Obama hit with new rash of bad economic news

WASHINGTON (AP) — President Barack Obama faced a new rash of bad economic news Monday as his Treasury Department prepared to hand out $30 billion more to bail out an international insurance and investment giant and Wall Street shed value even before it opened for trading.

The government said it would give American International Group Inc. the additional $30 billion in loans, adding to the $150 billion it has already provided the ailing insurer. AIG on Monday also reported the biggest quarterly loss in U.S. corporate history — $61.7 billion. On that news, stocks fell, with the Dow plunging below 7,000 to reach its lowest level in more than a decade shortly after the market opened.

The economy has been in sharp decline since late last year when the nation’s housing market began its collapse, sending shock waves throughout the economy and threatening a financial implosion. A $700 billion bailout package set up by the Bush administration has kept the economy on life support, but Obama’s subsequent plan for $787 billion more to stimulate the crumbling system has yet to kick in.

Obama’s new budget, meanwhile, foresees the possible need to spend as much as $750 billion more to prop up America’s banks and investment houses, which are holding an unknown volume of bad debt. They have cut the flow of credit to a relative trickle.

Later Monday, Obama was to announce his latest Cabinet choice, Kansas Gov. Kathleen Sebelius, as health and human services secretary. The Democrat’s nomination comes just days before a White House summit on health care. Obama’s first choice for the post, Tom Daschle, withdrew because of tax problems.

Over the weekend, parallel challenges to Obama’s administration from abroad came into focus, in particular his plan for ending the U.S. combat mission in Iraq by Aug. 31, 2010, and new concerns about Iran’s nuclear ambitions.

Top U.S. military officials predictably backed Obama’s course for removing U.S. forces from Iraq, but Defense Secretary Robert Gates acknowledged that field commanders wanted more time.

“I think that if the commanders had had complete say in this matter, that they would have preferred the combat mission not end until the end of 2010,“ Gates said Sunday.

Adm. Mike Mullen, chairman of the Joint Chiefs of Staff, said, meanwhile, that he was comfortable with the plan, which would have all American forces out of Iraq by Dec. 31, 2011. Mullen said, however, that he was reluctant to talk about “winning or losing,“ adding rather that conditions were in place for the Baghdad government to successfully take control over the country.

“I was able to give him my best military advice and I’m very comfortable with the decision he made,“ Mullen said Sunday.

Under the Obama plan, the 142,000 U.S. forces in Iraq would be drawn down to between 35,000 and 50,000 troops by the 2010 date, with all forces to be extracted from the country by the last day of 2011.

Mullen, meanwhile, issued unsettling remarks on Iran and its nuclear program, saying Tehran now has sufficient fissile material for a nuclear weapon, declaring it would be a “very, very bad outcome” should the Islamic regime move forward with a bomb.

He offered the assessment when questioned about a recent report by the U.N. nuclear watchdog on the state of Iran’s uranium enrichment program, which can create nuclear fuel and may be sufficiently advanced to produce the core of warheads.

Mullen was asked if Iran now had enough fissile material to make a bomb. He responded, “We think they do, quite frankly. And Iran having a nuclear weapon I’ve believed for a long time is a very, very bad outcome for the region and for the world.“

On Monday, Iran dismissed U.S. concerns, saying it isn’t developing a nuclear bomb and that any effort to make weapons-grade uranium would be difficult under the eyes of international inspectors.

Iranian Foreign Ministry spokesman Hasan Qashqavi told reporters in Tehran, “We have said many times that a nuclear weapon has no place in Iran’s defense doctrine.“

Qashqavi did not comment specifically on the amount of fissile material Iran has produced. But he implied that even if Iran wanted to produce weapons-grade uranium, it would be difficult since the country’s enrichment facility is being monitored by the IAEA.

“How is it possible for uranium enriched 3 to 4 percent to be enriched up to 90 percent while under IAEA monitoring?“ he said.

The International Atomic Energy Agency said Iran has processed the 2,222 pounds (1,010 kilograms) of low-enriched uranium. But the report left unclear whether Iran is now capable, even if it wanted, of further processing that material into a sufficient quantity of highly enriched uranium to arm one weapon.

Gates did not go as far as Mullen. The Iranians, Gates said, are “not close to a weapon at this point and so there is some time” for continued diplomatic efforts.

“The question is whether you can increase the level of the sanctions and the cost to the Iranians of pursuing that program at the same time you show them an open door if they want to engage with the Europeans, with us and so on if they walk away from that program,“ Gates said. “Our chances of being successful, it seems to me, are a lot better at $35 or $40 oil than they were at $140 oil because there are economic costs to this program, they do have economic challenges at home.“

But U.S. ambassador to the United Nations, Susan Rice, recently told National Public Radio that the IAEA report “confirms what we all had feared and anticipated, which is that Iran remains in pursuit of its nuclear program.“

Iran, now subjected to various penalties by the U.N., the U.S. and others over its nuclear program, denies it wants to build a bomb. It asserts its program is intended to provide the country with the homegrown ability to generate electricity from nuclear reactors.

Copyright 2009 The Associated Press.