Economic woes pile onto Barack Obama’s in-tray

Back in the spring Republicans used to chortle at the prospect of handing over power to a Democratic president who would promptly be engulfed in recession. It would start in March of 2009, discredit the new president and prepare the way for a Republican renaissance in 2012.

Six months early, the crash swelled up in September, leaving an incumbent Republican president tarred with the same brush of historic failure as Herbert Hoover in 1932. He may mismanage the sequel, but no Republican will be able to claim it was all Obama's fault.

Bush is urging the world's leading economic powers, soon to muster in Washington, not to give up on capitalism. The mere fact that an American president should feel obliged to issue this worried advisory shows how desperate things already are and how much worse they will soon get.

Scores of cities, towns and even states are on the edge of bankruptcy

Each week brings a terrifying lurch, like a house on the edge of some cliff being pounded into slush by a Pacific storm. On the Doppler radar, we can see one financial tempest after another lined up out there. Next to burst: the credit card overhang, of some $2.8 trillion in consumers' plastic debt, much of which will have to be written off. The week after? Meanwhile, scores of cities and towns and even states are on the edge of bankruptcy.

The latest storm centre has been the US auto industry, effectively bankrupt. "What's good for General Motors is good for the country," said GM's chairman Charlie Wilson in 1952, amid the glorious surge of the postwar auto boom. This week GM's stock was trading at around $3, and analysts at Deutsche Bank said America's largest industrial corporation, the ninth-largest company in the world, is effectively worthless. GM has 266,000 employees. If it goes under, the ripple effect will put 2.5 million Americans out of work.

Drive through any American town and you'll see hundreds of acres of malls and box stores, almost all of them built in the past 20 years: Target, Best Buy, Circuit City, Home Depot, Borders Books, Linens 'n Things... Each day brings another bankruptcy. Circuit City, Borders, Linen 'n Things have gone. Home Depot is shutting down branches.

In my local town of Eureka, northern California, the mall owner, General Growth has gone broke. With malls from Hawaii to Maine, it was the second largest in America. The US Postal Service, with almost a million employees, and $2bn worth of red ink this year, is considering the first layoffs, of 40,000 workers, in its history.

Already America's real unemployment rate, if shorn of statistical tricks designed to conceal bad news, stands at around 15 per cent and is rocketing up. Consumer spending in the third quarter was the worst in 28 years. As the country totters wanly into what promises to be an appalling holiday sales season, Obama and his advisors gingerly finger the poisoned chalice handed them by Bush.

Vivid in their minds is Bill Clinton's terrible transition, which permanently scarred his presidency. An incorrigible and absolutely disorganised procrastinator, surrounded by a self-indulgent, arrogant and inexperienced staff, Clinton left crucial posts unoccupied, ignored burning issues, dithered on policy, offended Congress and by the end of five months had lost control of government.

So Obama is moving with all deliberate speed, starting with the hiring of Rahm Emanuel, fourth-in-rank among Congressional Democrats, as his chief of staff. Emanuel was present at the early Clinton meltdown and partly responsible for it.

A foul-mouthed rough-houser, Emanuel's job is to try and hold the Congressional Democratic majority in line and enforce White House supremacy. If there's one particularly salient feature of the Obama campaign, it was discipline. Whether Emanuel will maintain it is an open question.

Already Obama is urging a $50bn bailout package for the auto industry and in his first press conference he emphasised his campaign commitment to tax cuts for middle Americans to stimulate the economy.

The problem with GM and Ford is that they will be back for more billions in a few months, because their cars aren't selling well. The problem with tax cuts is that they won't prompt Americans to rush to the stores to buy things. "Go shopping," Bush advised the American people after 9/11. They did. But now, hocked up to the eyeballs, they're stopping, and any spare change from lowered tax rates will go to paying off old debts, not buying expensive new cars and gadgets.

What saved the US economy in the 1930s was not the New Deal but World War 2

The options for Obama and his future economic team are bleak as they consider how to revitalise an economy whose manufacturing jobs have gone to China, and where the building and home sales industry will be on its back for years to come. One of the few big employment gains has been among bartenders and waitresses.

Would the oft-called-for shift to a 'green jobs' programme really yield big pay-offs? The numbers are shaky. The falling price of oil has already finished off big alternative energy schemes like Boone Pickens' monster wind farm in Texas. Obama's advisors ponder huge programmes to battle 'man-made global warming'. It will be hard to persuade Congress to commit vast sums to combat the supposed menace, if another cold winter rolls in.

From the El Nino year of 1998 until January 2007, the average temperature of the atmosphere near the Earth's surface decreased some 0.25C. From January 2007 until the spring of 2008, it dropped 0.75C. Sea surface temperatures in the Arctic waters are now some 2-8C colder than they were last year, and Arctic ice is some 30 per cent greater in extent that it was last year at this time.

What bailed-out America's economy in the 1930s was not the New Deal but World War 2. Obama is indeed pledging a wider war in Afghanistan, but these days America's wars are financed by countries like China, buying US debt. China says it doesn't want to go on doing that.

Intellectually, Roosevelt was an aristocratic dilettante, arrogant enough to take risks. Obama is super-cautious and respectful, particularly towards what the old populists used to call The Money Power. Emergency transformed Roosevelt. Maybe it will do the same to Obama. If so, he hasn't got long. ·