Posts Tagged ‘barack obama’

Obama Speech Warns of Economic Armageddon

January 9th, 2009 Comments off

Less than two weeks before his inauguration as America’s 44th President, Barack Obama delivered a major speech on the U.S. economy. The essence of his message is that Congress must quickly pass an economic stimulus package with a vast price tag, possibly in the range of a trillion dollars, or face economic Armageddon. With an apocalyptic tone, President-elect Obama delivered a sobering message. Undoubtedly, the economic crisis is even more dire than described in Obama’s speech.

Joseph Stiglitz, a Nobel Prize winning economist who was chairman of the White House Council of Economic Advisors during the Clinton administration, has joined the chorus of economic specialists warning that the global economy is going down the proverbial sink-hole, with the U.S. economy serving as the financial locomotive of this global train wreck. Among the destructive economic and financial forces he has recently written and commented on is the whole phenomena of de-leveraging.

According to Stiglitz, “America’s economy had been supercharged by excessive leveraging; now comes the painful process of de-leveraging. Excessive leveraging, combined with bad lending and risky derivatives, has caused credit markets to freeze. After all, when banks don’t know their own balance sheets, they aren’t about to trust others.”

Despite massive efforts by the Fed in the U.S. and central banks across the globe to unfreeze credit markets, the financial arteries of the world remain clogged. Though some shrinkage in the Libor rates and Ted Spread has occurred, the overwhelming degree of counter-party risk has eroded the element of trust to such an extent, monetary policy by central bankers cannot overrule human sentiment. The recent Madoff Ponzi scheme that may have bilked investors out of $50 billion has had far greater impact in defining the state of trust in the marketplace than near-zero interest rates being offered by central bankers.

The credit crunch may impact the massive economic stimulus package being proffered by Obama as the one great hope of salvaging the U.S. and global economy. To finance the massive amount of spending being planned by the incoming Obama administration, upwards of a trillion dollars of additional deficit funding will have to be borrowed, primarily from foreign creditors such as China. However, with China now requiring massive funding for its own economic stimulus spending, that nation and other foreign creditors may not be as readily available for financing U.S. government debt spending. Counter-party risk exists not only among private investors and institutions; foreign countries and sovereign wealth funds may prove as tight with their willingness to loan money, especially to an American government that is projecting trillion dollar plus deficits for years to come.

If the U.S. is unable to finance its massive deficit spending plans, what then? Perhaps economic Armageddon does loom in out future, as the Global Economic Crisis widens its vortex of destruction and doom.

America And Economic Collapse: Will Obama Share the Fate Of Gorbachev?

December 28th, 2008 Comments off
An economic crisis can destroy an empire. It was financial bankruptcy that led to the liquidation of the British Empire. More recently, economic stagnation and paralysis led to the demise of the once-powerful Soviet Union. Will the global economic crisis sink the United States, and end American hegemony? The success or failure of the incoming Obama presidency will determine the ultimate answer to this millennial question.

When the global financial crisis first arose, leading to a worldwide credit crunch, it became apparent that the economic policies of George W. Bush would be the defining issue of the 2008 presidential campaign, spelling doom for the Republican nominee. When the Republican candidate, Senator John McCain, proclaimed that the economic fundamentals of the U.S. were sound, he insured that Barack Obama would win the election and become the 44th president of the United States. In fact, the fundamentals of the American economy are as feeble as were those of the Soviet Union before it collapsed.

Barack Obama is a very intelligent politician, and is already being compared to President Franklin Roosevelt, who presided over the New Deal economic policies of the 1930s in the depths of the Great Depression. However, Barack Obama may also be compared to Mikhail Gorbachev, the last leader of the once-mighty Union of Soviet Socialist Republics.

Gorbachev, like Obama, is a highly intelligent man. He was selected by the Soviet elite as their last-ditch candidate to save the crumbling Soviet Union. In spite of his best efforts, he failed. The economy of the Soviet Union imploded, leading to the total disintegration of the Soviet State, which once was deemed an equal superpower rival to the United States of America. Will Obama’s fate be that of Franklin Roosevelt, or Mikhail Gorbachev? There are disturbing parallels between the United States of 2009 and the Soviet Union in its last years of existence. These may prove more relevant than the comparisons some American economists are trying to draw between Obama’s and Roosevelt’s America.

Consider the following: prior to its extinction, the Soviet Union was driven to bankruptcy by bloated military expenditures, exacerbated by a losing war in Afghanistan. Its economy was immune to reform due to the tyranny of central planners. In the America that gave birth to the global financial crisis and credit crunch, the government’s finances have been driven to the brink of bankruptcy by vastly excessive military expenditures, run amok by a losing war in Afghanistan and an unnecessary war in Iraq. Its economy, supposedly a paean of free-market flexibility, has now proven to be a myth constructed by the financial alchemists of Wall Street and pseudo central-planners of the Federal Reserve and Treasury Department. Just as the Soviet Union used tax-payer money to bail out failed industries, the United States through its Treasury Department and Federal Reserve Bank have deemed failed financial enterprises “too big to fail,” warranting hundreds of billions of dollars in deficit borrowing that tax payers are responsible for in an equally futile rescue bid.

Obama, like Gorbachev, will be tied to an elite that has a vested stake in salvaging a doomed system, even at the risk of national insolvency. If Barack Obama has the intellectual stamina to resist the American financial elite and recognize that the Global Economic Crisis calls for a total restructuring of the economic order of the United States, he will go down in history as the president that saved America’s economy and preserved its status as the dominant economic power in the world. If, however, he is unable to unshackle himself from the failed policies of the American financial elite, he will be doomed to share the fate of Mikhail Gorbachev as that of being a valiant failure.