Friday, March 20, 2009

Obama's Bubble Economy

I watched our President at Costa Mesa the other day, and was as charmed and reassured by him as I always am. Whatever else he knows, he does know how to talk, and I do not mean that disparagingly in any way. When he campaigned he talked about it being the people of this nation who would create change, that he would be the catalyst for that change, and with his “town hall meetings” we are seeing him fulfilling that campaign promise. This is him stirring people to get involved in the governance of their nation. Whether people leave those meetings and actually do anything remains to be seen, but if they don’t it will not be because Obama failed to do his part.

On the economy… Other than to “create or save 3.5 million jobs in the next two years" and to “restart the flow of credit,” it seems the President has no plan for the economy at all other than some vague plan about buying bad assets from big banks. That, on the very face of it, sounds like a pretty bad plan, doesn’t it? “Oh, we’ve got some spare cash, dear. Let’s go buy some bad assets.”

It just feels to me like the one thing he has gotten right he did far too small, and is not being honest with us about that.

The economic stimulus bill was nowhere near large enough, especially when you deduct from it that portion which is actually long range social planning and not immediately simulative. I don’t doubt that it was probably the best he could get through Congress, but he is promoting it as the best thing since Noah built the Ark. Creating “or saving” 3.5 million jobs over the next two years is all very well, but we’ve already lost 6 million jobs since the beginning of this downturn and are still shedding them at the rate of 9.6 million jobs per year.

(The number of laid-off workers taking unemployment went from 5.29 to 5.47 million last week, an increase of 185,000 in one week, according to Do the math. I’m probably being conservative at 9.6 million.)

President Obama endlessly speaks about “restarting the flow of credit so that people can get the loans they need to buy homes and cars.” They aren’t going to buy food, let alone homes and cars, if they don’t have jobs, and in any case buying things with loans is how we got into this mess in the first place. Does he not get that?

Restarting an economy on the same model as the failed one simply doesn’t make any sense. He needs to be talking about a new economic model, a new way of doing business that will work. The people of this nation are not, deep down, stupid. At some level we understand that buying on easy credit is an economic model that has failed us, and confidence is not going to be restored merely by honking the horn of restoring credit flow.

Not Obama’s doing but pursuant to his goal of “restarting the flow of credit,” the Fed announced that it will buy up $1.3 trillion of public debt instruments. Great excitement ensued here in the US, but people abroad started dumping dollars as if they were contaminated. The value of the almighty dollar plunged and, since we import almost everything that we actually use, that is not good news here at home. The Fed’s move may ease up credit, all right, and we may need loans to put food on the table.

The Fed's move is also known as "printing more money" by the way. We have a long way to go before we become Zimbabwe, or even Argentina, and we have much those nations did not have, but this is the road they travelled and it is a bumpy and slippery road indeed, full of pitfalls.

A lower dollar would help us export, except that the rest of the world is in the same downturn we are and the overseas market is as depressed as the domestic one. So the lower dollar, created to give us easier credit, gives us the disadvantage of higher import costs without the advantage of increasing our export volume.

Of course, the lower dollar may merely offset deflation to some degree.

There is broad agreement that firms that are “too big to fail” are contributing to the problem, but nowhere in the Administration’s planning do I hear even a whisper that reform will include breaking these large firms up into smaller ones. So these firms will remain in our economy, forever present to blackmail us with their threats of failure and suck taxpayer money.

In fact, the federal government is creating even more large firms that are “too big to fail” since, as the smaller banks that are small enough to fail do so the government takes them over and sells their assets to a larger bank, making that large bank even larger. If the Obama Administration has any plan for changing this policy they have done a fine job of keeping it secret.

The opposition is, of course, no better. They’re talking about deficit spending (wrong subject at this point, irrelevant) and tax cuts (their version of my mother’s cure all, Neosporin, good for everything up to and including
a broken leg).

Nor am I saying that I know all of the solutions. What I do know is that when a ship runs aground you do not keep the rudder amidships and put the engines “all ahead full.” When you are hard aground and the tide is falling, it is time to look at your chart and seriously consider a new course.

No comments:

Post a Comment