From Politico.com, also featured on the Tom Sullivan radio show….
Even as President Barack Obama traveled down Pennsylvania Avenue on Tuesday after his swearing-in, the Dow Jones Industrial Average had fallen more than 300 points on Wall Street.
If his $825 billion economic stimulus plan is not successful, economists and investors warn that a stock market slide could be more like a 4,000-point stock market crash.
And Americans have vastly more to worry about than just that.
If the stimulus doesnt work and I dont think it will we will never have world leader empire status again, says Lynn Tilton, chief executive officer of the $6 billion private equity fund Patriarch Partners in New York.
We will lose our global position to India and China. People will lose jobs and homes, and there will be tremendous suffering, she added.
Just how far the economy has to fall before it hits bottom and begins to rebound is anyones guess.
But pessimists such as Tilton argue that the United States has seen the destruction of $5 trillion to $10 trillion in value over the past year, meaning that a $1 trillion or even $2 trillion economic stimulus effort will simply not be large enough to reverse the damage.
James Rickards, the senior managing director for research at the applied research firm Omnis says things will get much worse before they get better.
He believes that the Dow Jones now just over 8,000 will sink below 5,000, a level not seen since the early 1990s. Such a stock market collapse would reverse more than a decade of gains in equity value and would be devastating for shareholders, particularly retirees.
Worse yet, Rickards says the failure of the economic stimulus process could lead to a spiraling decline in the Gross Domestic Product, as output sags 5 percent to 7 percent a year for as many as five years leading to a total decline of as much as 30 percent.
As a result, unemployment would spike to as much as 15 percent, interest rates would climb and the price of gold could soar as the dollar collapses.
For homeowners, Rickards explains, property values could drop an additional 30 percent to 40 percent from todays already depressed levels, leading to an almost unprecedented destruction of personal wealth across the country.
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Politically, that kind of economic wipeout would be extraordinarily difficult for the new Obama administration to manage.
Among American presidents, only Franklin D. Roosevelt has faced a situation as bleak. But Roosevelt was able to focus national attention on the effort that he and the government were making to create improvement.
And even though the economy was still suffering, he won reelection in 1940 with 55 percent of the vote, carrying 38 of the 48 states.
Something similar could await this president. Whats fortuitous for Obama is that he inherited this mess, said one financial industry lobbyist. He is doing everything possible to get us out of it. Politically, he may get a pass.
Tilton suggests an overhaul of the current thinking in Washington.
Instead of the complicated Troubled Assets Relief Program in place now, shed like to see government officials create a provisional federal bank to loan money directly to companies, rather than to financial institutions.
We need to create jobs, she said. The future is really in the confluence of manufacturing and our great technology.
In an analysis of the stimulus prepared for House Democrats, Mark Zandi, chief economist at Moodys Economy.com, predicted that 8 million jobs would be lost and the unemployment rate would top 11 percent by early 2011 if the stimulus isnt passed, or doesnt work.
This would be more severe than the early 1980s recessions, which, combined, were the worst since the Depression, Zandi wrote in the analysis.
Martin Regalia, the top economist for the U.S. Chamber of Commerce, agrees with the gloomy economic predictions, but adds that any action in Washington will have some positive effects.
If they do pass it and it doesnt work, its damaging, Regalia said. If it doesnt work, then this administration will be crippled well out beyond the midterm elections and hell be dealing with higher unemployment, a growing disgruntled populace and a budget deficit that is staggering.
But at least hes done something. You look at the Katrina situation, what did the president get criticized for? For not being effective? No, he got criticized for doing nothing, Regalia added.
In addition, he said, action buys time.
If it doesnt work, we wont know that until the end of the year, Regalia said. There will be plenty of other opportunities to pile on to this package. There is time to ask, should we do more? Do we browbeat the banks? This is just the next step.