Can the economy wait for Obama?
by DemandSide, Fri Nov 21, 2008 at 09:06:49 PM EST
It may seem like the economic contraction has been one long slide into the pit, and to some extent this is true, but there was a tipping point in September and the sickness is accelerating and becoming more out of control, both on Wall Street and on Main Street. Leadership may be required before inauguration. Obama may need to govern before he is in office.
This may not be politically practical, logistically possible, or legally do-able. But it is economically essential. The financial system is broken and the damage to Main Street is to the bone. Two more months of this will turn a severe recession into a global depression. The lives of millions, tens of millions, will be badly impacted unless we stabilize the economy soon.
George Bush and his team of clowns are leaving town with the economy on fire. Their final contribution is to bar the men with hoses from reaching the scene. Paul Krugman, NYT columnist and Nobel Prize winner, wrote on Friday under the head, "The Lame Duck Economy" on the parallels between Hoover/Roosevelt and Bush/Obama:
... the outgoing administration had no credibility, the incoming administration had no authority and the ideological chasm between the two sides was too great to allow concerted action. And the same thing is happening now.
It's true that ... FDR wasn't inaugurated until March; Barack Obama will move into the White House on Jan. 20. But crises move faster these days.
How much can go wrong in the two months before Obama takes the oath of office? The answer, unfortunately, is: A lot. Consider how much darker the economic picture has grown since the failure of Lehman Brothers, which took place just over two months ago. And the pace of deterioration seems to be accelerating. ....
The Federal Reserve under Ben Bernanke has turned the Fed's balance sheet into a pawn shop, expanding it by a trillion dollars. But neither his innovation nor conviction has stopped the slow speed train wreck on Wall Street.
The Treasury under Henry Paulson has lurched from half-baked idea to half-baked idea. Paulson is either a stooge for Wall Street or a captive of a broken paradigm, or both. The banking sector is now composed of massive zombie institutions unable to perform the banking function and unwilling to die, lying ineffective and listless, subsisting on intravenous government equity.
This latest collapse should be marked from the bankruptcy of Lehman Brothers on September 16. Since that time lending has dried up, trade is frozen and businesses have had to go to the Armegeddon plan. It is going to get much worse.
We predicted the recession, resulting from the housing bust and its effect on residential construction and consumer wealth. We even predicted the inflation of the first three months of this year, resulting from the commodities bubble still invisible (in spite of $147 oil in July an $52 oil today) to many. Now we predict the hardest of hard landings as a result of the financial sector's final collapse. The institutions may still be breathing, but the circulation of liquidity for which they are responsible is gone.
We believe Paul Volcker, a key adviser to the president-elect, is willing to coach Obama through a reconstruction of the financial sector from the ground up. It can't happen soon enough. And it may happen too late.