Obama team sees US rebound this year, hurdles loom

WASHINGTON, (Reuters) – President Barack Obama’s  administration is “incredibly confident” the U.S. economy will  rebound within a year, a top adviser said yesterday, before a  critical week in efforts to flesh out and sell its recovery  agenda.

“We will be seeing signs the economy is turning around,”  Christina Romer, head of the White House Council of Economic  Advisers, told the “Fox News Sunday” program.

On CNN’s “State of the Union” show, Romer said she had  “every expectation, as do private forecasters, that we will  bottom out this year and actually be growing again by the end  of the year.”

Obama’s steps to reverse a deep recession and restructure  the ailing U.S. financial system have global implications as he  prepares to meet leaders of major developed and developing  nations at a Group of 20 summit in early April.

But his reform plans and the vast spending envisioned to  reboot the world’s largest economy and purge at least $1  trillion in “toxic” assets from banks face steep resistance  from some in Congress and corporate boardrooms.

In a key part of the agenda, Treasury Secretary Timothy  Geithner is due to unveil long-awaited details of his bank  bailout plan at 8:45 a.m. (1245 GMT) today.

The Treasury Department is expected to brief private  capital groups later on Sunday about incentives to get them  involved in the plan to buy up banks’ troubled assets,  according to a source familiar with the matter. Geithner is also due to expand on proposals for  financial regulatory reform at a congressional hearing on  Thursday.

One aim of the three-part strategy to cleanse the financial  system will be to entice private investors with abundant loans  and generous terms to buy bad mortgages and other toxic assets,  a source familiar with the plan told Reuters on Saturday.

Obama, a Democrat whose high approval ratings are being  tested in his third month as president as public anger rages  over big bonuses at bailed-out financial firms, will discuss  his recovery efforts in a prime-time news conference tomorrow.

Geithner has been attacked over his failure to halt bonuses  of at least $165 million, and possibly as much as $218 million,  paid out to employees by hobbled insurer American International  Group, which has been bailed out with about $180 billion in  taxpayer money.

Obama has stepped up his defense of Geithner, telling the  CBS show “60 Minutes” that he  would not accept his treasury secretary’s resignation even if  it were tendered.

Geithner, who dismissed the calls to step down while taking  responsibility for the AIG bonuses controversy, has also been  criticized over his slow roll-out of the rescue plans for the  banking sector that are seen as vital to an overall recovery.

“He’s lost a lot of credibility and a lot of political good  will, but he can turn things around,” said Nariman Behravesh,  chief economist at IHS Global Insight. “If he can come up with  a credible plan, fine. If not, then his days are numbered.”

Public anger over the AIG bonuses overflowed last week,  prompting the House of Representatives to pass a tax bill to  claw back the payouts.

The Senate has several of its own ideas  about how to deal with executive pay.

Richard Shelby, a Republican member of the Senate Banking  Committee, said “it’s possible” that heavy taxes on pay may  scare away investors from the Treasury’s bank rescue programme.

“We have to be careful of unintended consequences in  legislation” passed by the House, Shelby told Fox, adding that  “no one wants to award taxpayer money to people who have caused  institutions to fail.”

The New York Times said the Treasury will also unveil a  sweeping plan this week to overhaul financial rules that would  seek broader oversight of executive pay.

But an administration official said no announcements were  planned for this week and dismissed the idea that executive pay  was linked to reforms of financial regulations.

Governments around the world are moving to tighten rules on  banks, hedge funds, insurers and other firms amid the worst  financial crisis in generations — a priority especially among  some European leaders who will meet Obama at the G20 summit.

Adding to the gloom, World Bank President Robert Zoellick  said on Saturday the global economy is set to contract by 1 to  2 percent this year and that the depth of the slowdown was  unprecedented since the Great Depression of the 1930s.

BUDGET BATTLES

The new White House team, which inherited the crisis from  the Republican administration of George W. Bush, is also trying  to win support for big-ticket items in Obama’s record $3.5  trillion budget proposal for the 2010 fiscal year — something  in very short supply among Republicans in Congress.

“It’s an economic blueprint for our future, a vision of  America where growth is not based on real estate bubbles or  over-leveraged banks, but on a firm foundation of investments  in energy, education and healthcare that will lead to a real  and lasting prosperity,” Obama said in his weekly radio address  on Saturday.     The budget committees of the Senate and House are set to  begin crafting their budget bills this week.

Republican Senator Judd Gregg appeared ready for a fight  over the Obama budget that projects deficits of $1.75 trillion  this fiscal year and $1.17 trillion next fiscal year.

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