Hey, let’s blame it all on Obama!

Sunday, 4 October 2009 23:43 by The Lunatic

 

A good friend of mine forwarded the following email to me the other day.  Now, before I begin, this friend is one of the smartest people I know.  He is the CEO of a rapidly growing company, introducing successful new products into the marketplace even in this economy. He is a vocal Republican, so all I ever heard from him for about 20 years was that “it’s the Democrats fault” when referring to ANY problems in the world.  I’m neither democrat nor republican, so it's never bothered me any.

But then, halfway through the second term of the Bush administration, he swung around and admitted that maybe it’s not ALL the Democrats fault, the Republicans need to take some part of the blame for the state of the world’s affairs. And horror of horrors, he hesitantly (accidentally?) said some positive remarks towards Obama during the election (but really, I think it was more of an anti-McCain sentiment than anything, in one email he said “clearly McCain is an even worse war monger than Bush, very scary.  I bet he never met a weapon he didn't buy.”)

However, he’s back to his lovable anti-Democrat rant, and has been forwarding some very snide, and occasionally humorous, emails.  The most recent one he forwarded is what prompted this blog posting:

Dear Employees:

As the CEO of this organization, I have resigned myself to the fact that  Barrack Obama is our President and that our taxes and government fees will increase in a BIG way. To compensate for these increases, our prices would have to increase by about 10%.  But since we cannot increase our prices right now due to the dismal state of the economy, we will have to lay off six of our employees instead. This has really been bothering me since I believe we are family here and I didn't know how to choose who would have to go..

So, this is what I decided. I walked through our parking lots and found six 'Obama' bumper stickers on our employees' cars and have decided these folks will be the ones to let go.  I can't think of a more fair way to approach this problem. They voted for change...... I gave it to them.

I will see the rest of you at the annual company picnic.

THE  BOSS

I’ve been getting quite a few emails from other people as well who want to blame the current state of affairs on Obama, and I feel they are blatantly unfair.

So in rebuttal, let’s go back and look at the state of the world a year ago, before the election. Real estate prices had already been in a downward slide for two years. Lehman Bros. had just collapsed. Bear Stearns was rescued by JP Morgan Chase. Bank of America was forced into a shotgun wedding with Merrill Lynch. According to a Wikipedia article on The Financial Crisis of 2007-2009, things came to a head just before the election:

Between June 2007 and November 2008, Americans lost an estimated average of more than a quarter of their collective net worth. By early November 2008, the S&P 500 was down 45 percent from its 2007 high. Housing prices had dropped 20% from their 2006 peak, with futures markets signaling a 30-35% potential drop. Total home equity in the United States, which was valued at $13 trillion at its peak in 2006, had dropped to $8.8 trillion by mid-2008 and was still falling in late 2008. Total retirement assets, Americans' second-largest household asset, dropped by 22 percent, from $10.3 trillion in 2006 to $8 trillion in mid-2008. During the same period, savings and investment assets (apart from retirement savings) lost $1.2 trillion and pension assets lost $1.3 trillion. Taken together, these losses total a staggering $8.3 trillion. Since peaking in the second quarter of 2007, household wealth is down $14 trillion.

Most economists during the timeframe surrounding the election, both liberal and conservative, were in agreement that a quick response was required.  To quote one report: “The duration of the Great Depression could have been dramatically shortened if the Government had acted more quickly at the time … to shore up banks and provide liquidity … and provide funds to stimulate the economy …”

It’s impossible to say with any certainty “what would have happened if …” but I’m fairly certain that without the government interventions in the past year, AIG would have collapsed.  Fannie Mae/Freddy Mac would be insolvent, which would almost certainly have led to the failure of many large banks (as it was, over 100 US banks shut their doors). GM and Chrysler would not have come out of bankruptcy, which would have forced many parts suppliers and contractors into bankruptcy as well. The list goes on.

Fundamentally, I am a free-market proponent.  I say, “let them fail!”

If all these “too big to fail” situations had  been allowed to run their course, but spread out over a ten year period, then the economy would have been able to absorb it (look back at WorldCom and Enron; both of these were SHOCKING in the scale and speed of their downfall, yet the economy survived). 

But to have AIG, GM, BofA, and countless others fail at once, on top of the fragile state of everything else?  By all indications, we would be in complete global ruins right now.  Without government intervention, the Dow would likely be in the $1,000 to $3,000 range, U.S. unemployment could be as high as 35%, real estate would have depreciated an additional 20 to 50%, and the hypothetical CEO who wrote the email above would have bigger headaches than just laying off six employees.

Not that I’m defending Obama in this particular case, but it is ridiculous to blame him for the mess we’re in when:
1:   Irresponsible fiscal policy over the last 30 years has put us into this situation in the first place, which has left our treasury dry and unable to properly respond to this crisis, and
2:   Obama's actions have almost certainly kept the economy from going into a complete and irreversible freefall.

The cost of all this market intervention, of course, is outrageous. I am horrified that we’re forced into a situation where we have to pile even more debt onto the totally unthinkable mountain of debt we were already carrying.  But the alternative is far, far, far worse.

And we’re not out of the woods yet.  The stock market appears to have stabilized somewhat and economists are issuing hesitant reports saying “the worst MAY be over.” But if history is any indication, this could be the calm before the storm.  After the stock market collapse in 1929, there was a fairly healthy recovery over the next year – just before the long slide into the Great Depression which crippled the global economy for the next 12 years or so.

So where do we go from here? Even if the government interventions are ultimately successful in avoiding a total meltdown, we have a dizzyingly large national debt that does need to be paid off – a debt that was run up by irresponsible spending by Democrats and Republicans alike, in both good times and bad. The debt is so large that trimming government expenses, no matter how drastically, won’t even make a dent. Printing more money isn’t an option as it will certainly lead to hyperinflation. And I haven’t heard anyone propose any viable alternatives. So, of course, taxes will rise as a way to keep up on the bills – which reduces spending power and will lengthen the time to any possible recovery. Just don't blame any tax increases on Obama, as we haven't even started paying off the debt that was run up by Reagan, Bush, Clinton, and Bush Jr.

The Republicans have always said that an expanding economy will create substantially more tax revenue, without raising tax rates – but even that has its problems.  It assumes that an upward cycle will come sooner rather than later. The economists are all saying “spend, spend, spend” to stimulate the economy when in the long run we really need to get into a habit of saving, not spending.  And our overly consumerist style of spending on disposable products is killing the environment and will continue to do so unless we drastically change our habits.

If we do keep spending government money that we don’t have, lets at least invest in infrastructure that will have intrinsic value and provide positive benefits for years to come – water and sewage processing, primary and secondary education, alternative energy solutions.  And let’s eliminate spending money on “consumables” that are disposable and only provide short term benefits, or expenses that are strictly for political jockeying – which includes military hardware, social programs, crop subsidies, and economic aid to foreign countries.

 

Categories:   Economics | Politics
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Comments (3) -

October 11. 2009 07:48

I never thought I'd hear you say government intervention was needed!  Wow.  Very good article.  More people need to see it.  

Geoff

Geoff

October 23. 2009 05:50

Excellent commentary.  On point!  Bottom line...we have frittered away the time when we could have addressed these looming financial problems with rational, moderate-impact solutions..due to NOMW (Not On My Watch) politicians of both parties.  We are fully engaged in this behavior in the cases of Medicare and SS...when the corrective solutions will be FAR MORE PAINFUL on the citizens and future generations than had we addressed these KNOWN problems 20 years ago.  The question before us is....as these solutions become more draconian...will it instill a "were all in this together so let's make the best of it" behavior or "every man for himself" behavior?????? Hmmmm?  Generally....does current financial security have a high correlation with making one or the other of the preceeding decision or not? If it does..we are in for a very difficult "ride".

The Dougster

October 29. 2009 00:53

Absolutely agree 100%.  President Obama is honestly TRYING to fix these issues, but there's only so much he can do considering the mess he inherited. I agree with you that the debt will be a drain on our economy for years (decades!) to come. I pity our poor kids, for they shall inherit the debt.

Bill Fields

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