By Dr. Robert E. Pritchard, Professor of FinanceRowan University, Glassboro, N.J.
Newswise — During his campaign, President Obama made numerous promises to Americans. That is what candidates are expected to do. Now, he is moving to fulfill some of those promises. This is not the time to do so. It is imperative that President Obama and his administration focus their attention on our rapidly collapsing economy. This issue trumps all others by a wide margin.
To date the administration has failed to develop and convey a long-term strategy for re-energizing our economy and the financial markets. Meanwhile, stock values continue to decline. This decline is already resulting in serious suffering among at least 100 million older workers, retirees and their families and precipitates ongoing economic decline.
People are scared; the values of their homes and their pension funds have decreased dramatically. We desperately need financial leadership from Washington; we do not need to hear about multi-trillion dollar budgets designed to fulfill social agendas that we cannot afford.
During the fourth quarter of 2008, economic activity as measured by Gross Domestic Product declined at a revised annual rate of 6.2 percent. Unemployment is increasing rapidly and may top out at higher than 10 percent (it already exceeds that in California), tax revenues at every level of government are declining rapidly, and federal government borrowing is escalating. All of this bespeaks to focusing attention on the economy.
The stock market is generally a good leading indicator of economic growth. We are now in a very serious bear market. Options trading indicates that the bear market is likely to persist into 2011. Unfortunately, the worst economic pain is yet to come. This is not the time to try to make a down payment on a welfare program as President Obama has proposed in his budget.
To move ahead with social welfare programs now - plans that will cost trillions of dollars - will further lengthen the time it will take to achieve the hoped-for economic recovery. It will force the government to increase borrowing, thereby rationing scarce funds. Interest rates will increase and financing to consumers and business will be limited. If we cannot talk the Chinese and other sovereign entities into financing our debt, the Federal Reserve Bank will have to run the printing presses. This will lead to a decline in the dollar and stagflation (inflation without economic growth).
It is essential that the Obama administration develops a coherent long-term plan for economic recovery and does so now. All else can be put on the back burner.
NOTE: Pritchard is the senior member of the Rohrer College of Business faculty at Rowan University, Glassboro, N.J. He completed both his undergraduate degree in physics and an M.B.A. at Drexel University, his M.A. in applied economics at the Wharton School of Business at the University of Pennsylvania and his doctorate in education administration at the University of Pennsylvania. Pritchard has authored/co-authored nine books in the fields of finance, small business management and marketing and has written more than 250 trade journal articles. He has consulted and provided financial training for many businesses and trade associations throughout the United States. Pritchard's research interests include real estate, personal financial management, retirement planning and Social Security. He specializes in applied financial research and pedagogical research principally pertaining to the teaching/learning processes in business and finance.
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