Obama looking at $850 billion jolt to the economy

WASHINGTON – Anxious to jolt the economy back to life, President-elect Barack Obama appears to be zeroing in on a stimulus package of about $850 billion, dwarfing last spring's tax rebates and rivaling drastic government actions to fight the Great Depression.

Obama has not settled on a grand total, but after consulting with outside economists of all political stripes, his advisers have begun telling Congress the stimulus should be bigger than the $600 billion initially envisioned, congressional officials said Wednesday.

Obama is promoting a recovery plan that would feature spending on roads and other infrastructure projects, energy-efficient government buildings, new and renovated schools and environmentally friendly technologies.

There would also be some form of tax relief, according to the Obama team, which is well aware of the political difficulty of pushing such a large package through Congress, even in a time of recession. Any tax cuts would be aimed at middle- and lower-income taxpayers, and aides have said there would be no tax increases for wealthy Americans.

While some economists consulted by Obama's team recommended spending of up to $1 trillion over two years, a more likely figure seems to be $850 billion. There is concern that a package that looks too large could worry financial markets, and the incoming economic team also wants to signal fiscal restraint.

In addition to spending on roads, bridges and similar construction projects, Obama is expected to seek additional funds for numerous programs that experience increased demand when joblessness rises, one Democratic official said.

Among those programs are food stamps and other nutrition programs, health insurance, unemployment insurance and job training programs.

Obama advisers, including Christina Romer and Lawrence Summers, have been contacting economists from across the political spectrum in search of advice as they assemble a spending plan that would meet Obama's goal of preserving or creating 2.5 million jobs over two years.

Among those whose opinions Obama sought were Lawrence B. Lindsey, a top economic adviser to President George W. Bush during his first term, and Harvard professor Martin Feldstein, an informal John McCain adviser and the chairman of the Council of Economic Advisers under President Ronald Reagan.

Feldstein recommended a $400 billion investment in one year, Obama aides said, and Lindsey said the package should be in the range of $800 billion to $1 trillion. The aides revealed the discussions on condition of anonymity because no decisions had been reached.

"I do recommend $400 billion in year one and expect a similar amount in year two," Feldstein said in an e-mail message. "The right amount depends on how it is used."

Lindsey could not be reached.

Obama aides also pointed to recommendations by Mark Zandi, the lead economist at Moody's Economy.com and an informal McCain adviser who has been proposing a $600 billion plan.

"I would err on the side of making it larger than making it smaller," Zandi said in an interview. "The size of the plan depends on the forecast — the economic outlook — and that is darkening by the day."

"Even a trillion is not inconceivable," he said.

Only one outside economist contacted by Obama aides, Harvard's Greg Mankiw, who served on President Bush's Council of Economic Advisers, voiced skepticism about the need for an economic stimulus, transition officials said.

The advisers say they agree with economic forecasts that predict that without a government infusion unemployment will rise above 9 percent and not begin to come down until 2011.

Senate Majority Leader Harry Reid, D-Nev., said Wednesday that Obama has indicated that Congress will get his recovery recommendations by the first of the year.

"He's going to get that to us very quickly and so we would hope within the first 10 days to two weeks that he's in office, that is after Jan. 20, that we could pass the stimulus plan," Reid said. "We want to do it very quickly."

In a letter to Peter Orszag, Obama's choice to be White House budget chief, Reid asked, among other things, that the stimulus package include tax relief for middle-class families, including a reduction in rates and an extension of the child tax credit.

Obama's aides have said they hope to work with Republicans in writing the bill, particularly in the Senate, where the GOP could slow action if it chooses. This week, House Speaker Nancy Pelosi said Democrats were preparing their own recovery bill in the range of $600 billion, blending immediate steps to counter the slumping economy with longer-term federal spending that encompasses Obama's plan.

A stimulus package that approaches $1 trillion could run into significant Republican opposition in Congress. It also could cause heartburn for moderate and conservative Democratic lawmakers, known as Blue Dogs, who oppose large budget deficits.

"Republicans want to work with the president-elect to help get our economy on the path to recovery, but we have grave reservations about taking $1 trillion from struggling taxpayers and spending it on government programs in the name of economic 'stimulus,'" House Republican leader John Boehner said in a statement.

In February, Congress passed an economic stimulus bill costing $168 billion and featuring $600 tax rebates for most individual taxpayers and tax breaks for businesses. Pelosi largely bowed to President Bush's insistence to keep the measure free of spending on federal projects.

The upcoming effort would dwarf that earlier measure as well as a $61 billion stimulus bill the House passed just before adjourning for the elections. That measure died after a Bush veto threat and GOP opposition in the Senate.

Chrysler, Ford temporarily close plants; GM stops making key factory as companies await loans

DETROIT (AP) -- Chrysler is closing all its North American manufacturing plants for at least a month, the starkest move yet taken by U.S. automakers as they anxiously await word about government loans.

The shutdown comes as The Wall Street Journal reported Thursday that Chrysler has restarted talks with General Motors about combining the two ailing automakers.

Chrysler, GM and Ford have been taking dramatic steps as they struggle to survive the recession and U.S. sales have dipped to their slowest rate in 26 years. Chrysler and General Motors fear they might not have enough money to pay their bills in a matter of weeks.

Attempting to cut costs, GM was halting construction of a plant tied to one of its most important projects, the Volt. Ford also said it will shut down 10 plants for an extra week in January because of sluggish sales.

Chrysler said Wednesday it would extend the normal two-week holiday shutdown that begins Friday to at least Jan. 19 at all 30 of its factories due to slumping sales.

The lack of consumer credit is hampering sales and forcing the production cuts, Chrysler LLC said in a statement. Chrysler, Jeep and Dodge dealers say they have willing buyers for vehicles, but they can't close the deals, Chrysler said.

The news of the shutdown was another blow to the company's employees already nervous about their future in the industry.

"I haven't even bought any Christmas presents yet because I don't know what's going to happen next," said Jerry Fogarty, a 48-year-old married father of three who lives in the Detroit suburb of Wyandotte. He has worked at the Chrysler Trenton engine plant for nearly 16 years.

Fogarty said even though state unemployment and supplemental unemployment benefits will maintain much of his weekly income during the shutdown, it's little consolation if the company that once gave employees profit sharing checks soon goes out of business.

"I don't want to be laid off," Fogarty said. "I want to go to work tomorrow. ... We all want to work. That's all we want to do. It's scary, man. It's really scary."

Chrysler and GM had been in merger talks earlier this year that stalled, with financing emerged as one of the biggest obstacles.

The Journal, citing people familiar with the discussions, said the talks have been rekindled after Cerberus Capital Management LP, the majority owner of Chrysler, signaled it is willing to part with some of its stake in the automaker.

Messages seeking comment were left early Thursday with spokesmen for GM and Chrysler.

The Bush administration is mulling ways to help the automakers after Congress failed to reach a deal on $14 billion in loans for GM and Chrysler. Ford has applied for a $9 billion line of credit but says it has enough cash to make it through 2009.

Funding for the loans is expected to come from the $700 billion Wall Street rescue fund, but many Republicans have objected.

"It's clear that the automakers are in a very fragile financial condition and they're taking steps to deal with it," White house press secretary Dana Perino said in a statement. "We're aware of their financial situation and are considering possible policy options to provide assistance in an appropriate way."

House Democrats have encouraged Treasury Secretary Henry Paulson to adopt accountability provisions included in a House-passed auto bailout bill -- the product of a deal with the White House -- as a condition to get the loans.

The measure would have given a Bush-appointed "car czar" oversight over any major business decisions by the automakers.

The Bush administration has signaled that concessions would likely be required of stakeholders in the deal -- auto companies, the United Auto Workers union, bondholders and others.

Chrysler spokesman Dave Elshoff said four plants will be temporarily closed beyond Jan. 19: two plants in Toledo, Ohio, and one each in Ontario and Detroit.

Toledo North, which makes the Dodge Nitro and Jeep Liberty, and Toledo Supplier Park, which makes the Jeep Wrangler, will be closed until Jan. 26. The Windsor, Ontario, plant, which makes minivans, and Detroit's Conner Avenue plant, which makes the Dodge Viper roadster, will be closed until Feb. 2, Elshoff said.

Chrysler sales were off 47 percent last month and are down 28 percent through the first 11 months of the year.

At Ford, a company spokeswoman said Wednesday it will shut down 10 of its North American assembly plants for an extra week in January, also due to lower U.S. sales.

Spokeswoman Angie Kozleski says the normal two-week holiday shutdown will be extended to Jan. 12 at all operating assembly plants except those in Claycomo, Mo., near Kansas City, and the Dearborn, Mich., truck plant.

Ford will also extend the shutdown at some engine, transmission and parts stamping plants, or temporarily shut portions of them to match cuts at the assembly plants, she said.

The extra week of down time has been planned for several months as part of the company's first-quarter production schedule, Kozleski said.

Ford Motor Co.'s U.S. sales were down 31 percent in November and are off 20 percent through the first 11 months of the year.

Laid-off workers at Ford and Chrysler get vacation pay for the normal holiday shutdown, then will receive unemployment benefits and supplemental pay from the company that total about 85 percent of their normal pay.

General Motors Corp. said last week it will temporarily close 20 factories across North America and make sweeping cuts to its vehicle production. Many of those plants will be shut down for the entire month of January.

GM said Wednesday it was delaying construction of a new engine factory in Flint, Mich., in an effort to conserve cash. The plant is to make 1.4-liter engines for the Chevrolet Cruze and the Chevy Volt plug-in electric car, two key products in the century-old automaker's plan to turn itself around after relying on highly profitable truck and SUV sales.

The plant's engines will extend the range of the rechargeable Volt, GM's high-profile next-generation vehicle that will be able to travel 40 miles on electricity alone. They will also power the Cruze, GM's new small car that is supposed to get around 40 miles per gallon.

Also Wednesday, Chrysler Financial, the company's dealer and consumer finance arm, warned dealers that it may temporarily stop financing vehicle inventories if dealers keep pulling large amounts of their money out of an account that helps fund those loans.

Chrysler Financial said in a letter to dealers dated Dec. 12 that recent withdrawals from the company's cash management account have been "unusual and unprecedented."

Sluggish auto sales worldwide are taking a toll on foreign automakers as well. Honda Motor Corp. said Wednesday that it would halt expansion in Japan, Turkey and India and cut 450 temporary workers in Japan through February.

Nissan Motor Co. said it would reduce Japanese production by 78,000 vehicles and also cut 500 temporary workers there.

Asian stock markets mixed as Japan's central bank weighs interest rate cuts

HONG KONG (AP) -- Asian stock markets were modestly mixed Thursday, with Japan shares fluctuating amid growing speculation the country's central bank would soon cut interest rates to revive its contracting economy.


The lackluster trade came after Wall Street dipped as early enthusiasm about the Federal Reserve's historic rate cut gave way to concerns that a turnaround in the U.S. economy was still far off.

In Tokyo, the Nikkei 225 stock average was up 32.19 points, or 0.4 percent, at 8,644.71 after flitting in and out of negative territory. Hong Kong's Hang Seng Index lost about 0.9 percent to 15,326.59.

Benchmarks in Australia, South Korea and mainland China edged higher, while those in Singapore and the Philippines declined.

The dollar recovered slightly from 13-year lows against the yen, and oil prices slid to 4 1/2-year lows below $40 a barrel.

"This is not the start of a bull market, it's still a bear market rally," said Francis Lun, general manager of Fulbright Securities Ltd. "The economy is still in the doldrums, and I think people are thinking the zero interest rate policy is due to a long recession ahead."

The U.S. rate cut has raise expectations the Bank of Japan will follow suit and slash its key rate to nearly zero when it wraps up a two-day meeting Friday. Goldman Sachs predicts the bank will shave its overnight call rate target from the current 0.3 percent to 0.15 percent, while JP Morgan forecasts a cut to 0.1 percent.

Financials gained on the speculation, with megabank Mitsubishi UFJ Financial Group Inc. adding 2.1 percent. Sumitomo Mitsui Financial Group Inc., Japan's second-largest by market value, soared 7 percent.

Meanwhile, Honda dropped 3.4 percent a day after Japan's No. 2 carmaker said it was slashing its annual profit forecast due to the global slowdown.

In China, a new stimulus package unveiled Wednesday to boost the country's slumping real estate market lifted shares in property firms. China Overseas and China Resources rose more than 2 percent in Hong Kong trade.

Overnight in New York, the Dow Jones industrial average lost 99.80, or 1.12 percent, to 8,824.34, after falling as many as 146 points earlier in the session. The Standard & Poor's 500 index slipped 8.76, or 0.96 percent, to 904.4.

Futures pointed to a rebound Thursday on Wall Street. Dow futures were up 20 points, or 0.2 percent, to 8,820, while S&P futures were up 1 point, or 0.1 percent, to 904.

The yen leveled off after a dramatic surge against the dollar, as Japan warned of possible intervention in the foreign exchange market. The dollar, which hit a 13-year low Wednesday, traded at 87.86 yen, up from 87.21 earlier.

Finance Minister Shoichi Nakagawa told reporters he would "implement appropriate measures" regarding the yen's gains, whic erodes exporters' foreign income.

"For export manufacturers the acceleration of the strong yen is a negative factor," he said.

Oil prices, meanwhile, slid further as investor pessimism over global crude demand outweighed OPEC's largest-ever production cut. The January contract was down 15 cents at $39.91 a barrel in Asian trade, at one point falling as low as $39.19 -- a level not seen since at least July 2004.