Tales from the Trail

On Wednesday, President Barack Obama plans to announce his latest package of plans to stimulate the sagging U.S. economy, most of which are already known. It was hardly a surprise to see Republicans quickly positioning themselves to block the plans, but more disappointing to the White House must have been the cautious response even from the president’s fellow Democrats on the Hill, who simply said they were looking at the proposals. Even more damning, perhaps, was the verdict from the financial markets, which greeted the news with a big yawn. Both the Dow and the S&P indices ended the day more than one percent lower, dragged down by fresh growth worries in Europe. Economists on Wall Street said the plans would not do enough for small businesses or to solve the Democrats’ biggest economic and political problem: finding work for the 14.9 million unemployed. There are big questions, too, about how the plans will be paid for. “If he chooses to take away a corporate tax break to pay for this proposal, the net gain is zero,” said Andrew Busch at BMO Capital Markets. “This is likely why U.S. stocks are not seeing much of a bounce on the news.”

Last week White House economic adviser Christina Romer left town with a plea for a new deficit-financed economic stimulus. Today it was the turn of former budget chief Peter Orszag to go public with his prescription for the economy and taxes, views which differ from those of his former boss. Orszag suggested that the Bush-era tax cuts should be extended for all Americans for another two years in an effort to spur the economy, with a promise they will be allowed to expire altogether at the end of 2012. It is a view which makes some economic sense, but is unlikely to get much traction with a president likely to be campaigning for re-election that same year.

Some interesting interviews on the first day of the Reuters Aerospace and Defense Summit here in Washington. The CEOs of Lockheed Martin and of Boeing’s defense wing said both companies were well aligned for the new reality of huge fiscal deficits and tight defense budgets. Both men expressed strong support for the administration’s recently announced export control reforms, as well as new plans to extend and expand tax credits on research and development. Lockheed Martin’s Robert Stevens said he also saw the global security environment changing significantly in coming decades: withdrawals from Iraq and Afghanistan, coupled with threats from the Korean peninsula, Iran and China meant resources were likely to be shifted away from land and towards air and naval defense systems.

Finally, strong words today from State Department spokesman P.J. Crowley on a Florida pastor’s plans to burn copies of the Koran on the anniversary of the 9/11 attacks. Crowley said the actions were “un-American”, and appealed to the world’s public not to assume that any action by the obscure Dove World Outreach Center, which boasts only around 30 members, represented anything larger about the United States. Sadly, one can only shudder at the thought of images of Americans burning the Koran being repeated endlessly on TV screens across the Muslim world.

Here are our top stories from today…

Analysis: Obama plan may miss the most important mark – jobs

President Barack Obama’s new stimulus plan directs government assistance to some of the strongest parts of the economy without solving the biggest problem: finding work for the 14.9 million unemployed. The three main ideas he plans to introduce on Wednesday — $50 billion in infrastructure spending plus two sets of business tax incentives — could provide a modest burst of activity in a slow-growing economy.

Washington pundits questioned President Barack Obama’s decision to devote so much time this week to foreign policy with his Iraq speech on Tuesday and his foray on Wednesday into Middle East peacemaking at a time when Americans are preoccupied with the economy.

But Obama’s message next week seems like it will be heavily focused on jobs and the economy. He will mark Labor Day with a “Laborfest” event on Monday in Milwaukee and travel to Cleveland on Wednesday for an event on the economy.

On Friday, he will hold a news conference at the White House.

Could next week bring a decision on how he will fill two key jobs — chairman of the Council of Economic Advisers and the head of the new U.S. consumer agency?

If rescuing the U.S. economy from the Slough of Despond wasn’t enough, President Barack Obama took a stab at finding peace in the Middle East today. Obama is determined to forge a new relationship with the Muslim world, and presumably would like to unquestionably earn the Nobel Peace Prize he was awarded last year. But getting embroiled in the Middle East is a risk for the president, not least because failure to reach an accord could set back his efforts to win over Muslims and achieve solidarity over Iran. Ordinary Israelis and Palestinians are not optimistic about this latest peace effort, and experts say the one-year deadline to reach a deal does not appear very realistic. Nevertheless, it is hard to argue with Obama’s opening remarks today, and his hope that “extremists and rejectionists” should not be allowed to derail the peace process.

It is often interesting when high-ranking officials leave office and get the chance to unburden themselves. White House economist Christina Romer was no exception today, issuing an impassioned plea for more economic stimulus measures, even if they push up the fiscal deficit in the short term. “The only sure-fire ways for policymakers to substantially increase aggregate demand in the short run are for the government to spend more and tax less. In my view we should be moving forward on both fronts,” she said in a speech at the National Press Club. “I desperately hope that policymakers on both sides of the aisle will find a way to finish the job of economic recovery,” she added. WashingtonExtra won’t be holding its metaphorical breath.

Finally today, another win by a Tea Party favorite in Alaska this week underlines that the movement is not just a passing fad, and has the staying power to be  a significant factor in November’s Congressional elections. What’s more, Democratic hopes that radical Tea Party candidates will alienate moderate voters and energize Democrats are not being realized. In fact, Tea Party favorites are already ahead of Democratic rivals in the opinion polls in Colorado, Kentucky and Florida, and only slightly behind in Nevada.

The unemployment rate fell in January to 9.7 percent, the lowest in five months and below that dreaded 10 percent in December. It also foiled analyst expectations for an increase to 10.1 percent.

So a jump-for-joy event in Washington right?

Well, not quite.

The White House publicly decided on a cool, measured response.

(We have to believe someone over there must have let out a cheer, or maybe even clapped, at 8:30 a.m.)

The official response from White House economic adviser Christina Romer was a caution that there would likely be “bumps in the road ahead” and that it was important not to read too much into one monthly report.

Is the economic recession over in the United States? It depends on who you ask, even among President Barack Obama’s advisers.

“Today everyone agrees that the recession is over. And the questions are around how fast we’ll recover,” Larry Summers, the director of the National Economic Council, told CNN on Sunday.

But wait a minute. Not everyone agrees.

Senior White House economist Christina Romer, asked the same question on another television program, said “of course not.”

It’s all about toxic assets today.

The Obama administration has come up with a plan to deal with those loans that are so underwater you need a deep-sea diving outfit to find them (kind of like my NCAA bracket, but that’s another sad story).

The plan is for the government to partner with the private sector — including hedge funds (remember their role in bringing the markets down?) — and provide an antidote for the  toxicity of the bad loans.

Christina Romer, a White House economic adviser, in her explanation of the program managed to mix a sports metaphor with a coin toss (again we’re back to the NCAA bracket).