The world’s press spoke with one voice over the weekend:
“Now, the hard part… !”
“Obama faces huge challenges… ”
“Not an easy time for president-elect… ”
And for once… the press is right. It won’t be an easy time for Obama’s team. But the president elect is moving fast; he’s already got a meeting scheduled with an impressive list of advisors – including Warren Buffett and Paul Volcker.
And he’s already got a plan, or at least the beginning of a plan, to deal with the economic threat. He’s leaning towards what the press are calling the ‘big bang,’ approach – a combination of reform, quackery, giveaways, larceny, distortions, meddling, corruption and national bankruptcy. It will probably include a new health care plan, an energy program, a moratorium on mortgage foreclosures, higher taxes, income redistribution, loans and more bailouts.
“Obama can be a Roosevelt and not a Carter,” writes David Blake in the Financial Times. “The cure for inflation is tighter money, tighter budgets and more unemployment,” he continues. That is the situation that Jimmy Carter faced. And he faced it well; he hired Paul Volcker to run the Fed.
“The cure for deflation is a mix of interest rate cuts, more spending and lower taxes,” according to Blake. What luck for Obama. He can do all the things that people love. He can be a hero… he can be another Roosevelt.
And here is where the press errs. The reporters think a balance sheet depression can be “cured.” Just give the patient some of that old time medicine – the sweet syrup of more spending, more money, more credit and lower taxes. And almost all the reports we’ve read suggest that a combination of bold initiatives from Washington, along with Mr. Market’s natural tendency to bounce back, almost certainly mean that things are bound to start looking up soon.
Not likely… instead, the ‘big bang’ is going to blow up in our faces… as we explain in a moment…
But let’s stop and look at what happened last week: the Dow went down more than 900 points on the two days after the ballots were counted. Then, on the third day, the stock market rose from the dead. Or, at least, that’s what the bulls were hoping. The bears were just hoping for another chance to sell out.
In any event, the Dow went up only 248 points on Friday. There were few signs of a turnaround. Oil held above $60. Gold rose $4.70 to $736.
(We asked our old friend – Issy Bacher, who predicted gold’s drop – what he saw next. “The correction is not over,” says he. Gold could still lose another $100.)
Obama is lucky he wasn’t elected a year ago. At least now it is clear that he’s innocent. He comes to the office facing problems not of his own making. Instead, they were made by his predecessors – notably, Alan Greenspan and George W. Bush. Working together, the two bumblers squandered America’s fortune, drove off her industry, and put just about everyone deeper in debt than ever in history. Did two more hapless, more incompetent, more conniving half-wits ever before conspire to create such a mess?
Alan Greenspan courted power and fame. He got both. But you can’t get power and fame without being a jackass. At least, that’s our conclusion after reviewing the history of the United States of America. Just look at the presidents who got power and fame: Abraham Lincoln… Woodrow Wilson… Franklin Delano Roosevelt. The first two got the United States into unnecessary and disastrous wars… the last one got the United States into an unnecessary and disastrous depression.
Okay… okay… it wasn’t entirely their fault… but it’s our Daily Reckoning, we can exaggerate if we want to…
Alan Greenspan would have been much less popular had he put the brakes on the dot.com bubble in ’97… and the brakes on the housing bubble in 2005. Of course, he probably would have lost his job sooner. But the United States would have a much healthier economy as a result.
And talk about unnecessary wars! And unnecessary depressions! George W. Bush has brought us both! No president ever presided over such a spectacular turnaround in America’s fortunes:
… from a fake budget surplus of nearly $300 billion under the Clinton administration, Bush will leave office with a real deficit approaching $1 trillion…
… coming into Washington at the peak of the bubble of 2000… he’ll blow out of town leaving behind an economy in its worst slump since the ’30s…
… after taking control of the spiffiest, most widely respected country in human history, in 2000, he leaves a country that is widely regarded as broken down… (Russian president Medvedev recently charged the United States with causing the world’s financial meltdown… the French believe US-style capitalism is collapsing, like the Soviet Union in ’89… the Latinos now mock the idea of taking financial advice from the United States.)
… after coming into office lauding the virtues of humble foreign policy and proud capitalism, the United States has taken up a breathtaking combination of bombastic military intervention abroad and abject, swinish collectivism at home.