President Obama’s Weekly Radio Address

President Obama gave his weekly radio address amidst new signs of economic trouble. New figures from the Commerce Department show a decline in Gross Domestic Product of close to 4 percent last year. While that number is below the expected drop of five to six percent unsold goods piling up in inventory are counted as part of GDP, and hence the real drop is likely in the higher range. From the New York Times:

The actual decline in the gross domestic product — at a 3.8 percent annual rate — fell short of the 5 to 6 percent that most economists had expected for the fourth quarter. But that was because consumption collapsed so quickly that goods piled up in inventory, unsold but counted as part of the nation’s output.

“The drop in spending was so fast, so rapid, that production could not be cut fast enough,” said Nigel Gault, chief domestic economist at IHS Global Insight. “That is happening now, and the contraction in the current quarter, as a result, will probably exceed 5 percent.”

President Obama reflects on that number in his weekly talk, and speaks of a new plan to deal with our banking crisis that will soon come from Treasury. The need for a new plan to rescue our banking sector is reflective of the consensus that TARP I failed to address the root problem of toxic assets on the balance sheets of so many banks, and the danger that many are already insolvent. Credit cannot and will not flow until this problem is resolved. The administration seems to recognize this, and appears to be heading in the direction of an aggregator bank to buy, hold, and eventually sell these assets. From a business perspective nothing is more important than unclogging the credit line and rebuilding confidence. Tim Geithner has his hands full.

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2 Responses to President Obama’s Weekly Radio Address

  1. Jules Gordon says:

    Your Honor,

    As I have posted here that would be a critical part of recovery.



  2. Fred Mertz says:

    So, they are leaning towards taking only the toxic assets and not the entire institution, as the RTC did? Doesn’t this guarantee that the taxpayer loses? What am I missing? Why aren’t they reusing the RTC example?



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