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President Barack Obama faces a daunting political reality: the world he envisioned in the spring and summer of 2008, when he was formulating his political strategy and building his political alliances, has been replaced by a world in economic danger.
His $3.5 trillion budget might make sense if these were normal times, with a newly elected, very liberal Administration wanting to focus on reshaping America and redistributing wealth. However, these are not normal times. We are in the midst of the worst economic challenge in 80 years. (See pictures of the down-and-out economy.)
Japan's gross domestic product dropped 13% in the fourth quarter. The Russians are so short of cash, they are signing a lopsided 20-year deal for oil sales to China in exchange for a $25 billion loan. Iceland is bankrupt. The World Bank predicted on March 8 that in 2009 the global economy will shrink for the first time since the 1940s.
Here in America, the unemployment numbers keep growing. Such icons of U.S. economic power as Citigroup, General Motors and General Electric are in trouble. The big-spending strategy employed by George W. Bush and now Obama has so far failed to turn around the economic decline. Congressional leaders are talking about the need for a second stimulus package. No one should underestimate the danger posed by these policy failures. Gigantic economic dislocations have gigantic noneconomic consequences. The Great Depression led to the rise of Nazi Germany and a militaristic Japan, the spread of communism and World War II. (See 25 people to blame for the financial crisis.)