Faced with continuing double-digit unemployment and public unease over his handling of the economy, Mr. Obama is expected to zero in on economic issues during Wednesday’s State of the Union and ahead of November’s midterm congressional elections. The proposals he unveiled Monday will be included in the administration’s fiscal 2011 budget proposal, set for release in a week.

“Joe and I are going to keep on fighting for what matters to middle-class families,” Mr. Obama said at the White House. “None of these steps alone will solve all the challenges facing the middle class… but hopefully some of these steps will reestablish some of the security that’s slipped away in recent years.”

Under its proposal, the White House says all eligible families making under $115,000 a year would see a bigger dependent-care-tax credit. Families could claim up to $3,000 in expenses for one child or $6,000 for two children. Families making less than $80,000 annually could claim a maximum credit of $2,100, up $900 from current law.

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Obama should launch his own moon shot. What the country needs most now is not more government stimulus, but more stimulation. We need to get millions of American kids, not just the geniuses, excited about innovation and entrepreneurship again. We need to make 2010 what Obama should have made 2009: the year of innovation, the year of making our pie bigger, the year of “Start-Up America.”

Obama should make the centerpiece of his presidency mobilizing a million new start-up companies that won’t just give us temporary highway jobs, but lasting good jobs that keep America on the cutting edge. The best way to counter the Tea Party movement, which is all about stopping things, is with an Innovation Movement, which is all about starting things. Without inventing more new products and services that make people more productive, healthier or entertained ”” that we can sell around the world ”” we’ll never be able to afford the health care our people need, let alone pay off our debts.

Obama should bring together the country’s leading innovators and ask them: “What legislation, what tax incentives, do we need right now to replicate you all a million times over” ”” and make that his No. 1 priority. Inspiring, reviving and empowering Start-up America is his moon shot.

And to reignite his youth movement, he should make sure every American kid knows about two programs that he has already endorsed: The first is National Lab Day. Introduced last November by a coalition of educators and science and engineering associations, Lab Day aims to inspire a wave of future innovators, by pairing veteran scientists and engineers with students in grades K-12 to inspire thousands of hands-on science projects around the country.

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No matter how it plays out, Ben Bernanke’s bruising confirmation battle has damaged the U.S. Federal Reserve’s clout and perceived independence.

Mr. Bernanke is more than the Fed’s chief decision maker. Fed officials see him as their brand, a smart, honest and stoic voice best able to defend decisions of the past two years to a skeptical Congress and public. Even if the Senate backs Mr. Bernanke this week, he won’t speak with the same authority, and the Fed will have a harder time casting itself as above partisan politics.

Fortunately for the Fed, the hard call about when to raise interest rates doesn’t need to be made now. Fortunately for Mr. Bernanke, his support inside the Obama administration, and even more so inside the Fed, is solid. But the longer the battle drags on, the more it could interfere with the Fed’s ability to communicate convincingly. And no matter what, the Fed will have less sway as Congress debates whether to rein in its powers.

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Washington spent months nursing the financial system back to health after the 2008 economic crisis, stabilizing then reviving battered markets and ultimately restoring trillions of dollars in investor losses. Wall Street’s political fortunes have not fared as well.

Now, an aggressive stance against the bankers, financiers and even government officials popularly blamed for causing the crisis is gaining political momentum, and there are signs it is eroding the very financial stability the government championed.

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When I spoke with Rep. Richard Neal, the veteran Democratic congressman from Springfield, Mass., on the afternoon of the special election to fill Ted Kennedy’s Senate seat, he told me, “It’s an alarm-clock moment for us.”

That is no exaggeration. Scott Brown, the little-known candidate who pulled out a victory over state Attorney General Martha Coakley, is the first Republican to win a Massachusetts Senate race since 1972 and will be the only Republican in what has been an all-Democratic congressional delegation from the Bay State.

Ron Kaufman, the longtime Republican National Committee member from Massachusetts, said that “it was a perfect storm” that made it possible.

“We had a really good candidate,” Kaufman said. “A military veteran, a family guy, a fiscal conservative, moderate on social issues, a pro-choice Catholic. But it was bigger than that. The Democrats didn’t understand that people here are very upset with the way things are going in Washington, just as they are elsewhere. They see big sums being spent, big deficits piling up, and they want to send a message.”

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Conscience is the last court of appeal. “If I am utterly convinced, how else could I act? Morally speaking it would be wrong to do anything else. My judgement may be faulty but my moral sense cannot be queried.” As a society we don’t just accept conscience, we expect it. We reject its opposite, the Nuremberg defence of “I only did what I was ordered to do”.

But we do place limits on conscience. Some Muslim student doctors are now telling their medical ethics lecturers that the right of conscience should extend to them, as Muslim men, refusing to examine the bodies of women. They have been given short shrift, but it is problematic, in logic, to say why conscience may be exercised over abortion but not over gender. (Or in the case of Catholic adoption agencies, over sexuality). In the end the answer is empirical rather than logical: that is what this society has decided.

That raises the question of what a society wants in a leader. “My duty was to put the country first,” said Mr Blair at Trimdon. We like that when his view of the national interest concurs with ours. But what about when it does not? When George Bush declared that he was not signing Kyoto because climate change curbs were not in America’s best interest, most outsiders bridled, yet Bush was doing what he saw as a leader’s job. Rowan Williams does the same when he suppresses his personal views on homosexuality in favour of a strategy to try to keep the Anglican Communion together; he sees that his role supersedes, at present, his personal views.

But Tony Blair offers a different view. “My duty was to put the country first,” he said at Trimdon, and “in time you realise that putting the country first doesn’t mean doing the right thing according to the prevailing consensus or the latest snapshot of opinion. It means doing what you genuinely believe to be right. That your duty as prime minister is to act according to your conviction.”

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U.S. President Barack Obama called lawmakers on Saturday to check that Federal Reserve Chairman Ben Bernanke had enough support for a second term and two key senators said the nomination was on track.

In a sign of how worried the White House is about a sudden recent surge in opposition to Bernanke’s renomination, Obama contacted the Democratic Senate leadership to make sure it had enough votes.

“(The) president made … calls to a few senators this afternoon including leadership to make sure everything on track and he has been assured that Bernanke is on track for confirmation,” a senior administration official said.

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Scott Brown has a lot to answer for. His stunning Senate victory for the Republicans in Massachusetts sent the White House into a spin. President Obama promptly decided on the populist gesture of targeting Wall Street with vague proposals to outlaw banks’ risky activities and limit their size. Though seemingly hastily wheeled out, the ideas were first floated a few months ago by Paul Volcker, former chairman of the Federal Reserve Board, a man widely regarded as the best US central banker of the modern era. As a result they have some credibility, though they are far from being a panacea.

Many believe the banks have brought this on their own heads. The return of big bonuses so soon after a crisis of their own making, for which ordinary people will be paying for years, showed crass insensitivity and greed. America’s banks rushed to pay off their obligations to taxpayers under the Tarp (troubled asset relief programme) precisely so that they could get back on the bonus gravy train. The behaviour of the banks, however, is no excuse for flawed policy. Nobody yet knows the detail of Mr Obama’s plans, probably not even the president. But from what we know so far, they suffer from two serious shortcomings.

The first is that they would not have stopped the current crisis….

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Democratic Sen. Chris Dodd said today that Democrats may need to take more than a month off from the health care debate to regroup, saying it is up to President Obama to lead the way.

Dodd is the first congressional Democratic leader to suggest such an extended break, signaling that Democrats’ may be much further from a workable endgame strategy than they have suggested in the days since Republican Scott Brown won the Massachusetts Senate seat and ended the Democrats’ 60-vote majority.

The comments are sure to raise questions about whether Democrats are giving up on reform. A month-long break would almost certainly kill any momentum health reform has left, making it that much harder to pass.

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The confirmation of Ben S. Bernanke to a second four-year term as chairman of the Federal Reserve ran into further trouble on Friday as two more Democratic senators said they would vote against him.

The White House came to Mr. Bernanke’s defense, but the Senate majority leader, Harry Reid, appeared uncertain about whether there were the 60 votes necessary to confirm Mr. Bernanke before his term as chairman expires on Jan. 31. Mr. Reid said late Friday that while he planned to vote for Mr. Bernanke’s confirmation, his support was “not unconditional.”

Senator Christopher J. Dodd, Democrat of Connecticut and the chairman of the Banking Committee, warned Friday that a no vote would send the “worst signal to the market right now,” and could lead to an economic “tailspin.”

In a statement Friday morning, Senator Barbara Boxer, Democrat of California, came out against Mr. Bernanke, who was named to his post during the Bush administration. She said she had “a lot of respect” for him and praised him for preventing the economic crisis from getting even worse. “However, it is time for a change,” she said. “It is time for Main Street to have a champion at the Fed.”

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Brown’s victory ”” some called it “the Scott heard round the world” ”” on the eve of the first anniversary of Barack Obama’s Inauguration was an ominous sign for Democrats for the midterm elections ahead and a potentially crippling blow to Obama’s entire agenda. Brown ran explicitly on a promise to be the “41st Senator,” who would give the Republicans the power to block what he called “the trillion-dollar health care bill that is being forced on the American people,” one that will “raise taxes, hurt Medicare, destroy jobs and run our nation deeper into debt.”

That such a message would resonate here was poignant, given that no one had fought harder and longer than Kennedy for universal health care, something that the terminally ill liberal lion had referred to before his death in August as “the cause of my life.” And it was all the more ironic considering that Massachusetts has come closer than any other state to assuring coverage to all of its citizens, thanks to a 2006 law that was championed by a Republican governor, Mitt Romney, who was celebrating onstage with Brown on election night.

Although the rest of the country sees Massachusetts as the bluest of blue states ”” it had not elected a Republican Senator since Richard Nixon was President ”” its political complexion is actually more subtle. Registered Democrats outnumber Republicans 3 to 1, but fully half the state’s voters are registered “unenrolled” ”” not affiliated with any party. And four of its last five governors have been Republicans, albeit ones of a more moderate stripe than that of the national party.

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The economic pattern of the early 1980s may well be repeated. The US economy is likely to start to recover strongly, with a growth rate of more than 5 per cent expected this month.

But it looks increasingly doubtful that Mr Obama and the Democrats will enjoy the benefits. Having won Massachusetts, the Republicans will have no compunction in claiming that what saved the US economy was the conservative backlash. If the Democrats fail to challenge them, this is the version of reality that American voters will start to believe.

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The majority party normally loses seats in midterm elections, but the Republican resurgence of recent months is more than a conventional midterm rebound. How can a little known Republican run a competitive Senate campaign in Massachusetts? The culprit is the unpopularity of health reform, and it means that Democrats will face even worse problems later this year in less liberal places than Massachusetts.

We have polled voters in 11 states likely to have competitive Senate races in November on how they feel about health reform and how they might vote in November. The interviews were conducted from Jan. 6-11 with 500 registered voters in Arkansas, Colorado, Connecticut, Delaware, Florida, Louisiana, Missouri, Nevada, North Dakota, Ohio and Pennsylvania. The polls were conducted by YouGov using a panel of Internet users selected to be representative of the registered voters in each state.

Health reform is more popular in some of these states than in others. Where it’s popular, Democratic candidates don’t have too much of a problem, but where it’s unpopular””and that includes most states””the Democratic Senate candidates are fighting an uphill battle. Support for health reform varies in these 11 states from a low of 33% in North Dakota to a high of 48% in Nevada. Democrats trail Republicans in six of the states; three are toss-ups; and in two, Democrats have a solid lead.

Read it all from yesterday’s Wall Street Journal.

No wonder the White House was surprisingly nice in its first public statements about Scott Brown’s victory in the Massachusetts campaign. After all, Brown’s victory just handed Obama what he needs to win his own campaign for reelection as president in 2012.

From Truman to Clinton, embattled presidents have seen a path to reelection by running against the Senate and House. Of course, that’s usually because those legislatures are in the hands of the other party. But Obama now has a chance to run against an obstructive Senate that contains””oh, the shame of it””less than a supermajority of his own party. It’s the best of both worlds….

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The tendency to look for a saviour is hard to curb. People want a superhero. From football to Presidents they are looking for the special one who’s going to change everything. Which is why it’s helpful to be reminded that leaders are just people. I found it a relief when Mr Obama fluffed his lines at his inaugural address. It’s only when a man stops being a superhero that people start thinking: “Hang on. I want you to lead but you can’t save the world on your own and nor should you try”.

In the book of Samuel, when the people of Israel – fed up with a lack of leadership – asked for a king, God wearily agreed but warned them that it would end in tears. “A king,” God said, “will send your sons to fight wars, tax you heavily, and spend your hard-earned wealth on their own houses until you cry out for relief.” Despite the warning the people got their kings. Some were just; most were just awful. In the end, God was proved right.

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As Senate Democrats reconvened Wednesday at the Capitol in the wake of their devastating loss in Massachusetts, they vowed to press ahead toward enacting a health-care bill, possibly with a scaled-back package of provisions that could gain Republican support.

But Democrats cautioned that discussion of such plans is just getting underway. “We’re not going to rush into anything,” said Senate Majority Leader Harry M. Reid (Nev.). “Remember, the bill we passed in the Senate is good for a year. There are many different things that we can do to move forward on health care, but we’re not making any of those decisions now.”

Scott Brown’s victory in a special election Tuesday “changes the math in the Senate,” Reid conceded. But just as Democrats face new pressures to reach across the aisle, he added, GOP senators must be willing to meet halfway.

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With Democrats reeling from the Republican victory in the Massachusetts special Senate election, President Obama on Wednesday signaled that he might be willing to set aside his goal of achieving near-universal health coverage for all Americans in favor of a stripped-down measure with bipartisan support.

“It is very important to look at the substance of this package and for the American people to understand that a lot of the fear-mongering around this bill isn’t true,” Mr. Obama said in an interview on ABC News. “I would advise that we try to move quickly to coalesce around those elements of the package that people agree on.”

He continued: “We know that we need insurance reform, that the health insurance companies are taking advantage of people. We know that we have to have some form of cost containment because if we don’t, then our budgets are going to blow up and we know that small businesses are going to need help so that they can provide health insurance to their families. Those are the core, some of the core elements of, to this bill.”

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If you believe some of the blogs, the Democrats lost Massachusetts, and Obama’s approval is plummeting nationwide, because he alienated his left-wing base. Perhaps that does account for an absence of turnout among young voters in the Virginia gubernatorial or Massachusetts Senate races, but the polls have not shown growing dissatisfaction among young, minority, or liberal voters–the three voting blocs that accounted for Obama’s strongest support in 2008. Where he has lost ground–and where the Democrats have lost ground–is primarily among white working and middle-class voters and senior citizens.

The Suffolk University poll in Massachusetts, which like the PPP poll, was pretty much on target in the final result, singled out two white working-class towns, Gardner and Fitchburg, as bellwethers. Obama won Gardner, where Democrats hold a three-to-one registrations edge, by 59 percent to 31 percent in 2008. Brown won it by 56 percent to 42 percent. Obama won Fitchburg, with a similar Democratic edge, by 60 percent to 38 percent in 2008. Brown won it by 59 percent to 40 percent. That suggests a fairly dramatic shift among white working class voters.

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DJ reports Senate Democrats are to seek an increase to the federal government’s borrowing limit by $1.9 trillion lifting the total amount the U.S. government can owe to $14.294 trillion, several congressional aides said. The increase is forecast to support the federal government’s borrowing needs the end of 2010, one Senate Democratic aide said. The borrowing hike comes soon after a $290 billion increase to the debt ceiling agreed to by lawmakers at the end of 2009.

Sen. Russ Feingold (D-Wis.) told a local reporter, “It’s probably back to the drawing board on health care, which is unfortunate.” Rep. Bill Delahunt (D-Mass.) told MSNBC this morning he will advise Democratic leaders to scrap the big bill and move small, more popular pieces that can attract Republicans. And Anthony Weiner (D-N.Y.) said his leadership is “whistling past the graveyard” if they think Brown’s win won’t force a rethinking of the health care plan.

Sen. Evan Bayh (D-Ind.), who now might draw a challenge from Rep. Mike Pence (R-Ind.), said the party needs to rethink its entire approach to governing.

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….the Massachusetts vote is a loud and clear signal that the American people hate this legislation. Barack Obama came into office assuming that economic distress would move most Americans to favor big-government legislation. It turns out that’s not so. Not when Democratic bills would take away the health insurance most of them are content with. Not when it’s the product of backroom deals and blatant political bribery.

But Scott Brown’s victory was not just a rejection of Democrats’ health care plans. Brown also stoutly opposed the Democrats’ cap-and-trade legislation to reduce carbon emissions. He spoke out strongly for trying terrorists like the Christmas bomber in military tribunals, not in the civil court system where lawyers would advise them to quit talking. He talked about cutting taxes rather than raising them as Democrats are preparing to do.

Brown’s victory represents a rejection of Obama administration policies that were a departure from those of the Bush administration. In contrast, on Afghanistan, where Obama is stepping up the fight, Brown backed Obama while his hapless left-wing opponent Martha Coakley was forced (her word) to oppose it to win dovish votes in the Democratic primary.

Democrats will be tempted to dismiss Brown’s victory as a triumph of an appealing candidate and the rejection of an opponent who proved to be a dud. But Brown would never have been competitive if Americans generally favored the policies of the Obama administration and congressional Democratic leaders. In that case, even a dud would have trounced the man who drives a truck.

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Voter anxiety and resentment, building for months in a troubled economy, exploded like a match on dry kindling in the final days of the special election for US Senate. In arguably the most liberal state in the nation, a Republican – and a conservative one at that – won and will crash the Bay State’s all-Democratic delegation with a mandate to kill the health care overhaul pending in Congress.

It is difficult to overstate the significance of Scott Brown’s victory because so much was at stake. From the agenda of President Obama and the legacy of the late Edward M. Kennedy to a referendum on the Democratic monopolies of power on Capitol and Beacon hills, voters in a lopsidedly Democratic state flooded the polls on a dreary winter day to turn conventional wisdom on its head.

Brown, an obscure state senator with an unremarkable record when he entered the race four months ago, was a household name across the country by the end of the abbrevi ated campaign. Running a vigorous, smart, and error-free campaign, he became a vessel into which cranky and worried voters poured their frustrations and fears, ending the Democrats’ grip on a Senate seat the party has held for 58 years, nearly all by two brothers named Kennedy.

Voters were demonstrably unsentimental about keeping alive the spirit of the late Ted Kennedy in electing the next senator. His widow, Victoria Reggie Kennedy, tried to bolster the sagging candidacy of Democratic Attorney General Martha Coakley in the closing days, to little effect.

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The Democratic Party’s defeat in Massachusetts on Tuesday — the loss of a single, crucial Senate seat — will force President Obama and his congressional allies to downscale their legislative ambitions and rethink their political strategy.

The most immediate challenge facing Democrats after Republican Scott Brown’s victory is how to salvage healthcare legislation now that they no longer have the 60 votes needed to break GOP filibusters.

But even as Massachusetts voters streamed to the polls to anoint Sen. Edward M. Kennedy’s successor, Democratic leaders showed no signs of standing down.

“We’re right on course,” House Speaker Nancy Pelosi (D-San Francisco) said after meeting with her leadership team. “We will have a healthcare reform bill, and it will be soon.”

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When Barack Obama took the oath of office before a shimmering wave of humanity a year ago today with his approval rating at 70 per cent, he and the Democrats controlling Congress believed that history beckoned ”” and that they had the clout and popular support to shape it.

Yesterday the President and his party were scrambling to avoid losing Teddy Kennedy’s Massachusetts Senate seat ”” an unthinkable development even a month ago ”” and are bracing themselves for a bloodbath in congressional elections this November. It shows just what a debilitating first year they have suffered, and what a perilous 2010 beckons.

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Republicans scored an historic victory overnight that put President Barack Obama’s agenda in jeopardy exactly a year after he took power – and could kill health-care reform.

A little-known Republican state legislator came from a 30-percentage point deficit to win Edward Kennedy’s old seat in the US Senate in Massachusetts in what appeared to be a massive protest vote against the party that controls both chambers of Congress and the White House.

“This is a huge wake-up call for the Democrats, for the Obama Administration and the country. America is fed up of the arrogance coming from Washington,” said Andy Card, White House chief of staff in the George W. Bush Administration.

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From here:

In many ways the campaign in Massachusetts became a referendum not only on health care reform but also on the openness and integrity of our government process. It is vital that we restore the respect of the American people in our system of government and in our leaders. To that end, I believe it would only be fair and prudent that we suspend further votes on health care legislation until Senator-elect Brown is seated.

The White House’s announcement yesterday that it will schedule its State of the Union address for next Wednesday, January 27th, an earlier date than most insiders expected, is surely not coincidental and reflects a desire to pressure the House into voting for the Senate’s version of the health care bill almost immediately, assuming that Scott Brown defeats Martha Coakley in Massachusetts tonight.

The pitch that the White House and Nancy Pelosi will make to the Democratic members of the House is a difficult one and will need to be extremely well executed, but is likely to consist of one or more of the following arguments….

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A professor at Columbia University, Mr. Stiglitz uses his experience teaching to give the lay reader a lucid account of how overleveraged banks, a shoddy mortgage industry, predatory lending and unregulated trading contributed to the meltdown, and how, in his opinion, ill-conceived rescue efforts may have halted the freefall but have failed to grapple with more fundamental problems.

He is eloquent on how the American economy was sustained before the crisis by “a debt-financed consumption binge supported by a housing bubble” and impassioned in describing what he sees as the government’s failure to make substantial reforms to the economic system: though “excesses of leverage will be curbed,” he writes, “the too-big-to-fail banks will be allowed to continue much as before, over-the-counter derivatives that cost taxpayers so much will continue almost unabated, and finance executives will continue to receive outsized bonuses.” In each case, he writes, “something cosmetic will be done, but it will fall far short of what is needed.”

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