Stimulus Talk Yields to Calls to Cut Deficits By DAVID E. SANGER and SEWELL CHAN
WASHINGTON At a moment when many economists warn that the American economic recovery is likely to be imperiled by prolonged high unemployment and slow growth, President Obama is discovering that the tools available to him last year a big economic stimulus and action by the Federal Reserve are both now politically untenable. The mood in both parties of Congress has turned decidedly anti-deficit, meaning that the job-creation programs once favored by the White House and Democratic leaders in Congress have been cut back, then cut again. It is a measure of the mood that Mr. Obama on Tuesday hailed an initiative by his administration to cut the budgets of most major government agencies by 5 percent, at a time when conventional theory would call for more government spending to lift the economy. Even the Federal Reserve is pulling in its horns. No one could expect it to cut interest rates further they are at rock bottom. But spurred by inflation hawks in their midst, the Fed has gotten out of the business of buying Treasury securities and mortgage bonds, one of its main strategies over the last two years for pushing down long-term interest rates. Over the last few weeks, the cautious optimism that the economy is on the mend has given way to more caution than optimism. "My best guess is that we'll have a continued recovery, but it won't feel terrific," Ben S. Bernanke, the Fed chairman, said at a dinner at the Woodrow Wilson International Center for Scholars on Monday night. "And the reason it won't feel terrific is that it's not going to be fast enough to put back eight million people who lost their jobs within a few years." One could almost envision the winces in the White House as Mr. Bernanke observed that the unemployment rate "will stay high for some time." He went on to note that even if the economy grew at 3 percent, which would be considered a healthy pace, it would do little more than keep pace with the normal rate of growth of the work force. Virtually every day of late, White House officials have struggled to explain how their strategies to provide economic stimulus to bring down the unemployment rate square with Mr. Obama's oft-expressed commitment to tackle a record budget deficit. They talk about spending this year in modest amounts while waiting for the prescriptions of the president's commission on debt reduction, which reports, conveniently, a few weeks after the midterm elections. In the next breath, they say that the only long-term strategy that will get Americans back to work and bring the deficit under control is promoting rapid economic growth. That is the elixir that allowed the Clinton administration, where many members of Mr. Obama's team cut their teeth, to briefly wipe out budget deficits. But for now, it is unclear where that growth will come from and how soon. So rather than promoting another broad stimulus package, the White House is pointing to a series of familiar-sounding, low-cost measures to create jobs: stimulating export-oriented manufacturing, subsidizing energy-efficiency improvements by homeowners, preventing layoffs of teachers and police officers and pressing for a new (and unpaid for) highway bill that could, like the Census, create a short-term burst in hiring. Read more: http://www.nytimes.com/2010/06/09/business/economy/09econ.html?th&emc=th http://tinyurl.com/292exho
