Carter redux
Even before the euphoria evaporates, analysts are preaching gloom and doom for Obama on the home front, says Eric Walberg
The easy part is over. A flourish of executive orders closing Guantanamo , dismantling much of president George W Bush's architecture for the "war on terror", allowing family planning promotion abroad. The hard part has begun. United States President Barack Obama is faced with an economy in galloping depression, the worst since the 1930s on all counts.
The economic growth of the Bush years, such as it was, was fueled by an explosion of private debt; now credit markets have collapsed and the economy is in free-fall. Housing starts, the traditional indicator of which direction an economy is going in, have never dropped so steeply since records began. Prices are falling, and not only oil prices. The Federal Reserve interest rate is now zero. Median income fell over the past decade and continues to fall. Industrial production last year fell 7.8 per cent from 2007, and manufacturing by 10 per cent. Unemployment is sky-rocketing, with millions of jobs already lost.
He must wrestle with the $700 Troubled Asset Relief Programme (TARP). Like Bush's original Operation Iraq Liberation (OIL), it has an embarrassing acronym, considering it is a "cover" for bailing out the rich. The first installment padded the books of floundering financial instituions and bailed out the major US automakers, without any of the guilty parties even having their knuckles rapped. The Associated Press contacted 21 banks which received over $1 billion of federal bailout money, and none of them were able or willing to disclose the use of the funds. Obama's Treasury Secretary Timothy Geithner told the Senate that TARP required "fundamental reform", as it favoured big financial institutions over small businesses, distressed workers and home owners.
The financial meltdown is only going to get worse given the Democrats' inability to abide anything that smacks of socialism. The only feasible solution, as implemented in similar circumstances by the Swedes (a rightwing government, no less), is nationalisation of the culprits. The Swedes bit the bullet, splitting the banks into good and bad parts; the former continued business as usual, while the latter, holding largely illiquid real estate, were managed by the government till the economy improved. The taxpayer ended up almost breaking even. "If you go in with capital, you should have full voting rights," insists self-proclaimed neoliberal Bo Lundgren, Sweden 's minister of fiscal and financial affairs at the time.
As it is, the hemorraging will continue and the credit markets will remain frozen as the economy enters a deflationary spiral. Strike one for Obama.
As for the $825 billion economic recovery package, the American Recovery and Reinvestment Bill of 2009, it is already being picked at from all sides. Sixty per cent will be federal spending on education, aid to states for Medicaid, increases in unemployment benefits, dozens of major public works projects to create jobs, and - for the Republicans - $350 billion in tax breaks.
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