Barack Obama reveals stimulus package that could exceed $1 trillion
Barack Obama

(Scott Olsen/Reuters)

By talking up the scale of the recession, the president-elect was lowering expectations for what he can achieve next year
Tim Reid in Washington

Barack Obama warned Americans yesterday that the US economic crisis will deepen next year, as he revealed the first details of a massive stimulus package that could ultimately exceed $1 trillion.

The President-elect, giving the most extensive interview since winning the election a month ago, spoke the day after he announced the biggest public works construction programme since Dwight Eisenhower created the interstate highway system half a century ago.

In saying twice that “things are going to get worse before they get better”, Mr Obama was not simply reflecting the realities of the stricken US economy but seeking to gain political advantage from the financial crisis.

By talking up the scale of the recession the President-elect was lowering expectations for what he can achieve next year while seeking to justify what will, in effect, be the greatest injection of federal money into the US economy since the Depression-era New Deal.
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The economic crisis is so great that Mr Obama and his economic team now believe that nothing less than a giant stimulus package is needed. The depth of the worsening recession has presented him with an extraordinary mandate to throw hundreds of billions of dollars at the problem – an opportunity that he did not have even a few weeks ago – and with it the chance to fund much of his hugely expensive legislative agenda.

The economic conditions – combined with a Democratic-controlled Congress – mean that Mr Obama is perhaps the most powerful incoming President, in terms of the ability to pass legislation quickly, since Lyndon Johnson took office in 1963.

On Friday the US Government announced a net loss of 533,000 jobs in November, the largest one-month drop since 1974, bringing unemployment to 6.7 per cent. The National Bureau of Economic Research said that America has been in recession for a year.

“This is a big problem, and it’s going to get worse,” Mr Obama told Meet the Press on NBC. “My number one priority is making sure that we’ve got a recovery plan that is up to the task.” In his weekly radio address on Saturday, Mr Obama pledged a five-tier rescue plan to create jobs by melding traditional road-building projects with massive investment in new technology and green infrastructure.

The scale of the plan, which Mr Obama hopes to sign into law shortly after he takes office on January 20, appears to be increasing by the day. He wants a nationwide road and bridge-building scheme; to make public buildings more energy-efficient by replacing old heating systems and installing efficient light bulbs; the renovation of schools and installation of computers in every classroom; to extend high-speed internet across the nation; and to give hospitals access to electronic medical records.

Mr Obama said that he would make “the single largest investment in our national infrastructure” since the 1950s highway programme. The plan is expected to include spending on electrical grids, public transport, dams and investment in alternative fuels.

Mr Obama refused to put a cost on the plan, but senior Democrats are talking about $700 billion (£477 billion), with others urging up to $1 trillion. When he met the nation’s governors last week he was told that there was $136 billion worth of building projects on the state level ready to go if federal money was made available.

Ed Rendell, the Democratic Governor of Pennsylvania, said that he had no doubt the package was going to be big, adding: “He didn’t blink an eye when we talked about $136 billion.”
Mr Obama conceded that the federal deficit was already predicted to hit $1 trillion this year. He also said that allowing the stricken “big three” US car manufacturers to collapse was unacceptable. He said that he backed Democratic moves in Congress to give Ford, General Motors and Chrysler an estimated short-term $15 billion bail-out. He added however that the money had to be accompanied by conditions to “keep the automakers’ feet to the fire” to begin making fuel-efficient vehicles.

The New Deal

— Launched by Democratic President Franklin Delano Roosevelt in 1933

— At the start of his term 13 million Americans were unemployed and most banks were closed
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* Washington appoints bank bailout watchdog

* US shares bounce on Obama stimulus hopes

* Washington debates $15bn loan for carmakers

— Banks reformed and bailed out with government financing

— Social Security programme established

— Minimum wages and prices set by government for first time

— Massive public works projects

— US dollar decoupled from gold standard

— New agency to regulate the stock markets

— Most expensive government programme in the country’s history

— Started new era of government intervention

— Most economic indicators had returned to late1920s levels by 1936

— Roosevelt reelected three times

Sources: White House; Times archives

Barack Obama yesterday named retired Army General Eric Shinseki – whose prediction before hostilities that the US was sending too few troops to Iraq hastened the end of his career – to his Cabinet. General Shinseki, whose testimony to Congress about troop levels was ridiculed by Donald Rumsfeld, then Defence Secretary, was picked to be Secretary of Veterans’ Affairs.