Economic Challenges Facing President-Elect Obama

No other item on Barack Obama's agenda for his first 100 days comes close in importance to putting the ailing economy back on a sound footing.

With no time to spare, he is already immersing himself at that effort as he prepares to take over on Tuesday from President Bush.

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Obama and his aides have been meeting with lawmakers about a proposed $825 billion economic stimulus package after winning Congressional approval to use the remaining $350 billion of a financial bailout fund.

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Below are some of the challenges he faces and plans he has outlined to address them:

THE ECONOMY

The U.S. economy slipped into recession in December 2007 and the 12-month slump is already the longest since the early 198Os. If it lasts more than 16 months, it will be the longest downturn since the Great Depression.

Employers have slashed 1.9 million jobs in the past four months alone. In all of 2008, 2.6 million people lost their jobs, the most since 1945. Unemployment surged to 7.2 percent last month from 6.8 percent in November.

Obama has warned the jobless rate could reach double digits.

Home foreclosures are still running at record rates and policymakers worry the housing market, at the center of the economy's woes, may not have found a bottom yet.

PREVIOUS DOWNTURNS

Huge stock-price declines, the collapse of firms like Lehman Brothers and Bear Stearns that were once household names, and more recent turmoil at firms like Citigroup have evoked comparisons to the Great Depression.

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However, in terms of the pain it may inflict on ordinary Americans, the current downturn may be more comparable to that of the early 1980s.

A rise in interest rates aimed at breaking the back of crippling inflation that had developed in the 1970s led to the economic woes of 1980-82.

In the current downturn, economists are more worried about deflation, or falling prices, than inflation.

Still, during the depths of the Great Depression, when Franklin Delano Roosevelt began enacting his New Deal, about one in four Americans was out of work.

Even if the current jobless rate rises into the double digits, economists do not expect it to approach Depression-era levels.

OBAMA'S PROPOSALS

Obama is working with the Democratic-led Congress to craft a package of more than $775 billion aimed at jump-starting the economy. He wants it passed by mid-February.

The plan would fund public works projects such as the construction of new roads and schools and provide incentives to promote energy efficiency. It also includes tax cuts.

But Senate Democrats have prodded him to jettison a proposed tax break for businesses that hire new employees. The package remains a work in progress.

Obama persuaded the Senate to release the remaining half of a $700 billion financial bailout program. Obama has promised to restructure the fund to better address the deepening mortgage foreclosure crisis and to ensure greater accountability for firms receiving the money.

Longer term, Obama has promised to tighten regulations on Wall Street, saying a lack of oversight was a big cause of the financial meltdown.

OTHER PRIORITIES

Starting on Day One, Obama will also face an array of foreign policy challenges, including the Gaza crisis and the standoff with Iran over its nuclear program.

He won't have the option of deferring many of these problems.

But analysts believe some domestic priorities such as a promise to revamp the healthcare system and to devise a broad plan for addressing climate change may have to wait until the economy is stabilized.

Rewriting financial regulations will remain an important priority but many experts think significant progress on that will have to wait until later in the year as Obama concentrates on the stimulus plan and the financial bailout issue.

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