President Barack Obama's 100-day "honeymoon period" ends Wednesday and, in a departure from previous custom, will be celebrated by the President with a major speech and observances. Despite our continuing economic troubles, the Obama White House will enter May with measured optimism which appears to be shared by a majority of the American people.
At the state level, the Legislature has closed an anticipated $9 billion deficit (through mid-2011) with federal money, some genuine cuts, and sleight of hand shifts which will help short term but postpone painful taxing and spending decisions until the next budget cycle. Some of the "cuts" simply represent spending increases which will be deferred. But others are real and will hit some of our most vulnerable citizens. There will be no celebratory observances.
Looking forward on various fronts: The Obama administration has benefited from a large reservoir of goodwill in its first months in office. Its public approval remains healthy. Nonetheless, opinion both in the Congress and the country has become politically polarized and the prospect of bipartisan cooperation is slim on Obama's health-care and energy proposals in particular. The Democrats' stimulus package and budgets were passed on a party-line basis. Many Democrats will be hard to persuade when the particulars of health-care and energy legislation become clear, thus making it difficult to get 60 Senate votes, to cut off debate, or even simple majorities for that legislation.
Cap-and-trade energy proposals, for instance, are likely to be challenged by Democrats from coal, oil, and natural-gas producing states. Health legislation will have a better chance but no more than a 50-50 prospect of enactment in 2009.
The financial and economic climate will have much to do with the failure or success of the overall Obama program. If financial markets keep creeping upward, and if the economic downturn's end appears in sight (most economists now predict that to happen early in 2010), the administration will maintain public approval and, therefore, political leverage. If that is not the case, all bets are off.
Thursday is decision day for Chrysler. Almost certainly, that company will go into either a government-managed or formal bankruptcy. Either way jobs and benefits will be lost, dealerships closed, and product lines sold or discontinued. Much larger General Motors' decision day will come later in the spring. Additional billions of tax dollars will need to be committed, no matter what course the auto-rescue effort takes.
Sometime in the next few days the Treasury will make public the results of its so-called "stress tests" of the country's biggest banks. (The banks themselves got the word several days ago). That will separate viable from endangered banks and help the feds decide which need further tax dollars to keep them in business. Financial markets are likely to pass hard judgment on those deemed weakest. The idea of bailing the banks, and other financial institutions, was to thaw the credit freeze that has beset the U.S. economy. Yet there has been a Catch-22 involved in all of this. The banks are being pressed by the feds to strengthen their balance sheets. In order to do this, most have had to cut back all but the most creditworthy loans.
The outcome of the auto and financial bailouts could affect public opinion beyond their tax-dollar implications. Populist anger will be fueled if the public costs seem excessive. It already is high because of the seeming insensitivity and sense of entitlement by financial and corporate leaders who contributed to the mess. A front-page story in Sunday's New York Times, for example, reported that six of the biggest financial firms receiving federal help — Goldman Sachs, Morgan Stanley, Citigroup, JP Morgan Chase, JPMorgan Investment Bank, and Bank of America — will spend the same on employee compensation this year as they did before the financial crisis. At Morgan Stanley, 68 percent of total revenues will go to compensation; the average pay per employee at Goldman will be $569,000 this year.
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