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Obama Mania
By Stephen Lendman (about the author) Page 9 of 9 page(s)
Obama's First Order of Business
The "urgent priority" of the severe financial crisis. What economist Nouriel Roubini calls "The Economic Mess and Financial Disaster that Obama Will Inherit." A sign progressivism will have to wait until it's arrested and cleared up. But no short-term fix will do it. Perhaps not even a longer-term one given the extent of the damage and no assurance new policy choices will improve on current dubious ones.
Roubini believes that the nation is in more dire straits than anything seen in decades. He calls it:
"the most severe recession in 50 years; the worst financial and banking crisis since the Great Depression; a ballooning fiscal deficit that may be as high as a trillion dollars in 2009 and 2010."
Given $2 trillion in announced borrowing; around another $1.8 trillion in loans, investments and commitments; and whatever fiscal stimulus is added this year and next, the total looks to be much higher.
On top of a "huge current account deficit; a financial system that is in a severe crisis and where deleveraging is still occurring at a very rapid pace, thus causing a worsening of the credit crunch; a household sector where millions of (them) are insolvent, into negative equity territory and on the verge of losing their homes; a serious risk of deflation as the slack in goods, labor and commodity markets becomes deeper; the risk that we will end in a deflationary liquidity trap as the Fed is fast approaching the zero-bound constraint for the Fed Funds rate; the risk of a severe debt deflation as the real value of nominal liabilities will rise given price deflation while the value of financial assets is still plunging. This is the bitter gift that the Bush administration has bequeathed to Obama and the Democrats."
New macro data supports the dire state of things. It's been "worse than awful: collapsing retain sales and consumption, free fall in capex spending, sharply falling production," employment as well, "housing still in free fall and home prices bound to fall 40% from the peak, collapsing auto sales, forward looking business and consumer confidence indicators dropping to multi-decade lows, sharp surge in corporate defaults, a wrecked banking and financial system that will have to be partially nationalized."
Overall the most daunting economic and financial challenges since FDR in the Great Depression, and adding to it, the rest of the world as bad off. Severe recession is hitting Europe, Japan and other advanced countries. China risks a hard landing. So do many emerging economies. A severe global recession and financial crisis are certain. We're already in it despite some observers still in denial. Especially on its severity and likely duration.
According to Roubini, "the US and global recession train has left the station." The financial and banking one as well. It will be long and severe for at least two years regardless of the best of policy actions going forward. Stock market rallies are deceptive. They're classic bear market ones. At a time when 2009 earnings projections are "delusional." Projected to rise 15% from 2008 when, if fact, they'll fall off sharply. Roubini thinks the S & P 500 could drop as low as 600 or over one-third lower than its 931 valuation on November 7. And if things are worse than expected, 500 may be a bottoming low. It's no exaggeration to say the downside risks are significant at a time of severe economic contraction.
"The worst is ahead of us rather than behind us." Beware of excessive optimism that each time has been wrong. A severe meltdown possibility may have passed but it's not out of the question if poor future policy choices are made. That's for the new Obama team to avoid plus having to deal with whatever else the Bush administration does in its final weeks. It's botched things so badly up to now so there's no telling how much more piling on they'll do into January. Whatever happens until then, they'll be no joy in 2009, and no simple task for the ablest of appointees or assurance that their best efforts will work.
Stephen Lendman is a Research Associate of the Centre for Research on Globalization. He lives in Chicago and can be reached at lendmanstephen@sbc global.net.
Also visit his blog site at sjlendman.blogspot.com and listen to The Global Research News Hour on RepublicBroadcasting Mondays from 11AM - 1PM US Central time for cutting-edge discussions of world and national topics with distinguished guests. All programs are archived for easy listening.
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