Obama Warns of Irreversible Economic Decline Without Action

By Julianna Goldman

Jan. 8 (Bloomberg) -- President-elect Barack Obama warned that without immediate steps by the government to revive the economy, family incomes will drop, the unemployment rate could reach “double digits” and the U.S. risks losing a “generation of potential and promise.”

In excerpts of a speech he’s scheduled to give today at 11 a.m. New York time in the Washington suburb of Fairfax, Virginia, Obama says that while the cost of his economic recovery plan will add to a deficit already projected to exceed $1 trillion, he “won’t just throw money at our problems.”

“It is true that we cannot depend on government alone to create jobs or long-term growth,” Obama will say. “But at this particular moment, only government can provide the short-term boost necessary to lift us from a recession this deep and severe.”

Obama’s speech, which aides billed as a “major” economic address, is part of a broader pitch to Congress and the American public as he works on selling his $775 billion, two-year economic stimulus plan to pull the U.S. out of a recession. While the excerpts released by his transition office didn’t provide specifics of the plan, advisers said the full speech would expand on previously reported elements.

He also will again call for using the government’s “full arsenal of tools” to unlock credit markets and “a sweeping effort” to stem home foreclosures. Obama also is promising to overhaul financial-markets regulations and crack down on “reckless greed and risk-taking” on Wall Street to restore confidence in markets.

Quick Action Sought

Obama, who has made getting a stimulus package through Congress his top priority even before he takes office on Jan. 20, is pressing Congress to act quickly on his proposals, which include infrastructure spending aimed at creating or saving 3 million jobs and about $300 billion in tax cuts for individuals and businesses.

Yesterday, Obama said that spending in the stimulus plan would have to be geared toward programs that foster long-term economic growth -- in energy, health care and education.

As part of his effort to gain support from congressional Republicans, some of whom have questioned the price tag on the stimulus, Obama says his plan is “not just another public works program.”

Private Sector Jobs

“The overwhelming majority of the jobs created will be in the private sector, while our plan will save the public sector jobs of teachers, cops, firefighters and others who provide vital services,” he will say.

The cost of the economic recovery package is at the high end of the range the president-elect’s advisers had been promoting and lower than the $1 trillion stimulus that some economists have called for. In the speech, he warns that it will widen the federal budget deficit, which the Congressional Budget Office yesterday forecast would hit $1.18 trillion this year.

“It will certainly add to the budget deficit in the short- term,” Obama will say. “But equally certain are the consequences of doing too little or nothing at all, for that will lead to an even greater deficit of jobs, incomes, and confidence in our economy.”

Obama has spent the bulk of his first full week in Washington since the Nov. 4 election meeting with advisers and congressional leaders to help craft the package and shore up support. He is under pressure from lawmakers in both parties to ensure strong oversight given the price tag.

Oversight

Yesterday he named Nancy Killefer, a director at management consulting firm McKinsey & Co. and formerly an assistant secretary of the Treasury in the Clinton administration, to a new post of chief performance officer. She is charged with making the government more accountable for the money it spends.

In his speech, Obama will say the public will be able to use the Internet to view information about where the stimulus money is being spent and promises to create an economic recovery oversight board. He also will bar lawmakers from inserting pet spending projects, known as earmarks, into the legislation.

“Instead of politicians doling out money behind a veil of secrecy, decisions about where we invest will be made transparently, and informed by independent experts wherever possible,” Obama will say.

Obama’s speech comes as the Labor Department may report tomorrow that employers slashed jobs in December for a 12th consecutive month, putting total job cuts at 2.4 million for 2008, the most since 1945, according to the median forecast in a Bloomberg survey of economists.

U.S. stocks slid yesterday after ADP Employer Services said employers cut 693,000 jobs in December. The Standard & Poor’s 500 Index fell 3 percent to 906.65, cutting its 2009 gain to less than 0.4 percent. The index’s 38 percent decline in 2008 was its worst yearly drop since 1937.

Obama urged Congress to pass the measure, which has yet to be introduced, “as quickly as possible.”

“Every day we wait or point fingers or drag our feet, more Americans will lose their jobs, more families will lose their savings,” Obama will say. “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.”

To contact the reporter on this story: Julianna Goldman in Washington at jgoldman6@bloomberg.net;