Analysis: Obama's decision

It was a year and a half ago when President Obama told Diane Sawyer of ABC News that he would rather be a good one-term president than a mediocre two-term president. Now, coming off one of his worst weeks since taking office, Obama is nearing a decision on whether he really meant that. Is he willing to try to administer the disagreeable medicine that could help the economy mend over the long term, even if that means damaging his chances for re-election?The Federal Reserve's finding Tuesday that there is little prospect for rapid economic growth over the next two years was the latest in a summer of bad economic news. One administration official called the atmosphere around the president's economic team "angry and morose."

There was no word on the mood of the president's political team, but it was unlikely to be buoyed by the Fed's assertion that the economy would still be faltering well past the next inauguration.

"The problem for Obama is that right now, the United States is either at a precipice or has fallen off it," said David Rothkopf, a Commerce Department official in the Clinton administration. "If he is true to his commitment to rather be a good one-term president, then this is the character test. In some respects, this is the 3 a.m. phone call."

'Two big problems'

Obama, Rothkopf argues, has to focus in the next 18 months on getting the economy back on track for the long haul, even if that means pushing for politically unpalatable budget cuts, including real -- but hugely unpopular -- reductions in Social Security, other entitlement programs and the military.

A longtime Republican strategist echoed Rothkopf. Charlie Black, a senior adviser to Sen. John McCain when he ran for president, said Obama "has got two big problems" -- the unemployment rate and the budget deficit. "Frankly, there's not a whole lot he can do about jobs now," Black said. "But it would help if we got the deficit under control, and to do that, you've got to reform entitlements."

For instance, he argued, Obama should tackle Social Security, leaving the system in place for those 55 and older but establishing means tests to determine benefits for those younger than 55. If Obama did that, Black said, "He could be a hero like Bill Clinton was when he negotiated with Trent Lott and Newt Gingrich" on the 1997 budget.

But whether Obama focuses on a short-term stimulus like job creation or long-range steps like deficit reduction, he will still have to beg, exhort and threaten Congress to take action in a meaningful way.

"No matter what we do, it still takes two to tango," said Dan Pfeiffer, White House director of communications. "And the Republican Party to date has been entirely unwilling to compromise ... to actually do the things it takes to tackle the big problems."

'Chips fall where they may'

According to a traditional story line, Obama's hopes for a second term could be undercut as he is forced to defend politically unpopular proposals in an election year -- and end up stonewalled by Republicans in the end.

Some of Obama's political allies try to spin the story the other way, criticizing him for not coming out yet with public plans to both cut the deficit and stimulate the economy. They argue that the boldness of such steps could help him win a second term -- or at least burnish his place in history. One Democratic adviser to the president said: "He's got to be willing to let the chips fall where they may."

On Monday night, he did attend two fundraisers -- casting his re-election as an "unfinished project" at one -- while on Thursday he will head to Michigan to make the case that his bailout program helped save the auto industry.