The country has spoken and they are not happy with the Obama economy. And rightfully so. It has been a remarkable disappointment thus far. President Obama’s biggest mistakes were often highlighted by me in real time:
- He should have chosen to bail out Main Street over Wall Street.
- He never should have appointed Geithner or Summers. They were merely attempts to rehash the Clinton economic team and unfortunately, due to his ignorance of the economic environment, President Obama had no idea that these men played a significant role in causing the crisis.
- He absolutely never should have reappointed Ben Bernanke. Mr. Bernanke has rehashed all of Alan Greenspan’s “flawed” policies and has chosen to focus on the banking sector at every twist and turn of this crisis.
- He should have saved his health care plan for term two and focused on helping Americans get the jobs they so badly needed.
- He should have dropped the hammer on Wall Street with harsh regulation. We have become a nation by the banks and for the banks and the de-regulation of the 90′s is largely to blame. We need to end the financialization of this country and get back to 3-6-3 banking as opposed to relying on our bankers to generate economic growth while also mis-allocating resources.
- He has had every opportunity to become the champion of Main Street. Instead, he appears no different than his many predecessors who have been slaves to bank lobbyists.
This election is largely a referendum on the Obama economy. Unfortunately, I am concerned that the change is not necessarily any better. Specifically, I am most concerned about a return to the ways that got us into this mess in the first place:
- I am concerned that we are moving back towards a belief that business is efficient and rational and therefore does not need to be regulated.
- I am concerned that gridlock will lead to severe budget constraints. Like it or not, we are in a balance sheet recession. And when you’re in a balance sheet recession someone must run a surplus or economic growth will decline. That is simply an accounting identity. With the private sector paying down debt they are unlikely to pick up the economic slack. Therefore, without continued government spending or tax cuts we risk a high probability of sinking back into negative growth and possibly worse.
- While I am not a fan of unemployment benefits we are likely to see 3.5MM people lose their unemployment benefits in January as Republicans block passage of any extensions. In a balance sheet recession this will put an unnecessary strain on the economy. The government should temporarily hire the qualified of these 3.5MM people and incentivize them to be productive as opposed to paying them to do nothing. The country can certainly afford it and it would put people to work at a time of high private sector unemployment.
- We have a very serious state funding crisis that is now almost guaranteed to get worse as spending is reduced. Meredith Whitney believes the state funding crisis is the next shoe to drop and is being overlooked:
The level of complacency around this issue is alarming. Most assume, as last week’s Buttonwood panel did, that the federal government will simply come to the rescue of the states without appreciating the immensity of the cumulative state-budget gaps. I expect multiple municipal defaults to trigger indiscriminate selling, which will prompt a federal response. Solutions attempted in piecemeal fashion, as we’ve seen thus far, would amount to constantly putting out recurring fires.
Rather than waiting for more federal intervention, states need to make their own hard decisions and not kick the can down the road. How will taxpayers from fiscally conservative states like Texas or Nebraska feel about bailing out threadbare Illinois or California? Let’s hope we never have to find out.
This country is not bankrupt. We are not the European Union. We are not Argentina. We are not Zimbabwe. We most certainly are not Greece. As the monopoly supplier of currency in a floating exchange rate system we can always afford to spend in our own currency. Unfortunately, the new Congress is likely to move us closer towards austerity and that is an unnecessary hurdle at a time when the country least needs it. It’s difficult to see what we accomplished tonight. And we may have potentially taken a huge step backwards. Tonight’s outcome has 1937 written all over it. Let’s hope our political leaders prove smarter than that.