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Obama given 'A minus' for job in restoring economic confidence

(Xinhua)
Updated: 2010-01-20 20:05

Obama given 'A minus' for job in restoring economic confidence

US President Barack Obama attends the House Democratic Caucus retreat on Capitol Hill in Washington January 14, 2010.[Agencies]

NEW YORK: Two experts at The Brookings Institution give President Barack Obama "A minus" when assessing his effort to restore economic confidence in the US.

"President Obama inherited the scariest and most dangerous economic situation in more than 50 years," Karen Dynan, the think tank's vice president and co-director of economic studies, and Martin Neil Baily, a senior fellow of economic studies, said one day prior to Obama's one-year anniversary in office.

The experts gave the Obama administration credit for its deft handling of the economic crisis but raised questions about whether the president has laid the foundation for sustained growth.

"President Obama inherited the scariest and most dangerous economic situation in more than 50 years," the experts said. "The economy seemed to be in freefall and this was confirmed by subsequent data — real GDP declined at annual rates of more than 5 percent in the fourth quarter of 2008 and the first quarter of 2009. The financial sector was on the verge of collapse, both in the United States and around the world."

However, the economy expanded 2.2 percent in the third quarter of 2009 and some forecasters see a gain of 4 percent or more in the fourth quarter, they said.

In addition, they said, the large Wall Street banks are recovering, and some are even quite profitable.

There will be costs to the rescue of the financial sector, but they are likely to be substantially smaller than originally thought, the experts said.

"The Dow, at 10,500, is well below its peak but up substantially from the 6,500 range seen in March. With an unemployment rate of 10 percent, the economy is still very soft, but the turnaround seen thus far has been amazing."

The two also praised Obama's strong economic team, which pushed a stimulus package through Congress that hastened the end of the recession and bolstered the recovery. "Judging by results, Obama deserves an A for his handling of the crisis."

However, they noted Obama has not laid the foundation for sustained growth. "A key area of risk to the recovery remains the housing sector."

Because many people still are unable to make their mortgage payments, millions of foreclosures may occur over the next couple of years, they said.

"The potential costs of this situation could go well beyond those borne by the dislocated families, as the growing inventory of foreclosed-upon homes could swamp the housing market, drive home prices and housing wealth down further, and, in turn, impair the broader economic recovery," they said.

The experts also raised concerns about Obama's financial reforms, tax reduction initiative and other efforts.

In all, Obama’s A for his handling of the crisis was tempered by a B minus on longer-run challenges, they said.