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US Economy Stabilized Under Obama but Problems Persist

Jobs on newspaper

Jobs on newspaper

Despite inheriting what he called a "mess" President Barack Obama pledged to do everything in his power to fix the "broken" U.S. economy. Based on key indicators, the president appears to have succeeded in stabilizing the worst financial crisis since the Great Depression. But financial experts say the improving economic picture hides a troubling statistic: that nearly one in five Americans has lost a job or has given up looking for full time work altogether.

When a record crowd gathered outside the U.S. Capitol on a crisp January morning in 2009, financial markets were in freefall, and the U.S. economy was shedding 600,000 jobs a month. Many braved the cold to witness history, some seeking reassurance in a time of great difficulty.

"Today, I say to you that the challenges we face are real. They are serious and they are many. They will not be met easily or in a short span of time. But know this, America: they will be met," Mr. Obama said.

By the time Barack Obama had become the 44th president of the United States, the Great Recession had already claimed more than three million jobs. In one year, that number would double.

The auto industry was failing, banks had become reluctant to lend and Americans were losing their homes in record numbers. To make matters worse, consumers, the main drivers of the U.S. economy, were in no mood to spend.

But a year later, economist Alice Rivlin says aggressive actions taken by the Obama administration, appear to have stopped the bleeding. "He was handed an extraordinarily difficult situation and I think he's done very well in that context," Rivlin said.

To avert an economic collapse, the administration moved forward with a controversial plan to bail out banks deemed too big to fail.

The Federal Reserve slashed interest rates to promote lending. And then, despite heated objections from Republicans, Congress approved a nearly $800 billion stimulus program to stabilize the financial system and kick start job growth.

"I think all of those things have accounted for the fact that the freefall did not continue and the economy is leveling off and we hope, improving into the next year," Rivlin said.

Indeed, Wall Street has reflected a growing confidence, ending the year with its biggest gain since 2003.

Banks that received money from the Troubled Asset Relief Program reaped unexpected profits and repaid billions in loans, resulting in a record 46 billion dollar profit for the Federal Reserve.

But at what cost? A year after the president took office, unemployment has reached double digits and the nation's deficit hit a record $1.4 trillion.

"There was too much spending on it, in my view," conservative policy analyst Ron Haskins at the Brookings Institution said. Haskins gives the president a "D" for his spending policies even though he admits it may have averted a bigger disaster. "It's a dangerous precedent for the government to get so heavily involved in the economy and so it concerns me, but the financial system did not go under," he said.

Haskins cites the nation's rising jobless rate as proof that government can't fix everything. "Unemployment is probably going to be the least happy outcome of the year," he said. "We're probably, it looks now, like we'll continue to bump along maybe even have some bad months and unemployment is not going to recover as it has in some past recessions."

But others say Mr. Obama deserves credit for meeting the challenge.

"A year ago I thought the forecast of economists who were saying we'll be back into positive growth territory by the end of the year might be optimistic. But it turned out, they were right," Rivlin said. "We did get back into positive growth territory by the end of the year so it wasn't quite as disastrous as I feared it might be."

Even if U.S. economic output expands in 2010 and more Americans head back to work, both critics and supporters of the president say the nation faces a more serious challenge to future economic viability: a rapidly growing deficit and a national debt estimated at more than $12 trillion.

That's the number 12 followed by 12 zeroes, or roughly $40,000 for every man, woman and child living in the United States.