The President's Closest Economic Advisors are Abandoning Him As Economic Problems Continue To Mount Sean Kennedy is a freelance journalist and author of The Independent Report,a "non-partisan, non-ideological analysis of economics, fiscal, monetary and debt issues, and market events." Follow him at http://twitter.com/IndyReport
When a ship is going down, even the rats know to bail out before it sinks.
First it was Budget Director Peter Orzag, in June. Then it was Christina Romer, head of the White House Council of Economic Advisors, in August. And now Larry Summers, director of the National Economic Council, has announced he is leaving the Obama Administration.
Orzag is already gone. Romer will leave on September 3. And Summers will exit by the end of the year.
Their departures leave a huge vacuum in the Obama administration's economic policy team — just before the midterm election and as hopes of a recovery are fading fast.
You have to wonder if Treasury Secretary Tim Geithner will be next.
Recently, Orzag and Romer both publicly advocated plans that conflict with the White House's.
In a New York Times' column, Orzag called for all of the Bush-era tax cuts to be extended for two years, including rates for the wealthiest taxpayers, which the administration wants to phase-out for deficit reduction. Orzag also said all of the tax cuts should be allowed to expire in two years for the sake of the nation’s budget.
In her last major address for the administration, Romer said that the government should “spend more and tax less” in helping the economy.
Yet, the White House knows that more stimulus is political suicide with a $1.5 trillion deficit this fiscal year. Even though our nation's infrastructure is in shambles, stimulus has suddenly become a four-letter word.
The President's advisors have seen the writing is on the wall; the economy is not coming back any time soon. And when (or if) it does, it will look very different than it did in the past. Our nation's problems are structural and systemic. They are not going away and they will be very difficult to grapple with.
The national debt is $13.5 trillion, and counting. The fiscal 2011 deficit is projected to be $1.4 trillion. Meanwhile, tax revenues are plummeting due to unemployment and pay cuts. That means the deficit and debt problems will only worsen. As it stands, total public and private debt exceeds that of the Great Depression.
Social Security took in less than it paid out this year. Yet, the Baby Boomers begin retiring in mass in little more than a year, a tidal wave that won't crest for nearly two decades.
Medicare is projected to be insolvent by 2017.
The fastest growing US demographic is people over 85, an unproductive populous. They all require or receive Social Security and Medicare.
Manufacturing amounts to just 12 percent of GDP. Meanwhile, exports also contribute just 12 percent to GDP. Imports, which vastly exceed exports, result in diminished GDP. And the growing trade deficit (nearly $43 billion in July) results in both jobs and dollars flowing out of the US.
Two-thirds of the oil used by US is imported. Oil is a finite resource and global demand is outstripping supply. This does not bode well for an economy that is completely and entirely reliant on oil to function, much less grow. This reliance also negatively affects the trade deficit and results in billions of dollars leaving the US each and every month.
One out of every seven homes in the US was either delinquent or in foreclosure in the first quarter. It seems that the problem is getting worse; more Americans lost their homes to foreclosure in August than any other month on record, according to RealtyTrac. Bank repossessions were 25 percent higher than the previous August and 2 percent higher than the previous record, just set in May.
And the shadow inventory is growing. According to Morgan Stanley, 8 million foreclosure-bound homes have yet to hit the market. It will take years to work off all this excess.
Unemployment remains stubbornly near 10 percent, as nearly 15 million Americans are still unemployed. Job creation was actually negative in the last decade, and millions of those jobs are never coming back. They were outmoded, outdated and outsourced.
Both housing and employment are years away from returning to 2007 levels — perhaps more than a decade.
It doesn't matter which party wins the upcoming midterm election. It matters not who controls the White House or either branch of Congress. It's like rearranging the deck chairs on the Titanic.
Orzag, Romer and Summers have all seen the writing on the wall, and they know it spells misfortune. They've decided to get out now, before the ship goes down.
Disclosure: no positions
Sean Kennedy is a freelance journalist and author of The Independent Report,a "non-partisan, non-ideological analysis of economics, fiscal, monetary and debt issues, and market events."
Follow him at http://twitter.com/IndyReport