How will President-elect Obama affect your portfolio? Keep reading our special series for the lowdown.
The people have spoken: They're counting on Barack Obama to conduct the economy for the next four years. Unfortunately, the economy has spoken, too, and it's handing him an utter catastrophe.
Inflation. Deflation. Energy. Credit. Housing. President-elect Obama is about to inherit an economic mess … and you'd better believe he won't be sitting on his hands while things unravel. Heading into a 2009 that looks like it'll be an economic doozy, odds are we'll see some sort of stimulus package from the new administration before long.
Here are two major stimulus measures Obama has pledged, along with a few thoughts on the impact they'll have on the economy … for better or worse.
Energy rebates
Although his website doesn’t elaborate on who's eligible, President-elect Obama proposes $1,000 "emergency energy rebates" to offset rising energy bills, funded by windfall-profit taxes on oil companies such as ExxonMobil (NYSE: XOM), Chevron (NYSE: CVX), and ConocoPhillips (NYSE: COP).
Good idea? Americans seem to slowly be going broke. And oil companies are still making spectacular amounts of money, that's for sure.
Problem is, energy inflation is hardly a problem anymore -- it's energy deflation that's causing a ruckus. With oil now at $65 a barrel and sub-$2 gas in some regions, justifying rebates might be a tough sell -- especially to energy companies scrapping projects to deal with deflating prices.
Plus, the stimulus checks sent out earlier this year were distributed to 130 million Americans. Assuming the same 130 million are eligible for a $1,000 rebate, the measure would cost $130 billion. Now, in 2007, the top five U.S.-based oil companies made a combined $80.4 billion. So unless we're talking about tax rates over 100%, something doesn't add up.
Another unintended consequence of tagging rebates as "energy relief" is that it makes it easier for consumers to avoid conservation, which certainly doesn't help long-term. My guess is that if energy prices stay low, the plan will be scrapped, at least temporarily.
$50 billion for jobs
Obama also proposes a combined $50 billion to avert looming job cuts in vital industries. First, $25 billion would be allocated to prevent cuts in "health, education, housing, and heating assistance or counterproductive increases in property taxes, tolls or fees" at the state and local level. Additionally, $25 billion would go towards preventing cutbacks in infrastructure and school-related maintenance. Obama's website claims the measures could save 1,000,000 jobs that might otherwise be lost.
Will it work? For the specific industries it attempts to aid, of course. And most people can probably agree that sectors like health and education shouldn't be left unattended as the economy flounders.
But that certainly doesn't mean jobs will flourish in the coming years … hardly. $50 billion or no $50 billion, job losses are bound to start stacking up. Just recently, American Express (NYSE: AXP), GlaxoSmithKline (NYSE: GSK), and Goldman Sachs (NYSE: GS) all announced layoffs. Unemployment -- currently at 6.1% -- is expected to top 7% in 2009, the highest rate in 15 years.
The common denominator
I have faith that Obama's plans will ultimately bolster the economy in some way, shape, or form. We need all the help we can get -- and quickly. But as with most packages, funding those plans becomes the million … ahem ... trillion-dollar question.
Let's not forget that the mother of all stimulus packages -- the $700 billion financial bailout -- will temporarily bleed Uncle Sam's bank account in the coming year. General Motors (NYSE: GM) and Chrysler are begging at the teat, too. One estimate puts the amount of government borrowing this fiscal year (which ends in September) at more than $1.5 trillion -- more than 10% of GDP. At some point, the harms of borrowing insane amounts of money, even when it's desperately needed, outstrip the benefits.
Anyhow, congrats on your historic win, President-elect Obama. May the next four years' economic outcome turn out better than the previous four weeks'.
We're counting on you.
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