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Orszag, who has expertise in retirement security, health care and climate change issues, is currently the director of the Congressional Budget Office, which calculates the cost of legislative proposals for the House and Senate to consider in their deliberations.

As OMB director, Orszag, 40, would prepare the president’s federal budget proposals for Congress and analyze the effectiveness of government programs and policies, as well as have a big role in determining funding priorities for federal dollars.

At a press conference on Tuesday, Obama promised once again that his economic team would go through the federal budget “page by page, line by line” to get rid of programs that aren’t working and make those that remain more cost effective.

Obama said the team would be charged with making sure any program investments his administration makes will be based “on national priorities and not politics … The old ways of Washington can’t meet the obligations of today and tomorrow.”

Whenever possible, he said he wants his team to recommend investments of federal dollars that can serve as “twofers. … [projects that provide] short-term stimulus and lay the groundwork for long-term economic growth.”

One example is providing tax cuts to the middle class, he said. That will put more money in consumers’ pockets, which can stimulate the economy when they spend it, he explained, but “it will also restore some balance to our tax code over the long term.”

“The sooner we do that the better,” Obama added.

The budget process going forward, he said, will require “tough choices. There are just going to be some programs that simply don’t work, and we’ve got to eliminate them.”

Orszag “doesn’t need a roadmap to know where the bodies are buried in the federal budget,” Obama said.

Given the country’s swelling deficit, “budget reform is not an option. It is an imperative,” Obama said.

Indeed, when it comes to deficit issues, Orszag is a frank voice. “The nation is on an unsustainable fiscal course,” he said in September, before the Treasury and Federal Reserve committed over a trillion dollars to stem the credit crisis, at least some of which the government is expected to make back over time.

Among his previous positions, Orszag was the deputy director of economic studies at the Brookings Institution and served in the Clinton administration as a special assistant to the president for economic policy and senior economic adviser to the National Economic Council.

Orszag is the fifth major player Obama has named to his economic team. On Monday, he nominated New York Federal Reserve President Timothy Geithner to be Treasury Secretary and former Harvard President Lawrence Summers as the director of the National Economic Council, among others.

On Tuesday, Obama also nominated Rob Nabors to be the OMB’s deputy director. Nabors currently serves as clerk and staff director of the House Appropriations Committee.

The government hopes that these initiatives will enable more money to flow to consumers in the form of loans than has occurred so far in previous bailout plans.

One program will make $200 billion available from the Federal Reserve Bank of New York to holders of securities backed by consumer debt, such as credit cards, car loans and student loans.

The Treasury Department will allocate $20 billion to back that lending in order to cover any losses that the New York Fed might suffer.

In addition, the Federal Reserve, announced it will purchase up to $500 billion in mortgage backed securities that have been backed by Fannie Mae (FNM, Fortune 500), Freddie Mac (FRE, Fortune 500) and Ginnie Mae, the three government-sponsored mortgage finance firms set up to promote home ownership. It will also buy another $100 billion in direct debt issued by those firms.

Together, the programs from the Federal Reserve and the New York Fed are more than Congress approved in October for a bailout of the nation’s banks and Wall Street firms. The Fed said the money will come from an increase in its reserves — in essence, it is creating new money.

The idea is that by making money available for investors who are interested in buying loans bundled together into securities, it will be easier and more profitable for banks to loan money to consumers and small businesses.

Before the current credit crisis, lenders got the money they needed to extend credit by selling the loans they had already made. But the Treasury Department said the issuance of those securities essentially came to a halt in October.

“This lack of affordable consumer credit undermines consumer spending and, as a result, weakens our economy,” said Treasury Secretary Henry Paulson at a press conference.

Still, previous efforts to pump money directly into financial institutions have done relatively little to expand credit available for consumers, and some economists said it was not immediately clear if this money would flow through to households as planned.

“It’s certainly not directly going to go through to the consumers. I don’t know if anyone can say how much will get through,” said Keith Hembre, chief economist at First American Funds. “It certainly shouldn’t hurt. We’ll have to see how much it does help.”

To that end, government officials said that they would not set up the $200 billion consumer lending program until February. So officials couldn’t say if the mere announcement of the program would cause lenders to make more credit available to consumers in time for the holiday shopping season.

Paulson described the $200 billion consumer lending program as a first step, one that could be expanded later to include different kinds of debt, including assets backed by commercial real estate mortgages and business debt.

He said the fact that the Fed and Treasury had to work together to get an additional $800 billion into the system is not a sign that the $700 billion bailout of banks and Wall Street firms passed by Congress last month has been a failure. He said that, without that program, it is likely that the financial markets would be in even worse shape than they are today.

“I wish, and I know everybody wishes, that one piece of legislation, and then magically the credit markets would unfreeze,” he said. “That’s not the type of situation we’re dealing with.”

The fact that the New York Fed is taking the lead on the consumer lending program means that the man nominated by President-elect Obama to succeed Paulson, New York Fed President Timothy Geithner, played a central role in this new effort.

But Paulson said this is not a sign that the Bush administration is letting the new administration call the shots on further efforts to revive the economy.

How it may affect mortgages

The larger part of the new program is geared toward ending the mortgage crisis, which was the original intent of the bank bailout plan proposed in September and signed into law in October.

That plan, known as the Troubled Asset Relief Program, or TARP, was quickly dropped for one in which Treasury instead made direct capital investments in banks in return for the government receiving preferred shares in the institutions getting funds.

This new program is much closer to the planned bailout. But government officials stressed that this new plan is different from TARP in that only mortgage securities backed by Fannie, Freddie and Ginnie Mae will be in the new program.

The loans being backed by the new program, for the most part, are of better quality than many of the troubled assets that would have been purchased under the original TARP plan.

“This action is being taken to reduce the cost and increase the availability of credit for the purchase of houses, which in turn should support housing markets and foster improved conditions in financial markets more generally,” the Fed said in a statement.

There is also limited additional risk for the federal government from the Fed buying that $600 billion in debt from the three firms, since the government is already on the hook for losses those firms suffer on the loans they back.

Despite that implicit government guarantee behind Fannie and Freddie’s debt, there gap between rates for U.S. Treasurys and the rates for mortgage assets continues to widen.

But with the Fed buying such a large amount of mortgage assets directly, the hope is that this will narrow that gap and drive down mortgage rates.

The Treasury, which oversees the $700 billion in the TARP program, has been reluctant to expand the use of those funds beyond direct capital investments in banks, despite request to use the funds to help out insurance companies and even the nation’s automakers.

The moves came as the Commerce Department announced that gross domestic product, the broadest measure of economic activity, fell at an annual rate of 0.5% in the third quarter.

That was the biggest drop in seven years and economists believe that the economy will decline further in the current quarter and into early next year.

If the Fed does so, it would mark a dramatic change in the central bank’s assessment of the economy. As recently as the Fed’s last meeting in August, Fed members indicated that their next move would be to hike rates at some undetermined point in the future in order to fight inflation.

The Fed typically lowers interest rates during an economic slowdown in order to stimulate more borrowing and looks to raise them when it is more concerned about inflation.

The Fed slashed its federal funds rate, an overnight bank lending rate that helps determine how much interest consumers and businesses pay on various types of loans, seven times from September of last year through April in an attempt to minimize the damage from the mortgage crisis and credit crunch.

But the Fed has left rates unchanged at its past two meetings and started to indicate that it was growing more worried about rising commodity prices, particularly oil.

However, the U.S. economy, which once seemed on the verge of a recovery in the second-half of the year, has recently shown signs of weakening further.

Inflation fears fade
The unemployment rate jumped to 6.1% in August, the highest level in nearly 5 years. Economic growth is also slowing overseas. That could cut demand for U.S. exports, which was a main driver of the economic growth in the second quarter.

Thomson Reuters forecasts that third quarter corporate earnings will be flat, as losses continue to mount in the financial sector. And troubled mortgage giants Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500), which own or back more than $5 trillion in home loans, were seized by the Treasury Department this week.

At the same time, oil prices have fallen sharply from their record highs and the dollar has rebounded against the euro. Thus, some think the threat of inflation is receding.

With this in mind, one economist said that so-called inflation doves, those who argue economic weakness is a greater threat than inflation, have ample reason to call for a rate cut.

“Like Prince said, ‘This is what it sounds like when doves cry,’” said Bob Brusca of FAO Economics, who is predicting that the Fed will lower rates before the end of the year.

“Up to this point, the job losses haven’t been that bad. But the measures that the Fed looks at below the surface have got to make them worried,” said Brusca. “When the economy is moving sideways, it’s one thing to leave rates unchanged. When it’s moving lower, it’s another.”

To be sure, there are still inflation hawks on the Fed, those who believe the central bank should be raising rates to keep prices in check.

Dallas Fed President Richard Fisher voted for rate hikes at the Fed’s last two meetings. And in April, he and Philadelphia Fed President Charles Plosser voted against a rate cut.

But Brusca pointed to a recent speech by San Francisco Fed President Janet Yellen as a sign that the Fed may no longer consider rising prices a serious threat.

Earlier this month, Yellen said there has been “a shift in the inflation picture” and that she is now “very hopeful that inflation will come down quite substantially.”

While Yellen is not currently a member of the central bank’s rate-setting Fed Open Market Committee, she attends the meetings and is seen as an influential voice.

“Yes, she’s a dove, but it’s clear the doves are coming out of their shells,” said Brusca.

To cut or not to cut
Investors have noticed. According to interest rate futures on the Chicago Board of Trade, investors are now pricing in about an 8% chance of a rate cut at the Fed’s October meeting, a two-day session that concludes on October 29.

By way of comparison, shortly after the Fed’s last meeting, the futures pointed to a 54% chance of a rate hike at the October meeting.

Of course, the likelihood of a cut is still small. And one economist said that rate cuts could do more harm than good since it might spook investors and businesses already worried about the fragile state of the economy more than it would help lift spending or borrowing.

“It would send a clear signal that [the Fed] felt there were still more shoes to drop, more trouble ahead,” said David Kelly, chief market strategist for JPMorgan Funds.

He added that the Fed wouldn’t want to lower rates much further just yet because it would limit its ability to respond to some future shock to the financial system with more rate cuts.

But another economist suggested that another cut later this year or early next year is justified because of expectations that the economy will continue to get worse.

“If you need it now, you should use it,” said Keith Hembre, chief economist with First American Funds, about the option of a rate cut sooner rather than later. “I don’t know what you’d want to save it for.”

Which is why I was particularly curious to take a joy ride in July on the brand-new Hawker 4000, the first plane to offer big-jet safety and technology features at a midsized-jet price.

Okay, so it’s still $21 million. But consider: It’s $2 million cheaper than a Gulfstream G200 and $7 million less than a Falcon DX, and it has a range of 3,280 nautical miles – that’s coast to coast or New York to London nonstop.

The 4000 boasts cutting-edge avionics, auto throttle, and multiple duplicate systems (for safety) unavailable in comparable-size jets – only on the big boys.

A body like no other
Hawker Beechcraft is also the first manufacturer to certify a composite-body jet with the FAA. “It was six steps back to do composite,” says chairman and CEO Jim Schuster of the 20-year, $1 billion development process. But the resulting body is 70% stronger than aluminum, doesn’t corrode, is easier to repair, and has no life limit.

Amazingly, the fuselage is composed of three enormous pieces – vs. more than 10,000 on a traditional competitor. It’s also three times thinner, meaning there’s noticeably more room inside the standup, flat-floor ten passenger Hawker.

Tucked into its fine leather – HBC offers limitless leathers, woods, and exotic materials – I felt the obvious power during takeoff. The next thing I noticed was the relative peace: The 4000 has the quietest cabin in its class.

There’s already a two and a half year wait list, in part thanks to orders from fractional-jet companies like NetJets and BJETS, so even those who won’t be buying a 4000 may still be able to hop aboard one soon.

Private jet etiquette
So you have friends in high places, and they’ve offered to bring you along. Follow these rules if you want to be invited back.

Ask in advance how much luggage you may bring.
Don’t take your seat until after the owners find theirs.
Never tip the staff. That’s entirely up to the owner.
Nix bringing your own meal. But offering to feed everyone – preferably by air caterer – is a nice gesture.
Skip the red wine. You don’t want your hosts to remember you every time they see the stain on the carpet.
Arrange for transportation when you land. Asking for a lift is an inconvenience.
Show your thanks. One owner gives a gift equal to a first-class commercial ticket when she flies with other owners. You may not need to go so far, but don’t skimp either. — Diane Tegmeyer

The Federal Reserve reported Friday that industrial production edged up 0.2% last month. That was half the pace of the 0.4% gain in June, but it did surpass analysts’ expectations for flat production in July.

The increase reflected a 0.4% gain in output at manufacturing plants. Motor vehicles and parts showed the biggest increase in manufacturing, advancing for a third straight month.

These gains were not seen as signaling a sustained rebound, however, given the problems facing the auto industry this year. Instead, the rebound in auto activity was viewed as a temporary improvement because a strike ended at parts supplier American Axle.

Even with the recent gains, production at auto plants remained 10.4% below where it was a year ago.

The increase in manufacturing helped to offset a big 1.9% drop in output at utilities, a decline which followed a 2.3% surge the previous month. Both changes were seen as weather-related.

The big June jump came from hotter-than-normal weather requiring increased electricity production. The decline in July reflected a return to more normal weather which meant a drop in utility output compared to the previous month.

Output in the mining sector rose a strong 0.9%, matching the increase of the previous month. The gains in this sector have been paced by strong activity in oil and natural gas production.

With all the changes, the nation’s factories, mines and utilities operated at 79.9% of capacity in July, up slightly from June when the operating rate was 79.8% of capacity. That level remained below the average operating rate of 81% seen over the last 25 years.

Industry is having to struggle this year with a steep slump in housing, which has hurt producers of building supplies and furniture, and the continuing problems in the auto industry, which saw sales drop to the lowest level in 16 years in July.

A boom in U.S. export sales because of the weak dollar has helped offset this slump There is concern that the export boom may not last given spreading weakness in major overseas markets in Europe and Japan.

The Charlotte, N.C.-based bank will also pay $50 million in fines to be distributed among states.

Wachovia (WB, Fortune 500) is the fifth bank to agree to repurchase the troubled securities over the past two weeks, following Citigroup Inc., UBS AG, JPMorgan Chase & Co. and Morgan Stanley.

Auction-rate securities are investments that resembled corporate debt, but their interest rates were reset at regular auctions.

The market for the securities collapsed in February amid deterioration in the broader credit markets.

“They took my $400 out of my account immediately of course,” Read said. Since both use the same bank, hitting his wife with an overdraft fee seemed “absolutely ridiculous” to him.

Overdraft fees set in when a bank approves a transaction even if the customer doesn’t have sufficient funds. The bank is essentially providing a temporary loan and charging plenty – usually between $25 and $35, no matter how big or small the transaction.

Banks typically provide overdraft protection automatically, and while it’s touted as a convenience, the cost can come as a shock to unsuspecting customers.

“Banks should have to get their customers’ affirmative consent before signing them up for their most expensive loans,” Jean Ann Fox, director of financial services at the Consumer Federation of America said in a statement.

Almost half of all overdrafts happen with debit card purchases, according to the Center for Responsible Lending. And most debit overdrafts are small, averaging less than the overdraft fee, the consumer advocacy group said.

In a recent study, the Consumer Federation of America found that overdraft fees at the 10 largest banks are on the rise. The average highest fee charged for overdrafts is $34.65, up 15% from 2005, the consumer group said.

There can be additional fees if the overdraft is not repaid by making a sufficient deposit within a few days and customers can rack up as many as six or seven overdraft fees in one day if they aren’t aware of their low balance.

Talkback: Have you been hit with overdraft fees?
Now Congress may step in.

Reps. Carolyn Maloney, D-N.Y. and Barney Frank, D-Mass., have proposed the Consumer Overdraft Protection Fair Practices Act in an attempt to protect consumers from hefty fees.

“I’ve been working on reducing sky-high overdraft fees for several years now,” Congresswoman Maloney said in an e-mail. “Overdraft loans can be useful financial tools, but many consumers are being enrolled in costly overdraft protection programs without their consent. [Under the bill] consumers would have to “opt-in” to overdraft protection programs and banks would be required to inform consumers when they are about to overdraw their accounts.”

The bill, which is currently pending before Congress, also requires that banks provide full, written disclosure of their overdraft policies to customers.

In a statement, Citibank (C, Fortune 500) said that full disclosure is already standard practice, and overdraft fees should not be viewed as unfair or deceptive, since Citi customers are informed about the practice and the $34 overdraft fee.

What can you do?
Other banks also counter that their overdraft policies are clear and the fees are disclosed at the time an account is opened. Also, since many banks offer online banking, telephone banking and balance alerts via e-mail for free, consumers should be able to keep a careful eye on their balance.

“In most cases, banking customers can avoid overdrafting their accounts and paying any associated fee by knowing their balances,” said Fred Solomon, a spokesman at PNC (PNC, Fortune 500) bank.

PNC recently sent its customers a notice allowing them to opt-out of overdraft access. “They can call PNC and we will automatically exclude them from the convenience of overdraft access for all ATM transactions and purchases,” Solomon said.

Other banks will do this too, although the consumer may have to take the initiative and ask for it.

Another way to avoid costly overdraft fees is to sign up for an overdraft protection plan with a linked account. Those plans allow banking customers to link their checking account with a savings account or even their credit card. So if you write a check and there isn’t enough money in your checking account to cover it, then the bank will draw the money from another account.

But that assumes that you have other funds. And despite the fact that your backing the account with your own money, in most cases there’s a charge for that service too, although it’s far less than the overdraft fee. For example, Chase (JPM, Fortune 500) customers get charged $5 for each time they use their overdraft protection plan. Fifth Third Bancorp (FITB, Fortune 500) offers this service for $9 a pop. If you use the overdraft protection more than 10 times in a 12-month period, then the fee gets upped to $15.

Despite the expense, there is an upside to overdraft protection. It not only allows you to complete a transaction and remain in good standing with the parties you do business with, you also avoid the potential embarrassment of being denied at the register. That might be worth $35 to some people.

Need more time? You get the point: big media seem to lack the genes necessary to create online stars from scratch or find future ones when they’re still babes.

Two big-media refugees, Jon Miller and Ross Levinsohn, think they can do the job. “Here’s the thing: we make the bets we make, because we know what people need,” Miller says. “In a way, we provide outsourced R&D for the media industry.”

It’s an interesting niche, made more noteworthy by who Levinsohn and Miller are and the curious places they’ve been popping up lately. Both are deposed digital chieftains from big media – they were booted from their jobs running AOL (Miller) and Fox Interactive Media (Levinsohn) within two days of each other in November 2006.

A week later, they decided over drinks at the Four Seasons in Beverly Hills to ignore the headhunters and go into the venture-capital game. They found backing, and Velocity Interactive Group was born. They’ve made 14 investments, the sum of which give an illuminating (though not wildly surprising) view of where media is headed: think online video, giving audiences the tools to create their own content, and India, and you have a start.

And, yes, if it was so easy to pick winners every media company would have a few to crow about.

Several media executives I spoke to say they’re watching what Miller and Levinsohn are doing and give them props for spotting a deal: Levinsohn suggested to News Corp. (NWS, Fortune 500) founder Rupert Murdoch that he buy MySpace in 2005 when it was still young, while Miller is credited with arguably AOL’s shrewdest deal of its star-crossed recent history – buying Advertising.com in 2004.

They’ve shown up in walk-on roles in the months-long tangle between Yahoo (YHOO, Fortune 500) and Microsoft: both Miller, who lives in New York, and Levinsohn, who is based here, were put forward as prospective Yahoo directors. Miller was a choice of both Yahoo’s Jerry Yang and agitator Carl Icahn, but his appointment was squelched at the last minute by Time Warner (TWX, Fortune 500) (which owns this Web site) because of his non-compete agreement; Levinsohn had been on a slate Microsoft assembled for a proxy fight it decided not to launch.

Miller was also brought in by a group of unhappy investors of CNET Networks to sit on a dissident board. But before a proxy fight could happen, CNET was sold to CBS (CBS, Fortune 500). Says Levinsohn: “Playing on the venture side allows us a great look at the future of the business, while staying involved in bigger companies allows us a window into what the industry leaders are thinking and looking for.”

Last December, Velocity took over management of a venture-capital firm called ComVentures, which already had $1.3 billion invested in communications businesses and an initial fund of around $300 million for them to play with. (The pair aims to raise another fund this fall.)

Given their keen interest in finding the next killer video startup – whoever will be to YouTube (GOOG, Fortune 500) what Facebook is to MySpace – they’ve put money into Broadband Enterprises, Generate, and NextNewNetworks. Together, they comprise what Miller dubs a kind of “virtual studio”: Broadband Enterprises produces and distributes video commercials for the Web; Generate is a talent manager and mini-studio for Web video; and NextNewNetworks creates and programs super-niche online video networks.

Another investment is MixerCast, a business that lets people make video “mash ups” of media or advertising – exactly the sort of thing that traditional media companies may not spend a lot of time on. Most recently, they funded Crowd Fusion, an online publishing startup that lets people create professional-looking Web sites.

Through Keyer Patel, one of three ComVenture partners who stayed on when it was rechristened Velocity, the group also made one of its biggest single investments: $25 million for a 5% stake in the Indian broadcaster NDTV Networks. The deal made Velocity look plugged in, when, a few weeks later, NBC (GE, Fortune 500) bought a 26% stake in NDTV with rights to acquire control.

Whether Velocity’s founders will turn out to be smart, lucky, both or neither remains to be seen. But given how their last gigs turned out, it’s pretty clear they think they have something to prove. And they insist Velocity is not just a parking spot until another big corporate job comes their way: Miller’s potential involvement with Yahoo led to chatter that he was being considered to succeed Yang. (Miller denies it.)

Rather, they’re happy to help find and build the next great thing that their former employers will one day pay up for. Levinsohn says he likes meeting with twenty-somethings who need as little as $150,000 to launch. “These kids haven’t been beaten down by the corporate structure of anything,” he says. “It’s so refreshing.”

Oil futures have tumbled about 33% since striking an all-time high of $147.27 a barrel last month.

Dollar strength: The U.S. dollar charged higher, pressuring many investors to pull money out of oil.

The dollar rose against all major currencies Friday and hit its highest level in nearly two years against the British pound.

Crude is traded in dollars, and a stronger greenback makes oil relatively more expensive to foreign buyers. Many investors have also been buying oil to hedge against dollar inflation.

“Crude probably has to move lower in the short term – perhaps to $105 or even $100 – before we can wring out the last bastions of speculative excess that are baked into the price,” Tom Orr, head of research for Weeden & Co., wrote in an email.

Global woes: Oil futures were also under pressure after economic data released this week suggested the global economy is slowing significantly.

Reports from Europe, Asia and the U.S. all pointed to the possibility of lower oil demand worldwide.

“When you see evidence from several areas, people are much more likely to believe in demand decline,” Neal Dingmann, senior energy analyst with Dahlman Rose & Co., said.

A report on Thursday from the European Union’s statistics office showed the 15-nation euro zone economy contracted by 0.2% in the second quarter.

The euro zone’s three largest economies – Germany, France and Italy – all shrank during the period.

Meanwhile, a report released earlier in the week showed the Japanese economy contracted in the second quarter.

“There’s a slowdown in demand for oil and copper and the whole gamut of industrial commodities,” said Paul Kasriel, chief economist with Northern Trust.

Because of slowing growth overseas many expect non-U.S. central banks such as the Bank of England and the European central banks to start cutting their key interbank lending rates to inject cash into their economies, according to Kasriel. However, that would also weaken their currencies and add strength to the dollar.

The U.S. Federal Reserve has held rates at 2%, citing inflation as a concern.

High fuel prices pushed inflation to an annual rate of 5.6% in July – the highest level in 17 years – according to the Labor Department.

U.S. gas prices fell for the 29th straight day to an average of $3.771 at the pump, AAA reported Friday. Gas prices have fallen below $4 a gallon in all but six states. However prices remain more than $1 above where they were a year ago.