After eight years of the incompetence and deception that were the hallmarks of the Bush administration, the American people are desperate for leaders who are smart and will be honest with them. That was the clear message delivered by voters in November (It Was About Stupid, Stupid -- Nov. 10, 2008).
It's also the reason why Barack Obama continues to enjoy high approval ratings among more than 60 percent of Americans even as the economy and stock markets continue to deteriorate.
In his first speech to Congress and the nation, Obama was upbeat but mainly he was honest. He made it clear that there was plenty of blame to go around for the mess we're in and that it will take time to address the many challenges we face. He seemed to understand the complexities of the issues and he told us the truth.
This stood in sharp contrast to Bush -- who usually came across like a sixth-grader giving a report on a book he hadn't read. Bush would routinely fall back on empty slogans and made statements that proved to be either lies or just mistakes (numerous examples available upon request). With typical acumen, he repeatedly assured us that the economy was fundamentally strong ten months after the current recession began.
The inability to know or speak the truth also is shared by most of our representatives in Washington, the news media, and the angry, judgmental comedians of Right wing talk radio. They are still addicted to misleading slogans, simplistic solutions, and the demonization of a handful of designated bad guys. They continue to be much more a part of the problem than the solution.
The pols and pundits focus on a short list of villains (Madoff, Stanford, and other assorted swindlers, the bank and investment firm CEOs who got rich while helping create this crisis, Washington, the Left, the Right). They repeatedly invoke hot phrases like "nationalization," "bad bank," "toxic assets," "stress test" and such -- phrases that few people, including the speakers, really understand. In short, they spread a lot more heat than light.
Here's the truth and if it doesn't set us free it will at least let us know where we stand.
Americans have spent the last 10 years spending more money than we make. In the early 1980s, we saved 9 cents of every dollar we made. That number has dropped in a straight line for the last 25 years and recently we have had a negative savings rate. We have spent more than we have earned for many years and have made up the difference using credit cards and pulling equity our of our homes which until recently had gone straight up in value.
A whole range of businesses sprang up to accommodate our desire for stuff. Now that game is over and we're going back to a more normal environment where we spend less and save more. We will buy fewer things that we don't really need, eat out less, go on fewer vacations and get back to a much healthier financial place but it will be bad for a lot of businesses.
Our government leaders should not be encouraging us to spend more money and buy stuff we can't afford. That's how we got into this mess in the first place. They should not be encouraging the banks to lend more money to companies and people who might not be able to pay them back. That's how they got into this mess in the first place.
We need to stimulate those areas of the economy that improve infrastructure and create the technologies and jobs of the future. We should not be spending trillions to bail out the shareholders and executives of financial institutions that made wild gambles with their money and lost. We should also not keep failed industries with no future on life support just because they employ a lot of people.
All the bluster on cable news and the blogs about nationalizing banks and bailing out the auto industry is pointless. It just gets a lot of people worked up about a decision that has already been telegraphed by the financial markets. No serious investors are buying the banks or automakers. They have become gambling chips for traders who are looking for action in stocks that trade for pennies and go up or down by 20 percent a day. The markets have already accurately determined that many of these companies are hopelessly underwater and functionally bankrupt.
The financial markets are also telling us another important truth that no one seems to get yet. It is going to cost us a whole lot more to finance our national debt in the future. The borrowing costs for the U.S. government have already increased by 50 percent in recent weeks -- we have to pay lenders 3 percent to loan our country money for 10 years, up from 2 percent just a couple months ago. And that is just a preview of what's to come (The Next Investment Bubble Has Begun To Pop -- Feb. 19).
The long term treasury bonds that investors have gobbled up as a "safe haven" will prove to be a disastrous investment. The stocks of companies that make great products, earn a lot of money, and have pricing power are poised to move higher now that many investors have fled the stock market entirely.
Our leaders have hard decisions to make and they must make them wisely. But instead, Congressional Democrats are using the stimulus package as an excuse to fund a variety of spending programs they favor. Republicans are making a worse choice. They are following the lead of Rush Limbaugh -- who has repeatedly stated that he wants Obama and the country to fail -- and are saying "no" to everything except tax cuts.
Only Obama and the financial markets are telling us the truth. Not only can we handle it, most Americans are thrilled to finally have a president who is smart enough to know what's going on and honest enough to share both the good and bad news with the people who elected him.