Inaugural Hope, but America Is in Shock
America is in shock. It is not because of the unusual sight of the first black president taking up residence in the White House. Barack Obama's profile, after all, is more familiar to the diverse population of today's ethnically and racially hybrid America than the fast-disappearing WASP identity of George W. Bush. Sooner or later, but always, politics codifies cultural change, not the other way around. America is in shock because our economic and financial landscape is suddenly unrecognizable.
In the space of a few short months, we have morphed from the citadel of free-market capitalism and freewheeling consumerism -- from a land of high-flying hedge funds, Hummers and homes that doubled as ATMs -- to a system in which the banks, insurance companies, mortgage industry and auto manufacturers are quasi-socialized. Adding to that shock is the fact that middle-class investors have seen their portfolios, upon which they depended for retirement, diminished nearly by half.
The tax-and-spend epithet that defined America's partisan politics for decades has been replaced overnight with a bipartisan mantra calling for a nearly trillion-dollar fiscal stimulus. No sooner had Milton Friedman been laid to rest (he died in 2006) than John Maynard Keynes was resurrected. Amazingly, even the historical aversion to state-guided industrial policy in the United States has yielded to urgent demands for political oversight of private enterprise, starting with the Big Three automakers in Detroit.
The year 2008 is thus likely to go down in American history as an even more pivotal one than 2001, when the 9/11 terrorist attacks occurred, because the life of the average American is going to be shaped far more by the consequences. We're not talking about the inconvenience of lining up to go through metal detectors at the airport. We're talking about the transformation of the American model itself. Nobel Prize-winning economist Joseph Stiglitz was not exaggerating when he quipped to me earlier this year that "the fall of Wall Street is to market fundamentalism what the fall of the Berlin Wall was to communism." Just like that, we're in a different era.
In this circumstance, Barack Obama will not be judged by the color of his skin, or even the content of his character. He will be judged by the quality of his leadership and the success of his policies in staving off depression and putting America back on the path to prosperity.
A lot depends now on how deep the recession bites. The harder you fall, the harder you come back. Given the continually mounting bankruptcies, foreclosures and unemployment levels, there seems little question that the years ahead will see such a vastly expanded government role that the New Deal will look modest in comparison.
If the wise vision articulated so far by Obama and his team pans out in practice, we'll come out on the other side of the avalanche of new laws and the billions spent with a disciplined financial sector constrained by the public hand, a refurbished and greener infrastructure, fuel-efficient cars, a radical expansion of broadband penetration, universal health care and a reawakened housing market.
In the meantime, it will be no easy task to de-leverage the American Dream. Since the 1950s, when Nixon bested Khrushchev in the famous "kitchen debate," our answer to the equalized deprivation of socialism has been consumer plenitude beyond compare. Khrushchev may have emptily blustered in those years about burying us, but it was the Communist Chinese, in the end, who gave us enough credit to hang ourselves when our consumer society desired more than we could pay for with our own savings.
"Unlike other times of turmoil in the market, the current stress wasn't precipitated by problems in the real economy," Treasury Secretary Henry Paulson told me at the outset of this crisis in 2007. "The current problems were precipitated by excesses in the form of undisciplined lending practices which came about, in part, because of great liquidity available from Chinese savings and other sources, such as the Gulf states, as well as a strong American economy. In a number of markets, lenders reached for yield at a time when risk premiums and interest rates were at historic lows."
This was particularly true in the sub-prime mortgage market. It was the flow of Chinese dollar reserves earned from trade back into U.S. Treasury bills and mortgage-backed securities that held down long-term interest rates in the U.S. and enabled and sustained the asset bubble.
Widespread single-family home ownership has long been proof of the superiority of our ideology, the brick-and-mortar realization of the American Dream itself. Thanks to innovative finance and the easy credit Paulson talked about, no dream need be deferred if it could be mortgaged. That is where the problem began, though not where it has ended.
In a conversation with me in November, financier George Soros filled out the picture. "The current situation is not just about the housing bubble," he said. "The housing bubble was merely the trigger that detonated a much larger bubble. That super-bubble, created by the ever-increasing use of credit and debt leverage across the economy, combined with convictions that markets are self-correcting, took more than 25 years to grow. Now it is exploding."
As a result, according to Soros, we are now witnessing a power shift from the deeply indebted American superpower to Asian creditors flush with cash, "a consequence," he says, "of the sins of the last 25 years." (Already as I write this, waves of Chinese investors are scouring Southern California in search of real-estate deals.)
Whatever else is on his immediate plate, Obama's overarching challenge is to figure out the conundrum of how to unwind this global imbalance, particularly with China, while at the same time re-igniting American growth. Inevitably, as China shifts the investment of its vast reserves to stimulate its own lagging economy instead of purchasing U.S. Treasury bills, the dollar will start to plummet. If Americans are in shock today over how rapidly their fortunes can turn on the domestic front, they will be no less stunned tomorrow when they realize the high costs on the global stage of putting the house of the American dream back in order.
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"If you know yourself and you know your enemy, you win." The Chinese have never forgotten two things about their imperial past- The innate wisdom of their first emperor and the cunning magnanimity of their last. Pu-yi knew tha,t by investing power in leaders such as Sun Yat-sen, China would soon be on the road to an equal footing with the great powers of the West. It was thus very easy for the child to bow before the learned doctor and hand him the keys of state.
We in the USA will now be learning the lessons of investing power in learned people, hopefully those with a strong spiritual compass who are not so dogmatic as to miss the shifts in the Earth's physical, sociopolitical and economic axes. In the long run, however, we the people must supply our own spiritual and sociopolitical wisdom, just as Pu-yi once warned Mao Tse-tung that the Chinese would, in the darkest days of the Cultural Revolution.
The Fed dumping cheap money into the economy and the Fannie and Freddie quasi-corporation piping into high risk loans could hardly be called free market capitalism.
In a truly free market, these sorts of market interference don't exist.
But I guess these sorts of falsehoods must be spread and reinforced if the further abandonment of free market principles is to occur.
No surprise hear. Capitalism as we know it is dead. Somewhere in between capitallism and communism is the only way go to manage a planet with a growing population and dwindling resources.
"Somewhere in between capitallism and communism..."
I'd like to make a minor correction: "communism" is political." Your post should have read, "Somewhere in between capitallism and socialism...."
I was all set to defend phladian but your are correct.
What.? ...Do you mean the american "ponzi" scheme is falling apart ?.....oh dear....I guess it's time to row the boat again........."merrily,merrily,merrily.....life is but a dream"
Did I miss something? I thought the current economic meltdown is BECAUSE of 2001. Bin Laden planned this entire sequence of events knowing full well Dubya would blow our financial wad putting up his "dukes".
Although I don't think even Bin Laden could understand the depths of the Neocon and Treasury Department's corruption.
yeah, sure he could. The middle eastern governments are all pretty corrupt. They make the Federales look like saints.
I was more in a state of shock in 2004 when Bush was re-elected. I think I probably started processing all that was to come back then. Times are bad, yes, but it was inevitable that our country has to collectively pay the piper. It's a democracy, albeit a ripped and shredded one, and we are all responsible for letting this go this far with so little resistance.
After Nov.5, 1980, I sent a simple letter to our then Senator(Alan Cranston) telling him that the election of this man(ronald reagan) was the first nail in the coffin of America. The downward slide started with him...the first real ignoramus to be elected president in modern times. He presided over the greatest transfer of wealth from the middleclass to the wealthy at that time...allowing the already wealthy to make out like bandits. The republican elite liked it so much, that they have attempted to install ignorant fools as president ever since and have succeeded most of the time. I suggest to you that the successful election of george bush jnr in 2000 is a direct consequence of the successful election of ronald reagan in 1980. The intellectual make up of who could be president changed forever. The attempted foistering of sarah palin upon us, the attempted foistering of dan quayle upon us, the attempted foistering of fred thompson upon us ..ALL these are a result of the successful foistering of ronald reagan upon us in 1980. When sarah palin becomes president(which is what the republicans wish),then the bar will be lowered even further, then who knows? maybe joe "the plumber" wurzelbacher? afterall he is soon to have "foreign policy experience" in israel.
All part and parcel of modern conservatism's dogmatic anti-intellectualism. I think if Sarah Palin were ever elected President it would be the final nail in the coffin, sad to say.
Hopefully, "with her in it"!
Corporate greed is far more important here and i really hate to say it but it ain't all Bush's fault you have more wall street greed then unsupervised government chaos. I am afraid until more people get caught with there hands in the cookie jar this kind of behavior will continue no matter who the President is. What needs to happen is all these greedy bastards need to be caught and incarcerated in general prison population and given stiff penaltys that fit the crime. This country is in deep trouble but until the crooks realize they can't get away with stealing funds from people it will continue.
If we were to do anything near what Bernie Madoff has done we would be IN JAIL - not living the lavish lifestyle in a sumptous mansion. Now he has shipped off assets and they trying to decide IF his bail should be revoked? What is to decide? Go directly to jail. Do not pass Go and DO NOT collect $200 (or is that $200 Billion.) "White collar" crimes should be done away with. A crook is a crook is a crook!! These people are worse criminals that a person who would stick a gun in your face to rob you because you trust your financial advisors, politicians (a big mistake), bankers, etc whereas with the "actual" crook you have no fantasies. NO MORE WHITE COLLAR PRISIONS!!
Maybe I'm delusional and my Hope Meter is overflowing but our new President gives me reason to see light at the end of the tunnel. Unlike our last few jokers ( I go back to Johnson with that opinion) this man has the power of the people behind him and more important it means something to him. While campaigning he was accused of many things and called worse but he maintained and kept our interests on the top of his agenda. From his choice of VP on down Barack has shown his ability to bring together all manner of folks, left, right and center, unafraid of offending the few but thinking instead of the needs of the many. The American people will come first to President Obama and we will be there to do our part when called upon. It will be great to once again have a Nation pull together, become engaged in our Government and unite behind an honest leader who puts our countrys interests ahead of his own. There can be an fix to our financial breakdown, it won't be easy, but on November 4, 2008 we took the first big step by picking the right repairman.
"Biggest Donors To Inauguration: Wall Street Execs" - HuffPost headline 1-8-2009
Any illusion that the American People had about Barak Obama being one of us......... is just an illusion. Obama is where he's at because of wall street.
Bush and his cronies have ransacked our treasury and are making off like bandits, although "like" is superfluous in their context. Once more the "shock" doctrine is at play. Leave the American so shocked in dealing with their finances that the crooks can steal away without penalty of impeachment, and to add insult to injury, they go on tv to mock us in the face.
Are you such an economic ignoramus that you do not see that this crisis has been 30 years in the making.?
Bush is not blameless, but then nor is Clinton and several presidents before him. Silly undergraduate comments obfuscate a far deeper issue with capitalism itself. That is one of the messages of the rather good article (aside from mentioning Obama's skin color - really!)
It's true that the Reaganites introduced debt financing to make up for the tax revenues foregone as a result of tax cuts for the rich, so the cancer has been metastasizing since then, but no previous administration abandoned any attempt at restraint in debt financing in the way that Bush did.
If I recall correctly the national debt essentially doubled in just the last three years.
It's also true that the regulatory mechanism that prevented carnivals of reckless greed like that which just collapsed were significantly compromised by previous administrations, particularly Clinton's.
But reviewing the record of the last eight years, the countless warnings by everyone from former federal reserve governors to nobel laureates in publications ranging from academic journals to popular magazines, the warnings are repeated so ceaselessly and so regularly with increasing urgency, that were it not for the ineptness of these clowns one could be forgiven for concluding that they must have crashed the economy intentionally.
Hopefully this will restore some financial wisdom with the younger gerneration. My nephews, nieces and even siblings received a money gift from an elderly aunt. They blew right threw it on cars, flat screen tvs and the like. After witnessing their irresponsible behaviour I've decided to write them out of my will. I'm leaving my estate to charities and animal rights groups like PETA, The Sierra Club and The Fossey Save The Gorrilla Fund. I want my hard earned dollars to go to something worthwhile after I'm gone. Not just blown on junk.
Before all else and irrespective of everything, we will all be wasting our most essential vitality whenever now writing or reading anything derogatory of George W. Bush.
In Love All Ways
The corporate rush to offshore jobs has had alot to do with it as well. All of these analysts seem to ignore this aspect of the economy. The good jobs have been lost. Consumers have had no choice but to tighten their belts. Everything has gone up except wages.
The Economist, Jan 3-9th 2009 provides a compelling argument declaring we are in a form of a depression not a recession. Read the story Economics focus Diagnosing depression located in the finance and economics section.
Yep, we sure are in a depression. Let's hope we can aviod that famous adjective.
Currently, I have 6 to 5 odds against... we lose
Thanks again Wall Street and Greenwich CT. You sure got us into a pickle
Mr. Gardels is correct, Obama has a daunting task. This economic collapse did not just happen over a few months, but has been building over the last 30 years. This economic collapse has been the end result of the world's biggest Ponzi Scheme and it reached its breaking point with George W. Bush, who pushed it into the abyss.
This crisis is global and does have much to do with China, but more to do with the United States and how this nation has been operating. The has corruption stemmed from the executive's office, down through the vampire financial sector, which sucked the economic life blood out of working Americans by enticing them with cheap credit to buy things they really did not need. This process enriched the ruling class.
Now the working class is tapped out. Credit is dead. Wages have been stagnant for some time now. People are cutting back. They are afraid. Bush's Ownership Society was a code word for Ponzi Scheme. Obama MUST move quickly and effectively, otherwise, here comes the depression. The bubbles were created by one thing alone---consumers wanting to buy too much and over extend themselves.
http://eye-on-washington.blogspot.clom
the bubbles were created not by consumers, but for them - to spend to make the rich richer.. i am not saying that to be rich is bad, but to prey on the weaker for your own enrichment is.
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