Will the Obama magic work for the financial recovery?

Mr. Barack Obama has made history and made changes in the occupant of the white house by his passion for “change.” The election to the office of the president of Obama is partly attributed to dismal policy adopted by the incumbent, George Bush.

The president elect has vowed to push an economic stimulus package through the Congress immediately when he takes over the office in January, 2009. At his first news conference in Chicago after the announcement of the results he said, “This morning we woke up to more sobering news about the state of our economy.”

One of the major tasks that require the urgent attention of the new president is the high unemployment rate which hovers around 6.5 per cent, the highest in the last 14 years. He was having consultations with the billionaire investor Warren Buffet, CEO of Google, Eric Schmidt, former Federal Reserve chairman, Paul Volcker but desisted from arriving at any major decision at that time.

On the tax front, Mr. Obama said he and his advisers would continue “to take a look at the data and see what’s taking place in the economy as a whole” and planned to announce a tax cut which would benefit 95 percent of the Americans. Another industry that cries for Mr.Obama’s attention is the automobile sector and small businesses, assistance for the state and local governments.

The average American has his heart filled up with hopes that the new president elect can do something to lift the sagging economy and in turn can improve the living conditions. But the million dollar question is “How long will it take to improve the liquidity flow and reduce the unemployment rate?” Let us hope that happens soon.

At last, the Wall Street bailout materialized!

The bill passed by the Congress on Friday to bail out the ailing financial institutions at a cost of $700 billion has given the much needed relief to one and all and will help to reduce the panic in the global stock markets. It is expected when the government steps into the blood bath, the bleeding in the market will hopefully stop.

But wait… Don’t jump in happiness and there is a lot to do to lift the ailing US economy and in turn the global economy. What can you expect from the passage of the bill?

Stock Markets

A cooling in the nerves of the stock market is expected in the days to come along with the return in the confidence of the investors. The markets are expected to be less volatile but with the cooling global economy and lower profits for the American multinational companies will have a negative impact on the growth of stock markets.

Banks

The banks are safe. The bill makes it clear that depositors need not worry about their hard earned money because the amount of deposits covered by the FDIC is increased from $100,000 to $250,000 and there is no need to get scared even if the banks fail. The recession is already on and the economic downturn will add oil to the already burning fire.

Unemployment

A latest estimate says that the job cut is 159,000 in the month of September and is the worst in the last five years. The picture in the coming months is not rosy either and more job cuts are expected forcing the customers to be spendthrift, deepening the gloom. The major sector that contributes to the US growth, the auto industry is deep in trouble and its sales in September touched the lowest point in the last 15 years.

Tax relief?

The ordinary US citizen can expect a lesser tax relief than expected because of the bailout package. But there is good news in that the tax won’t be raised because the sale of the troubled securities would yield dividends to finance the extra burden. The loans advanced by the banks to consumers will become scarce, let it be for car, home, credit card purchase or vacations.

But homeowners have the option to renegotiate their loans with the bank but time only will judge how effective these measures are?