America has a new president-elect. Barack Obama has been embraced not only by traditional Democrats but by many social liberals/fiscal conservatives (just one of many examples here).
Expectations are extremely high. The world seems to be expecting miracles from the new president-elect.
Can St. Barack of Chicago deliver?
The atmosphere today is somewhat reminiscent of the elevation of Nelson Mandela to the presidency of South Africa. During the election people stood in line for hours to vote. There was no violence. People were just happy to be enfranchised. Foreign election observers came away with tears in their eyes. He had magnanimously stated that he held no animosity towards the whites and said in so many words that we are here to build a new nation. Yet South Africa faced many economic challenges that it was not able to solve.
The new Obama Administration also faces daunting economic challenges today. The fiscal implications of the Obama’s election promises remain problematic. Longer term, America is a country with high levels of income inequality and low social mobility, which can result in a class structure that inhibits innovation. That issue was raised by Larry Summers, who is rumored to be a leading contender for Treasury Secretary. In addition, the US government seems to be continuing down the inflationary path of serial bubbles.
Watch the Treasury appointment
If the Obama Administration is to be truly transformational, then the first signal would be the choice of a Treasury Secretary. There are rumors that a new nominee would be named as early as this Friday.
I wrote that Paul Volcker, who is one of Obama’s principal economic advisors, commented that:
- When the dust settles, he would favor policies that 1) create more financial regulation and oversight; and 2) encourage savings and less spending.
- Beware of inflation: “Inflation is the ultimate destructive result.”
Will America take the easy road down to serial bubbles or will she take the harder and painful road to restructure the economy now? Or could our fate be as Barry Ritholz speculated:
Inflation from 2002-07, Deflation from 2008-09, hyper inflation from 2010-???