Obama Warns Economy to Worsen

ABC News' Matt Jaffe reports from Chicago:

President-elect Barack Obama, 44 days before he becomes the 44th president, warned that the nation’s economy -– currently mired in a recession –- will get worse before it gets better.

“If you look at the unemployment numbers that came out yesterday, if you think about almost 2 million jobs lost so far, if you think about the fragility of the financial system and the fact that it is now a global financial system, so that what happens in Thailand or Russia can have an impact here and obviously what happens on Wall Street has an impact worldwide,” he said in an interview with NBC’s Tom Brokaw taped Saturday and aired Sunday on “Meet the Press.”

“When you think about the structural problems that we already had in the economy before the financial crisis, this is a big problem, and it's going to get worse.”

“Things are going to get worse before they get better,” he then repeated for emphasis. With the financial crisis still worsening, Obama said his main goal is finding a remedy for the economic woes. “That's why my number-one priority coming in is making sure that we've got an economic recovery plan that is equal to the task,” he noted.


In recent weeks, as he has outlined a plan to save or create 2.5 million jobs in his first two years in office by emphasizing infrastructure projects, the president-elect has preached the need for a massive short-term stimulus package to jump-start the economy. Today he stated that if this means increasing the national debt, then so be it.

“We've got to provide a blood infusion to the patient right now to make sure that the patient is stabilized,” he said. “And that means that we can't worry short term about the deficit. We've got to make sure that the economic stimulus plan is large enough to get the economy moving.”

He expressed unhappiness that the Bush Administration had not done more to help homeowners struggling to pay their mortgages.

“I’m disappointed that we haven’t seen quicker movement on this issue by the administration,” Obama said.

One way to improve the country’s finances, Obama pointed out, is cutting down on Congressional spending.

“The days of just pork coming out of Congress as a strategy, those days are over,” warned the former Illinois senator to his old Capitol Hill colleagues.

Going forward, Obama said he would implement “a set of rules of the road” for the financial market, consisting of “regulations that prevent the kind of speculation and leveraging” seen in the past. “We've got to have transparency, openness, fair dealing in our financial markets,” he said. “And that's an area where I think, over the last eight years, we've fallen short.”

Obama did not weigh in with a concrete answer on if he would repeal the Bush tax cuts or let them expire in 2010, while also suggesting that he would steer clear of any tax increases in the near future.


In the wide-ranging interview, Obama also touched on pressing foreign affairs issues such as the recent Mumbai attacks and diplomatic relations with Iran, but the focus was the economy, with the unresolved question of how to rescue Detroit’s “Big Three” automakers a key topic.

Obama criticized the automakers for their “repeated strategic mistakes”, such as not building small, fuel-efficient cars -– a “head in the sand” approach, he dubbed it -- but cautioned that, going forward, their industry cannot be allowed to collapse.

“The auto industry is the backbone of American manufacturing,” he said. “It is a huge employer across many states. Millions of people directly or indirectly are reliant on that industry. And so I don't think it's an option to simply allow it to collapse.”

Obama said the solution is to give them the money they need to survive, but with strings attached demanding reforms.

“What we have to do is to provide them with assistance, but that assistance is conditioned on them making significant adjustments,” he said. “They're going to have to restructure, and all their stakeholders are going to have to restructure, labor, management, shareholders, creditors.”

“Everybody is going to recognize that they have -- they do not have a sustainable business model right now. And if they expect taxpayers to help in that adjustment process, then they can't keep on putting off the kinds of changes that they, frankly, should have made 20 or 30 years ago.”

He emphasized the importance of keeping “the automakers' feet to the fire in making the changes that are necessary” –- ”Demand accountability, demand serious changes, but do so in a way that it allows them to keep the factory doors open.”

As the White House and Congress negotiate on a plan to help the Big Three, Obama noted that any money given to the automakers must result in an industry that works, not just tossing funds towards Detroit only to have them return months from now asking for more.

“If taxpayer money is at stake -- which it appears may be the case -- we want to make sure that it is conditioned on an auto industry emerging at the end of the process that actually works, that actually functions,” he said. “The last thing I want to see happen is for the auto industry to disappear, but I'm also concerned that we don't put $10 billion or $20 billion or $30 billion or whatever billion dollars into an industry, and then, six months to a year later, they come back hat in hand and say, 'Give me more.'"


Just weeks after terrorists killed nearly 200 people in Mumbai, India, and wounded hundreds more, Obama spoke of the need for “a strategic partnership with all parties in the region” to stamp out terrorists.

As tensions between India and Pakistan - believed to have been the terrorists’ base -- have increased since the attacks, Obama said that Pakistani President Asif Ali Zardari “has sent the right signals” in recognizing that terrorism is not only a threat to the United States, but to his country as well. The focus, he warned, cannot solely be on Afghanistan.

“We have to see it as a part of a regional problem that includes Pakistan, includes India, includes Kashmir, includes Iran,” he said. “And part of the kind of foreign policy I want to shape is one in which we have tough, direct diplomacy combined with more effective military operations, focused on what is the number-one threat against U.S. interests and U.S. lives, and that's Al Qaida and their various affiliates. And we are going to go after them fiercely in the years to come.”

Obama issued a clear warning to Iran, in particular.

“I think we need to ratchet up tough, but direct diplomacy with Iran, making very clear to them that their development of nuclear weapons would be unacceptable, that their funding of terrorist organizations, like Hamas and Hezbollah, their threats against Israel are contrary to everything that we believe in and what the international community should accept, and present a set of carrots and sticks in -- in changing their calculus about how they want to operate.”

“I think this democratically-elected government understands that threat,” he said.

Obama also spoke of the need to “reset US-Russian relations” as Moscow has become “increasingly assertive”, citing this summer’s invasion of neighboring Georgia.

“I think they have been acting in a way that is contrary to international norms,” he said.

“We want to cooperate with them…but we also have to send a clear message that they have to act in ways that are not bullying their neighbors.”

On Iraq, the President-elect did not stick to his stated promise to bring all combat troops home within 16 months, saying only that he intended to pull them out “as quickly as we can do to maintain stability” there.

When the troops do return, Obama announced that he had tapped former Gen. Eric Shinseki to become Secretary of Veterans Affairs – “exactly the right person who is going to be able to make sure that we honor our troops when they come home”.


On a lighter note, Brokaw asked Obama if he had stopped smoking.

“I have,” replied the President-elect, noting that ABC’s Barbara Walters asked him the same thing in their recent interview. “What I said was that there are times where I have fallen off the wagon.”

Brokaw pointed out that “that means you haven’t stopped.”

“Fair enough,” responded Obama as he prepares to inherit the no-smoking White House. “What I would say is that I have done a terrific job under the circumstances of making myself much healthier. You will not see any violations of these rules in the White House.”

Obama forecast that his White House would be full of cultural activities, so “once again we appreciate this incredible tapestry that is America.”

He did not weigh in on the prospect of Caroline Kennedy filling Secretary of State-nominee Hillary Clinton’s Senate seat.

“I’ve got enough trouble in terms of Illinois politics,” he quipped.

The show marked Brokaw’s final stint on “Meet the Press,” following Tim Russert’s death earlier this year. Brokaw’s successor, David Gregory, appeared in the studio to end the broadcast, expressing what an honor it was to follow in the footsteps of Brokaw and Russert.

- Matt Jaffe

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