Obama says economy, nation are moving in the right direction

The key points for investors from President Obama's Tuesday night speech? Obama said he sees signs that the U.S. economy is starting to recover, and also signaled he is willing to compromise with Congress on his proposed 2010 federal budget, provided certain administration objectives are retained.

Obama reiterated
that his budget framework -- which includes health care reform provisions, as well new initiatives for education, energy and a middle-class tax cut -- is essential for lowering the federal budget deficit.

Noting the large role that health care costs play in the federal budget, and throughout the U.S. economy, Obama said, "It is going to be an impossible task for us to balance our budget if we're not taking on rising health care costs."

GDP growth affects deficit

Obama also contested a accusation that his administration's 10-year projected budget does not cut the deficit in half by 2012, as he has previously stated as an administration goal. He argued that the main difference between the White House's budget projections and the larger-deficit-projections made by the Congressional Budget Office for outer-years 2013-2018, is due to the White House's higher GDP growth assumptions. The White House's budget assumes U.S. GDP growth of 2.6 percent; CBO's assumes 2.2 percent.

Comment: A valid point by President Obama. Still, given the depth of the current recession, whether the U.S. economy can average GDP growth of 2.6 percent will hinge on many factors, not the least of which is whether promising, new growth sectors will appear in the years ahead. Right now, it's a 50/50 prospect.

Obama also reiterated that his health care, education and energy initiatives are essential to getting the U.S. economy on a sustainable growth track. He called concerns in Wall Street, Washington and media circles that his administration did not have a plan to deal with toxic assets premature. He seemed to reflect humble confidence when sentiment regarding the prospects for the U.S. financial system began to change for the better Monday, after Treasury Secretary Timothy Geithner announced the initial stage of the estimated $1 trillion toxic asset removal plan.

"We have to persevere, and that's what I'm going to emphasize," Obama said. "But what I'm confident about is that we're moving in the right direction."

The president added that new authority to both regulate, and if necessary intervene in a financial or another institution that could pose systemic risk, should be obtained from Congress. Obama argued that "there's going to be strong support from the American people and from Congress to provide that authority so that we don't find ourselves in a situation like AIG" again. When AIG was about to collapse, the nation was faced with the likelihood of a) ominous systemic consequences, or b) supporting an institution without the conditions -- including taxpayer protections -- the federal government would like to receive in exchange for that support.

Responding to China's call for a 'supercurrency' as part of new international monetary order, Obama said he saw no need for a global currency.

On changes to upper-income tax deductions, Obama defended his administration's proposal to lower the top charitable tax deduction to 28% because that's the same maximum rate at which the typical person can deduct charitable contributions. He said this proposal is fair for everyone.

Fiscal Policy / Economic Analysis: Grant President Obama the following grades for his second White House press conference: Substance: B+, Financial Answers: A-, Style: B+.

Investors have to keep in mind that the American people are patient with their president -- certainly, much more patient than Wall Street has been lately. Obama inherited the worst U.S. economic conditions in more than two generations, and the American people know it will take time to both stabilize financial markets and get the economy moving again.

That said, and barring any unforeseen international event and assuming wind-downs to the wars in Iraq / Afghanistan, Obama's presidency will be judged on his performance at leading the nation to economic health and at improving the typical person's daily life. If he does both, the American people will say he succeeded.

Financial Editor Joseph Lazzaro is writing a book on the U.S. Presidency and the U.S. economy.
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