Barack’s Geniality Is Not Enough
By Larry Johnson on February 24, 2009 at 12:18 PM in Current Affairs
Let’s give Barack Obama some credit–he’s a good looking man, speaks well and projects a happy personality. Swell. If you’re looking for your ideal college roomie then he’s your guy. But let’s get real. We don’t need a buddy we need a leader and on that front Barack’s inexperience is painfully evident.
He has failed to strike the right chord in rallying the public to confront the imploding economy without scaring the shit out of the financial markets. An old friend of mine who still works in the financial sector on Wall Street, in a comment dripping with sarcasm, praised the “Obama rally” on Wall street–the market has dropped almost 20% since Barack’s impressive November victory.
Why blame Barack for that, at least for part of it?
Very simple. The financial transactions–people and institutions buying and selling–that constitute the market react to a variety of events, decisions and non-decisions. In this regard Barack is an unrelenting economic gaffe machine. He says the economy is the most important priority and then names Turbo Tax Timmy Geithner as the Secretary of Treasury. Geithner in turn ends up projecting an image on television that makes Dan Quayle look strong and resolute and then proved his ineptness by fumbling his first major policy pronouncements. The markets pummeled him.
We could excuse this as just nervous jitters but then the Barack team launched the much ballyhooed stimulus package. (I am reading that beast in detail and will be posting the details in a form you can use to inform yourself. ) Let’s be candid. Barack Obama and his team did not write this turd. Instead of bringing together a bipartisan group of legislators to craft a bill to deal with the immediate crisis, he surrender the initiative to Nancy Pelosi and the House Democrats. And did the markets celebrate the passage of the “stimulus?” Hell yes. Further market declines.
Then there was last Saturday. Obama’s team sent clear signals that they will raise taxes in 2011. Economists rarely agree on anything (the old joke, what happens if you line up all economists end to end? They all point in different directions) but there is broad consensus on this point–you do not raise taxes in a recession/depression. Add in the news filtering out that Citibank will be effectively taken over by the Federal Government and you have the recipe for yesterday’s drop in the stock market, which almost crashed thru the 7000 floor.
Fear not. Mr. Hope and Change will work miracles tonight during his State of the Union address. How do I know? Well the media says so. Yes sir boys and girls, Barack’s magic economic elixir will give you erections on demand, cure baldness, allow you to drink beer without building a bulging gut and pay off your mortgage.
How else to describe the bullshit this man is going to spin. We are already committed to spending close to $1.5 trillion this year alone on all of the various economic rescue/stimulus packages. And those numbers are not reflected in the budget. Yet Barack promised us realistic accounting and is getting credit for putting the costs of the Iraq war into the budget. Well isn’t that special. He is still doing the politician trick–saying one thing and doing the other.
So let me speak frankly and candidly:
The economy in the United States in contracting. This means that fewer taxes will be collected at all levels of government. Unless Federal, State, and local governments cut expenses they will be compelled to borrow more money in order to pay for the goods and services they provide.
The world economy is in worse shape. Europe in particular is getting hammered. India and China also are struggling. They too must cut expenses or, if they continue spending a the current level, must borrow money.
But how can folks and governments borrow money when the credit markets and banks are in shambles? The answer to that is still being sorted out but this much is clear–credit for the average consumer is very limited. In the DC area, for example, it is impossible to get a mortgage for anything in excess of $600,000. There are neigborhoods where the average house costs $1.5 million (lots of lobbyists and lawyers don’t cha know). Those housing sales are grinding to a halt. People can afford to pay for a $1 million mortgage but the banks/mortgage companies ain’t lending.
There is not an infinite pot of money. When governments increase their borrowing the result is to reduce the amount of money available to the private sector. And people who have money and are looking for a place to “safely” store their case are quite happy to lend the money to the government. Why? Ever hear of a Treasury Bill? It is guaranteed. If you can’t trust the government to come thru then you should buy gold, get a gun and hunker down in your basement.
Barack’s winning smile does not change these economic realities. And while he will talk about “cutting” programs tonight the reality is the opposite–the Federal Government is going to increase dramatically its spending level. Cuts in defense programs, for example, will be countered by increases in other areas of government spending.
What are the implications for the long term? Massive inflation. At some point, in order to borrow more money the borrowers (i.e. the government) will have to pay more for the money. That is another way of saying you are raising the interest rate.
Did I mention the “strong” dollar? Man, it is good to be an American. The dollar is stronger. That will teach those foreign fuckers. Only one problem–when the dollar is stronger that simply means that anyone outside the United States must pay more of their money to buy anything made in the United States. What happens when the price of something goes up? Do you normally buy more of it or less? Most people buy less.
Guess what? In the midst of the recession the dollar is getting stronger. This means we will be able to sell fewer products overseas because the price of U.S. produced goods and services have gone up. But why is the dollar more costly? Because nervous folks overseas who are worried about their own shaky economic circumstances are still buying U.S. Treasury bills. The demand for U.S. dollars is going up.
Would it not be better if Barack Obama could just flash his grin and get us all moist? It would be so much easier. We would not have to worry about budget deficits, higher taxes and growing government. But no matter how genial President Obama strives to be, the realities of finance, taxes, economics and trade remain. His failure to understand the complexities of these factors are sowing the seeds for the destruction of his Presidency. Unfortunately he will take the country with him.
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