By Andrea Coombes
RISMEDIA, January 20, 2009-(MCT)-President Barack Obama’s top economic adviser said Sunday that the incoming administration’s proposed $825 billion stimulus package will pass within a month and will have some immediate, appreciable effects.
“I expect the (stimulus) program will pass within a month,” Lawrence Summers, incoming director of the National Economic Council, said on CBS’ “Face the Nation.”
“Some of the adjustments will take place almost immediately. People will see income in their paychecks, state and local governments will get support to prevent layoffs … and there are a ton of shovel-ready projects that are out there that aren’t going to have to be cancelled when this program passes,” Summers said. But even with quick passage, the economy won’t recover overnight, he said.
“These problems weren’t made in a week or a month or a year and they’re not going to be fixed in a week or a month or a year. There’s almost no question the economy is going to decline for some time to come,” Summers said.
“The next months are almost certainly going to be difficult. But you know psychology is a lot of this. People sense a new leader with a clear plan, a commitment … that’s going to add to confidence,” he said.
Also Sunday, Obama’s senior adviser David Axelrod responded to some Republican lawmakers’ criticism that the stimulus plan carries too steep a price tag for the creation of 3 million to 4 million jobs.
“We’re not just spending money to create jobs. We’re investing money to strengthen this economy,” Axelrod said on ABC’s “This Week.”
He said that in addition to new jobs, the package offers investments in alternative energy and computerizing the nation’s health records, among other plans. “These things will pay long-term dividends to this country,” he said.
Summers said the new administration will keep a close eye on banks’ use of the $700 billion Troubled Asset Relief Program bailout funds, focusing not “on the needs of banks, but on the need of the economy for credit.”
He said the new administration will create a website to detail where the money has gone, along with details of the banks’ repayment obligations and the expected repayment schedule.
“There’s going to be a very different level of rigor in the evaluation of institutions,” Summers said. “The institutions that are healthy and don’t need (the money) to survive are going to be expected to lend.”
Summers said the results from the initial $350 billion in TARP funds have been disappointing but, “if it hadn’t been given, we don’t know what might have happened. It could have been catastrophic.” Now, however, “we need a more proactive approach,” he said.
The new administration will also examine executive compensation “very carefully,” Summers said, adding that a blanket approach to limiting executives pay packages won’t work for both small community banks and large institutions with potentially “hundreds and hundreds of highly paid executives.”
Summers declined to say whether the Bush tax cuts, set to expire after 2010, will be made permanent. On the campaign trail, Obama said the two highest income tax rates might be allowed to revert higher.
“Our overall focus is going to be on increasing spending. On net, there’s going to be a substantial tax cut for the American people,” Summers said. “No one with income below $250,000 is going to see their taxes going up.”
Increasing taxes on high-income Americans “is something that will get worked out in the legislative process,” Summers said. “The focus right now should be how we’re going to get this economy going.”
Separately, Axelrod defended Timothy Geithner, Obama’s pick for Treasury Secretary, for his having not initially paid as much as $34,000 in income taxes.
“He paid those taxes when it was pointed out he made a mistake on taxes, a mistake he made while overseas,” Axelrod said.
“It’s a common mistake people working overseas make,” he said, adding that he’s confident Geithner will be confirmed in his new post.
Meanwhile, reports over the weekend said that Federal Reserve Governor Kevin Warsh is no longer expected to replace Geithner as president of the New York Fed.
Instead, Warsh will continue to work as Fed Chairman Ben Bernanke’s point person with the Treasury Department, according to separate reports from The Wall Street Journal and Bloomberg News.
That means William Dudley, executive vice president of the New York Fed’s markets group, is the top candidate for the job, the reports said.
Summers said the car industry needs to go through a major overhaul before any additional government money is spent.
“Any further support has to be conditioned on a real restructuring that leaves these companies in a sustainable state,” he said.
“That’s going to require sacrifices from all the stakeholders. We’re not going to put government money in so bond-holders can take the money out. It’s going to be a significant, tough restructuring. But the automobile industry is really central to the national economy-it does need real restructuring,” Summers said.
© 2009, MarketWatch.com Inc.
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