Obama team plans biggest boost in history to save American economy

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$700bn rescue package to avert mass job losses
Green power grid among proposed programmes

Barack Obama's administration in waiting signalled yesterday that it was preparing the biggest economic stimulus in US history to avert mass unemployment in a stuttering economy that could face the toughest recession in half a century.

In a programme tinged with environmentally friendly initiatives, the US president-elect has set a new target of creating or safeguarding 3m jobs, up from a previous aim of 2.5m, by unleashing an avalanche of government spending and offering widespread tax rebates.

The Obama camp indicated that the package would be worth between $675bn and $775bn, easily eclipsing other packages unveiled in China, Japan and Britain. The cash will include programmes to transmit wind and solar energy across America and to put millions of medical records into digital format.

Obama's vice-president elect, Joe Biden, yesterday said the stimulus was the "single most important thing" facing the new administration and warned that action was needed to prevent the economy from "absolutely tanking".

"The economy is in much worse shape than we thought it was in," Biden told ABC television. "We've got to begin to stem this bleeding, stop the loss of jobs and create new jobs."

Some 1.9m US jobs have been lost this year and Obama's aides have briefed him that as many as 4m could be at risk, which would take the unemployment rate to 9%. Quoting transition officials, the New York Times said Obama's team feared that the downturn could eclipse anything in the last 50 years.

At a brainstorming session held in the basement of the Capitol building on Friday, Obama's economic team grappled with ways to address the subprime mortgage crisis, the credit crunch and a slump in consumer spending that has left shopping centres strikingly quiet this Christmas.

Among the proposals is the creation of a smart power grid to broaden the transmission of wind and solar power. A limitation of green power generation is that wind farms and large-scale solar panels are easier to site in remote areas, leaving a challenge in taking energy to centres of population.

Biden said such a project would create tens of thousands of jobs and would have long-term benefits. He said "every major economist", from left to right on the political spectrum, agreed that "direct government spending now is the best way to infuse economic growth".

When pressed on the short-term risk of inflating America's trillion-dollar budget deficit, Biden said: "There is no short run other than keeping the economy from absolutely tanking. That's the only short run."

Other specific commitments include putting all US medical records online - which would involve a substantial investment but would create long-term savings estimated at $78bn annually.

Economists agree that the immediate outlook is dismal. The US economy is expected to shrink by at least 4% in the final quarter of the year and figures out this week are likely to show a 0.7% drop in monthly high street spending, according to a survey by Bloomberg.

Although it will include some $150bn in tax relief for people on low and middle incomes, the Obama administration's emphasis on spending marks a shift from the approach of George Bush, who tried to stimulate the economy over the summer simply by sending out millions of tax rebate cheques.

Critics contend that Obama's proposals risk setting off an unseemly flood of political grasping for a share in the money.

Holiday retreat

Barack Obama and his family are holidaying at a $9m beachfront house in Hawaii for 12 days before he takes office. The five-bedroom house is on almost half a hectare of land along

Kailua Beach, Oahu, a favourite spot for windsurfers, kayakers and dogwalkers. The beach is public land, like all beaches under state law, and the Obamas may see neighbours out for a walk or jog. Obama's vacation home sits on a dead-end road with few other homes. Photographs from a 2007 real estate listing show a stone-encircled swimming pool and an open-air sitting room with views of the ocean. City tax records show a Houston man bought the property in January for $9m.