Thursday 6 November 2008

Obama's Challenges

Barack Obama, the newly elected US president, faces like President Roosevelt during the Great Depression immense challenges to cure the US economy's woes. While the sorry state of the US economy was certainly a great companion to his successful presidential campaign, the moment when he takes office in January 2009 it will become his greatest enemy.
Obama will face an economy in the middle of a severe and prolonged recession where households have to bear unaffordable mortgage and other debt, declining value of homes, foreclosures, tight access to credit, erosion of retirement savings amid the bearish stock market, rising unemployment and critical foreign policy decisions.
One of the first challenges for Obama would be to cushion the impact of the recession on consumers by means of a large fiscal stimulus package. For example, infrastructure spending to create jobs, tax cuts for lower income groups and small businesses, government aid for the auto industry and tax credits for labour-intensive industries. He also would like to impose a 90-day moratorium on foreclosures, mortgage tax credits for the middle class and setting up a foreclosure-prevention fund. Obama is in favour of greater financial sector oversight. He would like to prevent taxpayer funded bailouts of banks or that CEOs of failed institutions can receive large bonuses (golden parachute) as in the recent past.
Obama will face an increasing fiscal deficit. The financial rescue package plus the downturn in the economy, problematic medical care and social security bills will only add to the challenge of containing the fiscal deficit. One of Obama's key reforms will be to give more tax cuts to low and middle-income groups, while raising taxes on high-income groups.
Further challenges await Obama in health care reform, trade policies, labour reform, and foreign policies - especially dealing with the Iraq war, Taliban forces in Afghanistan, a resurgent Russia, Iran's nuclear ambitions, and Asian economies.
Source: RGE Monitor Newsletter, 5 November 2008.

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