Busch: Obama Drama
Today at 11AM/ET from George Mason University, President-elect Barack Obama will deliver his first major speech on the economy and his evolving stimulus plan.
But don't hold your breath for new insights as speech excerpts were already released and he gave a sit down with CNBC's John Harwood that covered most of the material. "I don't believe it's too late to change course, but it will be if we don't take dramatic action as soon as possible.....If nothing is done, this recession could linger for years. The unemployment rate could reach double digits," he said.
In the speech excerpts, Obama said the cost of the package of tax cuts and spending measures he is proposing would be "considerable," but that it was needed to keep the economy from sinking into a vicious cycle of weak consumer spending, job losses and a further tightening of credit markets according to CNBC.
Most Americans support aggressive action by the Obama administration and Congress to arrest the slide in the economy and to overhaul the financial regulatory system. The more optimistic economic predictions have growth returning by Q3 with aggressive action by both Obama and the Federal Reserve. The more negative economic predictions have negative growth prevailing until mid-2010. The pessimists see the stimulus plan as unable to offset the expected $1 trillion drop in private demand between 2009-2010. I believe the spending/quantitative easing will definitely help short term.
The problem is myopia. We crave the short term relief and want it as soon as possible. The stimulus plan will be crafted by mid-February to spend $775 billion. It's a major stretch to think that Congress can find a way to efficiently spend or allocate out this massive amount of money in such a short time period. However, the larger, longer term risk remains that this new spending becomes permanent. Has anyone in the Obama administration or in Congress discussed a sunset provision for this new spending? The only group that's discussing an exit strategy are the sharpies from the Federal Reserve.
The other missed opportunity will be in the way that they structure the money going out. Conditional cash transfer should be a requirement by the US government as it sends its money out to the states. Why Republicans don't grasp this as a key rallying point to be stewards of the "Peoples" resources is beyond my pay grade.
Here's one aspect of the problem the United States will be facing shortly: a massive debt that is making investors nervous. The NYT carries a story today which questions the appetite of the Chinese government for US debt. As the country's largest owner, this is a disturbing development. China is not alone. Japanese Prime Minister Aso Taro said that unless the world maintains the dollar as the key currency for the time being, countries with large foreign reserves, such as Japan and China would suffer national losses. A sharp decline in the value of the US currency would be a negative factor for those countries, he said. There is no immediate alternative to the dollar as the core currency while the US's status the world's largest debtor nation is making the dollar unstable, he added.
While Obama speaks today and his team gives interviews over the next few weeks, try to keep in mind the structure they are putting in place. Without a strategy set from the beginning to reduce the spending after the economy stabilizes, this stimulus program will decimate US finances for years and may trigger an exit strategy by foreign investors from US government securities and the US dollar .
- Obama to Urge Dramatic Action to Lift US Economy
- CNBC's Exclusive Interview With President-Elect Obama