Recession 'could last for years' warns Obama

Barack Obama today warned the US recession could drag on for years unless the country agrees to pump record amounts of cash into the economy.

It was the fourth day in a row he has called for a huge infusion of public money to stave off the fallout from the credit crunch.

“I don’t believe it’s too late to change course, but it will be if we don’t take dramatic action as soon as possible,” he will say in a prepared speech.

“A bad situation could become dramatically worse,” he said, painting a dire picture – including double-digit unemployment and 1 trillion dollars in lost economic activity – that recalled the days of the Great Depression in the 1930s.

His public events have increasingly taken on the trappings and air of the presidency, with the speech – coming a full 12 days before he takes over at the White House – a particularly showy move.

Presidents-elect normally stick to naming administration appointments and otherwise staying in the background during the transition period between Election Day and Inauguration Day, but Mr Obama has clearly made the calculation that a nation anxious about its economic outlook and eager to bid farewell to the current president needs to hear from him differently and more frequently.

Consumers and companies are folding under the negative forces of a collapsed housing market, a global credit crunch and the worst financial crisis since the 1930s. The recession, which started in December 2007, already is the longest in a quarter-century.

A report due out today is expected to show that the number of newly redundant people signing up for state unemployment insurance last week rose to 540,000, up from 492,000 in the previous week. The number of people continuing to draw jobless benefits is projected to stay near 4.5 million, demonstrating the troubles the unemployed are having in finding new jobs.

For all of 2008, employers probably slashed staffing by at least 2.4 million.

“For every day we wait or point fingers or drag our feet, more Americans will lose their jobs,” Mr Obama said. “More families will lose their savings. More dreams will be deferred and denied. And our nation will sink deeper into a crisis that, at some point, we may not be able to reverse.”

A day after the release of a new estimate that the federal budget deficit will reach an unprecedented 1.2 trillion dollars this year, nearly three times last year’s record – Mr Obama acknowledged the new stimulus spending will “certainly add to the budget deficit.” He also acknowledged some sympathy with those who “might be sceptical of this plan” because so much federal money has already been spent or committed in an attempt – largely unsuccessful so far – to get credit, the lifeblood of the American economy, flowing freely once again.

Mr Obama also said that the private sector could not do what is needed now.

“At this particular moment, only government can provide the short-term boost necessary to lift us from a recession this deep and severe,” he said.

Mr Obama’s transition team and Democratic congressional leaders are working daily on the still-evolving rescue package, expected to total nearly $800bn (€582bn). The initial hope had been to have a new stimulus package approved by Congress in time for Mr Obama to sign it upon taking office on January 20. That timeline has slipped considerably, into at least mid-February if not later.

The package is expected to include tax cuts for businesses and middle-class workers, money to help cash-starved states with Medicaid programs and other operating costs, and a huge share for infrastructure building, investments in energy efficiency and a rebuilding of the information technology system for health care. Much of the latter portions of the plan are aimed at what Mr Obama likes to talk about as the need for “reinvestment” and not just “recovery.”

“It is not just another public works program,” he said in the speech. “It’s a plan that recognises both the paradox and the promise of this moment, the fact that there are millions of Americans trying to find work even as, all around the country, there is so much work to be done.”