Obama Helpless in Shoring Up American Economy

The economy is the number one concern for American people. Obama’s approval rating has been on a steady decline since he was elected a year ago. The Democratic Party’s defeat in the Massachusetts’ senatorial election showed that people are disappointed in his government. The main reasons are the slow economic recovery and the high unemployment rate. People are also unhappy about tax-funded bailouts followed by large banking executive bonuses. The combination of a sluggish economy and the mishandling of banking bailouts laid a foundation for the low approval rating.

Confidence level is still low

Economic recovery has been an important focus since Obama took office. His $800 billion stimulus package still had an impact on the first half of this year. He also set extra-low Federal Reserve interest rates to further create a net negative 4 percent interest rate. All the efforts started to take effect. The U.S. GDP rose consecutively in the third and fourth quarters of last year. Additionally, the banking bodies have stabilized. However, all these signs did not put people at ease. The lack of confidence is understandable. The stabilized American banking systems and economic recovery did not have a firm foundation: banks rely mainly on the housing market bubble and toxic assets for profit and share dividend. Capital shortage and credit crunch issues still persist. The housing market is still weak and had lost one third of its value before stabilizing. The job losses have slowed, but the unemployment rate hovers at slightly over 10 percent and is still far from recovery. Analysts thought recent GDP growth was fueled by backfilling the depleted warehouses, which will not persist.

Obama is well aware of the public opinion. Therefore, in the recent State of the Union address, he placed great emphasis on economic issues and proposed many concrete measures. The four main initiatives include financial reform, encouraging innovation, increasing exports and more educational funding. All actions are aimed at fostering entrepreneurship and helping the middle class with tax incentives and financial aids. Mentally, Obama also tries to stir up patriotism by saying that the U.S. would not accept second place for itself in the world.

Huge financial constraint

Obama has proposed many long-term growth strategies since he became president. In the State of the Union address, he reinforced his commitment by unveiling the new energy plan and high-speed rail systems. Obama’s proposals are both comprehensive and directionally correct. They are also reasonable and timely to meet both short- and long-term needs. The key is to execute the plan, which could face difficult obstacles.

The first obstacle would be financial constraint. Both short- and long-term programs need to be funded. In times of recession, household and company spending have focused on deleveraging and preserving their strength. Therefore, the task to revive the economy rests on the government’s shoulder. But the U.S. is facing an unprecedented spending deficit. The deficit for last year and the projected number for this year would reach $1.3 trillion. This is about 10 percent of the total GDP, which is at a new level since World War II. The projected total financial deficit for the next 10 years would reach $12 trillion, approaching current total GDP.

At this rate, Obama has to watch the spending. His one option is to better utilize the $800 billion stimulus package and TARP money that have already been approved. His only other option would be to use the government controlled discretionary domestic spending, which has grown to $120 billion.

Facing increasing public unease toward financial deficit, Obama had to propose a spending freeze that is not related to national security and medical care. However, the amount involved in the proposal was only around $15 billion, which is like a drop in the bucket. This could cause investors to lose confidence in U.S. dollars and America’s ability to bring the budget deficit under control.

Without sound financial backing, Obama’s economic recovery plan would not have sufficient substance to solve these issues. The roots of America’s problem lie in overspending and lack of investment. Without proper funding, Obama is helpless to shore up the American economy. For example, under Obama’s $8 billion financial package for building high-speed train rails in 31 states, and amount that is only enough to build Hong Kong’s high-speed railway, the average per state funding is merely $200 million. [Editor’s note: While this sentence is mathematically correct, each state received different funding amounts, depending on states’ existing rail lines and grant requests.] America’s road network, seaports, airports and other infrastructure are beginning to age. If no renewing is done, America will soon lose its leading position in the world.