Saturday, March 06, 2010

Obama's Irony

As President Obama's focus moves from his first year to attempted completion of his major campaign initiatives even a casual observer of the American political landscape should notice something important about the USA:

The more things change, the more they stay the same.

Although the ideological zealots on both sides of Obama would not agree, it's pretty clear to an objective observer that Obama's policies are very much an extension of the past - with some notable but not overwhelming changes. We have the same secretary of defense and the same or similar generals in charge of the two major wars we are prosecuting against the bad guys. We have continued (and increased) massive government spending in almost all sectors, most notably the ones that are unsustainable at current spending levels - Defense and Entitlements, neither of which calls for anything like we currently spend.

Although it's too complex to analyze yet, I think much of the bailout and "return to prosperity" has been purchased with the dollars of our children and future generations of Americans and to a lesser extent our global neighbors who continue to lend us money even as our spending becomes unsustainable. Much like the conditions that led to the 2008 global financial crisis, we have a situation where everybody is counting on unreasonable projections of future prosperity and spending accordingly. Forget Wall Street CEOs, whose total take was the tiniest fraction of the total losses. The problem was largely ..... please raise your hand if you live in the developing world .... our own. Many spent like drunken sailors with home equity and mortgage borrowings that evaporated along with the values of the securities that backed them. I think many still completely fail to understand that the total values that have since diminished are measured in tens of trillions. Greedy CEOs played a significant role, but I'd guess far less than that played by greedy ... middle class folks who borrowed beyond their means and could not repay when their $300,000 house value became $150,000.

It is likely to become increasingly clear to the big lender (China) that the big spender (if you live in America, raise your hand please) are going to be printing money to repay this debt. Given than the RMB is already undervalued with respect to the dollar, there is a potentially serious imbalance even now between the China / USA currency situation.

As Joseph Stiglitz the Nobel laureate Economist noted recently on Charlie Rose (I paraphrase) we are not yet out of the economic woodshed by any means and we could see another recession.

I don't sound like a fan of Obama but in fact I like him a lot - he inherited these problems and has made a modest level of progress in reaching better outcomes from horrible situations. I also think he understands the problems with ongoing massive spending and will be able to work with the more balanced and anti-spending congress that we'll see after the 2010 elections, which are likely to be something of a bloodbath for the Democrats who in their infinite enthusiasm for Government forgot that most people wanted a change in Government, not MORE of it.

When the lackluster-but-super-expensive health care plan finally passes I think it'll be another nail in the coffin of the notion that government tends to solve more problems than it creates. Unfortunately we have no viable third party in the wings here in the USA that would uphold what in fact many Americans believe - we need an innovative, efficient, smaller, more compassionate government that jumps in, solves problems, and goes away.

I'm not holding my breath, but I will hope that Obama - one of the sharpest folks ever in the office - can learn from the Democrat's mistakes that there is still time for him to adopt an innovative, conservative fiscal policy that really could usher in a new era of American prosperity.

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