Posts Tagged ‘obama economic plan’

President Barack Obama Confronts The Global Economic Crisis

January 27th, 2009 Comments off
As the global economy implodes, there remains the “audacity of hope,” or rather the author of the best selling book with that title, now 44th President of the United States, Barack Obama. If anything, the whole world, not just the U.S., is placing its hopes-and bets-on President Obama to provide the change in leadership believed necessary to bring the raging Global Economic Crisis under control. Will these global hopes in Barack Obama be realized?No doubt, President Barack Obama is an exceptionally intelligent man. He has a flexible mind and superb communications skills, essential for inspiring confidence in times of crisis. However, it must be recognized that the global financial and economic catastrophe that began in America and is now consuming the globe may be of such virulence and persistence, it is beyond the powers of any single mortal man, no matter how gifted, to vanquish.

We must remember that not even Barack Obama walks on water, though a miracle worker is perhaps the only human being that can terminate the Global Economic Crisis with rapidity and no further pain. The approach adopted by Obama so far in confronting the economic crisis, though manifesting a clear realization of its seriousness, is also impeded by a conventionality that may be his biggest obstacle.

As with the other boilerplate responses from political leaders across the globe, the Obama administration is proposing a massive stimulus package, dubbed the “American Economic Recovery Plan,” financed with borrowed money. This follows a previous injection of borrowed money, $700 billion for TARP, supposedly essential for rescuing the banks. It is now clear that the $700 billion TARP spending frenzy was a fiasco. As has since been admitted by top Treasury Department officials, Hank Paulson, former Treasury Secretary, pulled the $700 billion out of thin air, because he wanted a “big number” to impress the markets. Such a cavalier attitude towards stampeding Congress into borrowing a staggering amount of money, equivalent to roughly $2,500 from every American man, woman and child, without any strings attached on the part of the banks receiving the money, explains its total failure to resuscitate the clogged arteries of the U.S. credit system. This example is not an encouraging harbinger for another dose of heavy deficit spending in a hurry by Washington.

The Obama Plan envisions $825 billion in borrowed money for a variety of projects and tax cuts. Though Obama promises a much higher level of accountability with his stimulus package than with TARP, that is not even the most crucial issue. It is the whole premise of Obama’s economic plan. What are the parameters and assumptions that led to a figure of $825 billion? On top of the already ballooning federal budget deficit, can the U.S. government raise another $825 billion from largely foreign credit markets (e.g. China), and at what interest rates? What if the Obama Plan has no significant impact on rapidly eroding macroeconomic indicators, while the exploding national debt and structural deficits remove any other fiscal options from consideration?

The proper context for President Barack Obama to view the Global Economic Crisis is not just as a catastrophe for the U.S. and world economy, but also as the gravest danger to American national security. If the Obama administration had a broad enough intellectual horizon to comprehend that the erosion in American geopolitical power that would inevitably result from the implosion of its economy is a far greater threat than what emanates from a non-state actor with a few thousand adherents, namely Al-Qaeda, it would review the irrationally excessive U.S. military budget.

The question Barack Obama should be reflecting on is if the U.S. should continue to spend a trillion dollars a year on its military establishment, and hope that the global credit markets will finance unfunded government liabilities in other categories in perpetuity. Ultimately, the global economic and financial tsunami cannot be combated by bloated military budgets. It is critical that there is a radical restructuring of U.S. budgetary priorities, or else Imperial overreach will finish what is left of U.S. economic power, after the meltdowns on Wall Street and Main Street have added their unique contributions to the deconstruction of the U.S. economy


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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.