Can Barack Obama really steer the US off the rocks?
As the country goes into meltdown and California prints IOUs, Americans are already questioning if the president can save them
It's economic devastation, near and far. Here in far northern California I walk into a local plumbing store, a large place used by building contractors. There's one other man in the store buying a $5 plastic fitting. One of the owners say there's zero new construction in the area. "We fix a few toilets. The only people actually building are the marijuana growers down in southern Humboldt."
Take out Humboldt's good fortune in being in the Emerald Triangle and multiply by every plumbing store in America. Throw in the idled lumber yards, construction stores, paint suppliers, and building crews. Count in the car lots that are going out of business because the banks won't finance car loans. Go to the lost auto assembly jobs. It tots up to a job loss across America just in December and January of 1,175,000. And that's an underestimate.
Every president since Reagan, particularly Bill Clinton, has jimmied the unemployment criteria to produce an undercount. The actual number for the two months is nearer 1.75 million. The actual total unemployment rate, according to statistician John Williams, using pre-Reagan criteria, was 17.5 per cent in December and 18 per cent in January.
California can’t pay its bills - it’s going to start printing its own money
These are numbers out of the great Depression of the 1930s and it's going to get worse in the next few months as businesses put up their shutters. The air is whistling out of the American economy. We're now heading into the February-May trough dreaded by every retail store on every Main Street in America. Consumer spending is dropping longer and faster than at any time since they began keeping records in 1947. A quarter of all home-buyers are late on mortgage payments or in foreclosure. People inch through monthly payments on maxed-out credit cards.
My own state of California - often touted as the eighth largest economy in the world - can't pay its bills. There's a shortfall in revenues and it can't sell enough bonds. On January 26 the California State Controller John Chiang announced that the state is going to print its own money. If the state owes us money we'll get this scrip as IOUs. Who knows, in happier times maybe we can hawk them on eBay. Student aid and payments to the disabled and needy will also come in the form of IOUs. Governor Schwarzenegger and his aides are negotiating with the banks to get them to accept the IOUs as deposits.
America is in meltdown. In Washington President Obama has been battling for his stimulus plan, with Congress now apparently settled on a package costing just under $800bn. Although it's the largest such plan in US history, the New York Times's Paul Krugman, resplendent with his Nobel prize for economics, has torn into it for being way too skimpy and conservative, far too respectful of Republican prejudices against hand-outs to anyone without a 10021 zip code, a Wall St business address and a mansion in Connecticut or Long Island.
The Republicans have elected to array themselves in implacable opposition to the package – surely the stupidest political strategy since Walter Mondale tried to beat Reagan in 1984 by promising to raise taxes. When Obama went last week to Elkhart, Indiana, where official unemployment is running at over 15 per cent because no one wants to buy recreational vehicles, he invited Republican Senator Dick Lugar to come along. Lugar declined – a petty sectarian display of a sort which could cost Republicans badly in the 2010 mid-term elections.
Obama's package is meant to generate three to four million new jobs which will cope with job losses from December through next April if we're lucky. Its flaw is that it's piecemeal: a wad of money for schools, for health insurance for all children, for "infrastructure" – which means good times for cement pourers.
But to clamber out of this terrible economic hole Uncle Sam has to start making things he can sell abroad. That way the nation can offset the problem of running huge deficits importing things from China. "Infrastructure repair" doesn't do that. It causes traffic jams for the next ten years as the highway lobby gets its new overpasses, underpasses, bridges, freeway exits and toll-road expressways, none of which can be sold overseas and all of which won't restore America's near-dead manufacturing economy.
Obama's Treasury Secretary Tim Geithner tried to sell his bank bail-out plan earlier this week. He deservedly drew an F because in his mumbled prospectus he conceded he didn't really have a clear plan, but was working night and day to come up with one. Markets duly plunged. The $1tr-plus plan has the usual forced perspective of a banker, whose idea of rescue is to lend people money, thus drowning them in even more debt. Americans don't need more debt. They need debt relief.
Who is going to buy $3tr of US Treasury bonds? Not out-of-work US consumers
Obama's bail-out plan, added to the 2009 budget deficit he has inherited from Bush, opens a expenditure hole of about $3tr. As Paul Craig Roberts, former assistant secretary of the Treasury in the Reagan years, points out: "Who is going to purchase $3tr of US Treasury bonds? Not the US consumer. The consumer is out of work and out of money. Private sector credit market debt is 174 per cent of GDP." The sum is too big for the increasingly wary Chinese and Saudis to underwrite by buying Treasury bills where interest yields have been so low that one joke is that the US Treasury is the only institution in the world to be actually abiding by Islamic prohibitions on usury.
Failing everything else, there's the government printing press, which can roll out the dollars and add inflation to unemployment.
The Republicans don't have a plan, and though Obama has been selling his package with his usual eloquence, even his fans are beginning to wonder if he really has a convincing vision either. Americans can understand something big in the way of make-work - like Roosevelt's dams, or the construction of the interstate highway system in the 1950s, or Kennedy's space project or even, in its utter absurdity and waste, Reagan's Star Wars plan which is still unworkable and now consuming 19 per cent of the defence budget. There's nothing rhetorically tremendous in Obama's stimulus plan, just a billion here and a billion there, on and on in an endless array, echoing my father Claud's definition of a book synopsis – "halfway between wish fulfillment and an attempt to gain money under false pretenses."
There's something cloudy about Obama, always hedging his bets. America is broke but here he is, seemingly set on boosting a US force in Afghanistan where, according to the Center for Budgetary Analysis, it costs $775,000 per year to send a single soldier.
This week Obama infuriated his progressive base by twice committing his administration to the same unconstitutional canons of secrecy and claims of executive immunity to the rule of law that made Bush one of the most hated presidents in history. His staff can't seem to nail down safe appointments. In sum, in these crucial early weeks, Obama seems to have trouble setting his compass, as the ship heads towards the rocks. ·
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