T he new administration’s projected $825 billion stimulus package should create jobs not only in traditional ways, like infrastructure improvements on roads, bridges and school construction. It should also focus on offsetting the sharp rise in hunger and homelessness among the nation’s rapidly growing number of poor people.

Already, low-income advocates predict that people in deep poverty, that is, those with incomes of less than half the poverty line of $21,200 for a family of four, will increase by between five and six million if unemployment reaches 9 percent. Barbara Sard, a policy analyst at the nonprofit Center on Budget and Policy Priorities, has said that such an increase would put as many as a million families at risk of housing instability and homelessness. Even those not yet in deep poverty could face homelessness because of home foreclosures that have already pushed many into the rental market, which, because of competition for affordable rental housing, has experienced an increased demand that in turn has caused rents to rise.

And yet, precisely at a time when help is most needed because of the escalating rate of unemployment, homeless prevention programs in some areas are being cut back because of state and local budget shortfalls.

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President Obama is stressing bipartisanship when it comes to the $900 billion economic stimulus plan being considered in the Senate, and he may get it — in unity of opposition.

Senate Minority Leader Mitch McConnell, R-Ky., said he “can’t believe that the president isn’t embarrassed about” the stimulus packages that have passed the House and the Senate appropriations and finance committees.

The Senate is set to take up debate on the plan Monday afternoon. Republicans insist it won’t go through in its current form.

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President Barack Obama promised on Saturday to help lower Americans’ mortgage costs with a new plan, coming soon, that would revive the financial system and “get credit flowing again.”

Obama, who has made fighting the country’s economic and financial crises the top priority of his young administration, called on the U.S. Senate to approve an economic stimulus bill that the House of Representatives passed this week.

But as economic conditions get worse the president said new strategies were coming to address the country’s ills.

“Soon my Treasury secretary, Tim Geithner, will announce a new strategy for reviving our financial system that gets credit flowing to businesses and families,” Obama, a Democrat, said in his weekly radio address.

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The central question facing policy makers: How does the government help banks exorcise their bad bets? For many of these assets, there is no current market price. If the government buys the assets for more than they are ultimately worth, taxpayers will take the hit. If the government pays too little, banks will have to record losses on other similar assets, exacerbating the problem.

Read it all from the front page of today’s Wall Street Journal.

Throughout 2008, Larry Summers, the Harvard economist, built the case for a big but surgical stimulus package. Summers warned that a “poorly provided fiscal stimulus can have worse side effects than the disease that is to be cured.” So his proposal had three clear guidelines.

First, the stimulus should be timely. The money should go out “almost immediately.” Second, it should be targeted. It should help low- and middle-income people. Third, it should be temporary. Stimulus measures should not raise the deficits “beyond a short horizon of a year or at most two.”

Summers was proposing bold action, but his concept came with safeguards: focus on the task at hand, prevent the usual Washington splurge and limit long-term fiscal damage.

Now Barack Obama is president, and Summers has become a top economic adviser. Yet the stimulus approach that has emerged on Capitol Hill abandoned the Summers parameters.

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In a swift victory for President Barack Obama, the Democratic-controlled House approved a historically huge $819 billion stimulus bill Wednesday night, filled with new spending and tax cuts at the core of the young adminstration’s revival plan for the desperately ailing economy. The vote was 244-188.

“We don’t have a moment to spare,” Obama declared at the White House as congressional allies hastened to do his bidding in the face of the worst economic crisis since the Great Depression.

The vote sent the bill to the Senate, where debate is expected to begin as early as this week on a companion measure already taking shape. Democratic leaders have pledged to have legislation ready for Obama’s signature by mid-February.

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The economic stimulus plan that Congress has scheduled for a vote on Wednesday would shower the nation’s school districts, child care centers and university campuses with $150 billion in new federal spending, a vast two-year investment that would more than double the Department of Education’s current budget.

The proposed emergency expenditures on nearly every realm of education, including school renovation, special education, Head Start and grants to needy college students, would amount to the largest increase in federal aid since Washington began to spend significantly on education after World War II.

Critics and supporters alike said that by its sheer scope, the measure could profoundly change the federal government’s role in education, which has traditionally been the responsibility of state and local government.

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Loath to criticize a president who enjoys stratospheric approval ratings and the good tidings of most Americans, Republicans on the Hill are instead framing their overwhelming opposition to the stimulus bill as a vote against a congressional Democratic leadership that is far less popular than Obama.

“It’s not so much his effort, it’s what the House has done with this bill, what Pelosi has done with this bill,” explained Rep. Kay Granger (R-Texas), a veteran member of the Appropriations Committee.

Rep. Patrick McHenry (R-N.C.), a young conservative firebrand, was more blunt when asked what happened to Obama’s honeymoon: “Ask Pelosi.”

Sen. Kit Bond (R-Mo.), a senior appropriator, said that “several people” registered complaints to Obama that the GOP had not been consulted in the development of the bills now being marked up in the Finance and Appropriations committees.

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Timothy F. Geithner was confirmed Monday night by the Senate as the secretary of the Treasury after a sizable bipartisan majority concluded that his experience in government and finance outweighed concerns about recent disclosures that he had been delinquent in paying about $34,000 in taxes.

The vote was 60 to 34. The tax controversy delayed Mr. Geithner’s confirmation and kept him from taking office just after President Obama was inaugurated last Tuesday, as initially hoped. In a desultory two-hour debate, opponents in both parties cited the tax issue as their reason to vote against him, though a couple of populist senators objected to Mr. Geithner’s leading role in the government bailouts of financial institutions over the last few months.

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Until the markets collapsed, the now-disgraced fund manager Bernard L. Madoff also did what his clients expected him to do, producing mysteriously high returns on their investments. Neither his investors nor the Securities and Exchange Commission seemed to care very much how he did it. In this sense, Madoff is to Wall Street as Governor Rod Blagojevich (apparently) is to Illinois machine politics: an egregious emblem rather than a mere anomaly. Just as it is hard to imagine how a politician so mediocre and unscrupulous could have flourished in a healthy political environment, it seems unlikely that Madoff’s scam could have gone undetected for so long in a healthy-and properly regulated-financial industry. (Of course, most investment managers did not commit fraud, and some of them were no doubt as surprised as their clients by the market’s precipitous decline; there has been incompetence to rival the corruption.)

The credit crisis was caused partly by a lack of due caution, both on Wall Street and in Washington. Paradoxically, it is now excessive caution that may keep us from adequately addressing it. The problem is too big to be solved by minor adjustments or executive temporizing. The Obama administration will need to undertake several large-scale reforms, which are bound to be unpopular with the banking industry and devotees of laissez-faire economics. Credit-rating agencies, for example, must no longer be allowed to work for the companies whose bonds they rate. Credit-default swaps, which were originally designed as a kind of insurance but later turned into an instrument for high-stakes gambling, need to be regulated. Investment firms and banks with financial divisions should be required to hold more capital, so that when things go bad they can cover their own losses instead of cadging a government bailout.

Above all, Congress and the new administration should steer Wall Street back toward its principal function, which is to direct capital to the productive part of the economy, not to peddle complex derivatives or place high-risk bets with other people’s money.

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President Barack Obama and his top advisers sought over the weekend to broaden the appeal of his proposed $825 billion economic-stimulus package and to defend the way they are pushing it through Congress, even as officials said the administration would move quickly to tighten the U.S. financial regulatory system.

But some senior Republicans said Sunday that they would oppose the stimulus plan as it now stands.

With action moving on several fronts, officials said the administration would make wide-ranging regulatory changes, including stricter federal rules for hedge funds, credit rating agencies and mortgage brokers, and greater oversight of the complex financial instruments that contributed to the economic crisis.

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But let us look for a minute at the extent of the loss in perceived wealth that is the main shock to our economic system. If in real terms we assume write-downs of 50% in U.S. equities, 35% in U.S. housing, and 35% to 40%
in commercial real estate, we will have had a total loss of about $20 trillion of perceived wealth from a peak total of about $50 trillion. This relates to a GDP of about $13 trillion, the annual value of all U.S. produced goods and services. These write-downs not only mean that we perceive ourselves as shockingly poorer, they also dramatically increase our real debt ratios. Prudent debt issuance is based on two factors: income and collateral. Like a good old-fashioned mortgage issuer, we want the debt we issue to be no more than 80% of the conservative asset value, and lower would be better. We also want the income of the borrower to be sufficient to pay the interest with a safety margin and, ideally, to be enough to amortize the principal slowly. On this basis, the National Private Asset Base (to coin a phrase) of $50 trillion supported about $25 trillion of private debt, corporate and individual. Given that almost half of us have small or no mortgages, this 50% ratio seems dangerously high. But now the asset values have fallen back to $30 trillion, whereas the debt remains at $25 trillion, give or take the miserly $1 trillion we have written down so far. If we would like the same asset coverage of 50% that we had a year ago, we could support only $15 trillion or so of total debt. The remaining $10 trillion of debt would have been stranded as the tide went out! What is worse is that credit standards have of course tightened, so newly conservative lenders now assume the obvious: that 50% was too high, and that 40% loan to collateral value or even less would be more appropriate. As always, now that it’s raining, bankers want back the umbrellas they lent us.

[And as for our future expectations]….Under the shock of massive deleveraging caused by the equally massive write-down of perceived global wealth, we expect the growth rate of GDP for the whole developed world to continue the slowing trend of the last 12 years as we outlined in April 2008. Since this recent shock overlaps with slowing population growth, it will soon be widely recognized that 2% real growth would be a realistic target for the G7, even after we recover from the current negative growth period. Emerging countries are, of course, a different story. They will probably recover more quickly, and will continue to grow at double (or better) the growth rate of developed countries.

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The White House released new details of an $825 billion economic recovery package on Saturday as President Obama sought to broaden the plan’s appeal a day after stepping squarely into the fractious Congressional debate over the proposal.

In his weekly video address, Mr. Obama argued that the package of spending programs and tax breaks was critical not only to turn around the economy but to rebuild the nation for a new era.

In the address, posted for the first time on the White House Web site, Mr. Obama made the case that the package would help students go to college, protect workers from losing health care, lower energy bills and modernize schools, roads and utilities.

“This is not just a short-term program to boost employment,” Mr. Obama said. “It’s one that will invest in our most important priorities like energy and education, health care and a new infrastructure that are necessary to keep us strong and competitive in the 21st century.”

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The economic stimulus bill that Congress is debating with the Obama administration could reach $850bn or more.

That is a lot of money to spend, and there is an understandable fear that much of it could be wasted. From New Orleans to Iraq, the Bush administration showed that without oversight, even well-financed federal programmes can flounder. A government history of the American-led reconstruction in Iraq is calling the effort a $100bn failure.

But we should not assume that failure is inherent in any large government programme. The New Deal’s Works Progress Administration (WPA), which spent over $11bn from 1935 to 1941, and the Truman administration’s Marshall Plan, which spent over $13bn between 1948 and 1952, might have easily been riddled by corruption. Yet, they never were because Congress built in checks and balances for these programmes, which in today’s dollars would amount to roughly $100bn each.

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Just days after taking office vowing to end the political era of “petty grievances,” President Obama ran into mounting GOP opposition yesterday to an economic stimulus plan that he had hoped would receive broad bipartisan support.

Republicans accused Democrats of abandoning the new president’s pledge, ignoring his call for bipartisan comity and shutting them out of the process by writing the $850 billion legislation. The first drafts of the plan would result in more spending on favored Democratic agenda items, such as federal funding of the arts, they said, but would do little to stimulate the ailing economy.

The GOP’s shrunken numbers, particularly in the Senate, will make it difficult for Republicans to stop the stimulus bill, but the growing GOP doubts mean that Obama’s first major initiative could be passed on a largely party-line vote — little different from the past 16 years of partisan sniping in the Clinton and Bush eras.

“Yes, we wrote the bill. Yes, we won the election,” House Speaker Nancy Pelosi (D-Calif.) told reporters yesterday, saying Republicans were not being realistic in their expectations.

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The Obama administration will take action on a “dramatic scale” to revive credit markets and strengthen banks so they are able to lend, Treasury secretary- designate Tim Geithner said on Wednesday.

Testifying to the Senate committee considering his nomination, Mr Geithner said the Obama team was working on a “comprehensive plan” to deal with the banks and hoped to unveil it soon.

“We’re going to have to do more to make sure that the institutions at the core of our system are strong enough that they can lend.”

He refused to offer any insight into how this might work, in spite of pressure from the markets, saying: “We have seen the costs in terms of uncertainty created by tentative signals not followed up with clear actions.”

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President Barack Obama’s economic team is pushing to complete a bank-rescue plan that can be twinned with the $825 billion stimulus package being negotiated with Congress to alleviate the rapidly deepening financial crisis.

While full details of the rescue haven’t been settled yet, people familiar with the deliberations said the package is likely to include a $50 billion-plus program to stem foreclosures, fresh injections of capital into the banks and steps to deal with toxic assets clogging lenders’ balance sheets.

Officials “feel like they need to move quickly to provide some sense of calmness and assurance to the market that the government isn’t going to let this problem get out of hand,” said John Douglas, a partner at the Paul, Hastings, Janofsky & Walker law firm and a former general counsel at the Federal Deposit Insurance Corp.

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Less than half the money dedicated to highways, school construction and other infrastructure projects in a massive economic stimulus package unveiled by House Democrats is likely to be spent within the next two years, according to congressional budget analysts, meaning most of the spending would come too late to lift the nation out of recession.

A report by the Congressional Budget Office found that only about $136 billion of the $355 billion that House leaders want to allocate to infrastructure and other so-called discretionary programs would be spent by Oct. 1, 2010. The rest would come in future years, long after the CBO and other economists predict the recession will have ended.

The report does not analyze the entire $825 billion package assembled by House leaders and aides to President Obama. Parts of the legislation are scheduled to be considered today in the House Appropriations Committee. Other portions of the proposal — including $275 billion in tax cuts and nearly $200 billion for jobless benefits, health care for the poor and other entitlement programs — are expected to pour cash into the nation’s faltering economy much more quickly.

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So the scramble is on. The big splash water park ”” complete with a gym and “quality meeting space” ”” might sound like a waste of $22 million, but it would provide a nice stimulus for the people of Gastonia, N.C. The travel industry wants a $10 million loan to promote the U.S. as a destination, a tougher job these days. To the American Apparel & Footwear Association, this crisis only highlights the need to eliminate import tariffs on shoes. “Building self-esteem is critical,” explains Matt Rubel, CEO of the parent company of Payless, “and not having a new pair of shoes ”” you know, having a pair that’s tattered and doesn’t fit ”” that does not create good self-esteem.”

Let’s face it: fiscal stimulus is a frustratingly inexact science. Nobody knows precisely what it will do in the short term, and in the long term, it isn’t that different from any other government spending, except that the point of the spending can be the spending itself. As always, there will be winners and losers; it’s impossible to stimulate everyone equally. In two years, if the recession is over, skeptics will claim it would have ended regardless of the stimulus. If it lingers, proponents will credit the stimulus for preventing a drearier outcome. As with the first round of the financial bailout, its most important short-term effect will probably be psychological, calming markets by sending a message of government engagement.

It will be an expensive message, and we’ll be paying for it for a long time. Obama can’t control how markets or employers react, but he can use the opportunity to start keeping promises and start moving the country away from dirty energy, crumbling infrastructure and economic inequality. If he trades those goals for size and speed, he’ll blow a unique chance to chart a new direction. He doesn’t need to beg Congress to spend; that’s like begging Cookie Monster to eat. He needs to take a stand: No money without reform. That won’t just rebuild consumer confidence; it will rebuild citizen confidence too. As the shoe guy said, at a time like this, self-esteem is critical.

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JFK took us to the moon. Let BHO take America back to school.

But that will take time. There’s simply no shortcut for a stimulus that stimulates minds not just salaries. “You can bail out a bank; you can’t bail out a generation,” says the great American inventor, Dean Kamen, who has designed everything from the Segway to artificial limbs. “You can print money, but you can’t print knowledge. It takes 12 years.”

Sure, we’ll waste some money doing that. That will happen with bridges, too. But a bridge is just a bridge. Once it’s up, it stops stimulating. A student who normally would not be interested in science but gets stimulated by a better teacher or more exposure to a lab, or a scientist who gets the funding for new research, is potentially the next Steve Jobs or Bill Gates. They create good jobs for years.

Perhaps more bridges can bail us out of a depression, but only more Bills and Steves can bail us into prosperity.

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For all his talk of change, Barack Obama will start his presidency much as George Bush did: with a huge fiscal stimulus aimed at boosting an ailing economy and promoting some pet objectives. The need for stimulus is far greater than in 2001. America is in what could be its deepest recession since the Depression. With interest rates close to zero, the Federal Reserve is out of conventional monetary ammunition, so fiscal policy must do the lion’s share.

The problem with this is that higher spending and tax cuts will only make a big budget deficit even bigger. This danger does not justify penny-pinching now: that could merely prompt a bigger collapse in economic activity and even larger deficits. But Mr Obama should do what Mr Bush never did””and link the upcoming splurge to long-term fiscal reform.

The hole in America’s balance sheet is clearly partly Mr Bush’s fault. Even if you strip out the cyclical economic effects, the 1% surplus he inherited had become a deficit of more than 2% of GDP last year. But other things are at work. The collapse of the credit bubble will reduce tax revenues. The government has taken on big liabilities in its efforts to prop up the banking system. Above all, the first baby-boomers retired last year: as their numbers grow, the cost of the two big retirement programmes, Social Security (pensions) and Medicare, will soar.

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