WASHINGTON — The White House warned today that the country could face a long and painful financial recovery, even with major government intervention to stimulate the economy and save financial institutions.
“We’re off and running, but it’s going to get worse before it gets better,” said Vice President Joe Biden, taking the lead on a theme echoed by other Democratic officials on today’s talk shows.
At the end of the Obama administration’s first week, the party in power at both ends of Pennsylvania Avenue sought to lower expectations for a quick fix despite legislation expected to pass by next month that would pump billions of dollars into the economy. Democrats also opened the door for even more government aid to struggling banks beyond the $700 billion bailout already in the pipeline.
Congress has given President Barack Obama permission to spend the second $350 billion of a Wall Street bailout package even though lawmakers have criticized the Bush administration for the way it spent the first half. House Speaker Nancy Pelosi, D-Calif., said she is open to additional government rescue money for banks and financial institutions. But she said taxpayers must get an ownership stake in return.
Biden said Obama’s choice for Treasury secretary, Timothy Geithner, will recommend whether more money is needed for the banks. Geithner could be confirmed by the Senate as early as Monday.
Congress is working on an $825 billion economic recovery package that dedicates about two-thirds to new government spending and the rest to tax cuts. Separate proposals making their way through the House and Senate would combine tax cuts for individuals and businesses, help for cash-strapped state governments, aid for the poor and unemployed, and direct spending by the federal government.
The goal is to infuse money directly into the economy in the hope of bringing the nation out of recession, while creating 3 million to 4 million jobs. It would be largest economic recovery package ever enacted; the White House says the scope rivals the construction of the interstate highway system after World War II.
Its success or failure could define the first years of Obama’s term. Today, Democrats sought to temper expectations, at least in the short term.
“These problems weren’t made in a day or a week or a month or even a year, and they’re not going to get solved that fast,” said Lawrence Summers, a top economic adviser to Obama. “So even as we move to be as rapid as we can in jolting the economy and giving it the push forward it needs, we also have to be mindful of having the right kind of plan that will carry us forward over time.”
Republicans want the recovery package tilted more toward tax cuts and have questioned whether government spending programs will revive the economy in the short-term.
“I just think there’s a lot of slow-moving government spending in this program that won’t work,” House Republican leader John Boehner of Ohio said. “We can’t borrow and spend our way back to prosperity.”
The administration has pledged to spend three-quarters of the proposed money in the first 18 months after it is approved.
Obama met with Republican and Democratic congressional leaders at the White House last week to listen to Republican concerns about the package. Obama plans to meet with more Republican lawmakers this week, though Boehner said there is little support among House Republicans for the package in its current form.
A House vote is expected Wednesday. Democrats, if united, have a large enough majority to pass it without GOP backing. But Obama is seeking bipartisan support on this critical early test of his presidency. Senate Republicans could block the package but they would have to be united to do so.
Summers said Obama has inherited the worst economy since World War II, coupled with a federal budget deficit of more than a $1 trillion and soaring costs for entitlement programs such as Social Security, Medicare and Medicaid. The nation lost a total 2.6 million jobs last year as the housing market contracted and financial markets collapsed.
The government he said, can afford to spend more than $1 trillion to boost the economy and save financial institutions. But he warned that fiscal discipline will be necessary once the economy recovers.
Summers said Obama would end President George W. Bush’s tax cuts on those who make more than $250,000. Pelosi has said she wants to repeal the tax cuts well before they expire at the end of 2010.
Obama might be willing to simply let them expire, Summers said, though he was noncommittal. He did say Obama will fight any effort to extend the tax cuts beyond their expiration date.
“The president has made clear that the question of timing is one we’re going to have to reach as we see how the economy unfolds,” Summers said. “But they’re not going to be with us for long.”
Republicans argue that the government shouldn’t raise taxes on anyone during tough economic times.
Biden appeared today on CBS’ “Face the Nation,” Pelosi was on ABC’s “This Week,” and Summers and Boehner spoke on NBC’s “Meet the Press.”
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