available.  Among other things, this would signal the scale of further monies that would be made available if needed.

The IMF has $200-250bn in available resources.  They put $100bn into what we are calling their Express Boarding Lane (i.e., keep your policies basically are they are; have some money).  About $50bn are probably already spoken for, in lending to about half a dozen confirmed and likely customers.  Clearly the remaining $100bn is not enough for the rest of the world, particularly if the idea is to help finance continued high growth, rather than force painful adjustment.

How much is enough?  That is not the right question.  The right question is: how much would convince the market that the IMF can draw on the essentially unlimited pockets of the G20, in order to achieve just a gentle slowdown in world growth.  Clearly $50bn would not do that, and I doubt that $100bn could now be decisive. I’ve floated $1trn (trillion, with a “t”) as a plausible amount, around which to open discussion.  Unoffficial reactions to this so far have been positive, but let’s see what we hear officially.

Democratic presidential nominee Barack Obama and Republican nominee John McCain meet tonight at Hofstra University in New York, their final scheduled appearance together before election day.

The third encounter was meant to be the debate to focus the economy and domestic issues. But the economy couldn’t wait.

The $700 billion government bailout was the first topic at the almost-didn’t-happen-first-debate with PBS moderator Jim Lehrer.

Tom Brokaw of NBC News selected his first question from Allen Shaffer, who asked about on the economic downturn and retirees at the Town Hall meeting.

CBS anchor Bob Schieffer moderates tonight’s debate, hours after the Dow Jones Industrial Average and the benchmark S&P 500 suffered their worst one-day percentage drops since the 1987 stock market crash .

And Federal Reserve Board Chairman Ben Bernanke told a group of economists in New York that policymakers may need to use their regulatory authorities to predict and curtail asset bubbles in the future so that we don’t see such wild swings in the economy.

What would you ask if you were in Schieffer’s seat?