Obama also announced a vastly augmented plan to try to stanch the collapse of jobs in the U.S. economy. During his campaign he favored a $175 billion stimulus package, but on Monday he quadrupled that to $700 billion.
Obama's revised plan is well within the consensual mainstream of what liberal American economists believe is essential to keep the domestic U.S. economy afloat. And in scale it is still only comparable to and does not exceed the unprecedented $700 billion that President George W. Bush and his Treasury Secretary Henry Paulson demanded -- and finally received -- from Congress to bail out toppling banks and financial institutions on Wall Street.
Wall Street, in fact, has welcomed Obama's choice of Timothy Geithner as the next U.S. treasury secretary. Investors and analysts alike have acclaimed Obama's economic team as reassuringly moderate, centrist and veterans of the prosperous two presidential terms of Bill Clinton. Obama has also named Lawrence Summers, Clinton's treasury secretary, as his head of the National Economic Council and New Mexico Gov. Bill Richardson, who served as Clinton's secretary of energy and ambassador to the United Nations, as the next commerce secretary.
The leaking of Geithner's name Friday sent U.S. stock indexes rising, and there were more strong gains Monday. But such rallies have occurred often before since the financial crisis exploded in September, and in the past they have been quickly erased by more declines. Such volatility was also typical of the plunging markets in 1929 to 1931 following the Wall Street Crash.
Obama said in the Democrats' radio address Saturday that he wants to create 2.5 million jobs in two years. Considering the state of the U.S. economy, this sounds like a lot. Given that the U.S. economy needs to create 100,000 jobs a month just to keep pace with basic growth of the workforce, it is a holding pattern and not really ambitious.
Obama envisions a $200 billion infusion to invest in replacing worn-out infrastructure and funnel money for such projects to the states. This is pretty much what Speaker of the House Nancy Pelosi, D-Calif., and her allies on Capitol Hill have been pushing in Congress. Congressional leaders have also said they plan to send Obama a $500 billion to $700 billion stimulus bill the day he is inaugurated.
Meanwhile, the Bush administration continues to try to shore up the collapsing U.S. financial system with yet more guarantees. It is taking steps to rescue Citigroup by backing $306 billion in loans and securities and also directly investing about $20 billion to restore confidence in the U.S. banking system -- or at least the bigger parts of it. Geithner was involved in the negotiations until news of his new job came out.
Citigroup presents yet another example of the question: How large does a bank or financial entity have to be to not be allowed to fail? It is huge, with some 200 million accounts in 106 countries, and its stock dive last week worried U.S. economic officials. Bush officials hope their actions will restore confidence in the bank and that confidence will spread to other institutions.
That optimism seems misplaced. The parallels between the continued collapse of the giant American financial institutions and what happened on Wall Street after the stock market crash of 1929 continue to be unnerving and uncanny. So far, the unprecedented infusions of federal credit into the economic system have failed to reverse both the financial meltdown and the hemorrhaging of jobs in the U.S. economy. If the latest Citibank rescue package goes through, the Bush administration will have injected at least $1 trillion of federal finances to shore up the financial system alone.
Obama's domestic rescue package -- while focused very differently and designed to produce tangible relief and infrastructure benefits for ordinary Americans -- will cost at least $700 billion on top of that. At what point will the ability of foreign state banks to hold hundreds of billions of dollars of U.S. Treasury bonds without impoverishing themselves crack? If that happens, hyperinflation would sweep the U.S. economy.
Obama therefore was being all too realistic when he warned Monday that the worst was yet to come and that recovery would be slow and probably hard.