The Guest Blog

Busch: Obama's Speech: FDR vs JFK

"It is the habit of the unthinking to turn in times like this to the illusions of economic magic. People suggest that a huge expenditure of public funds by the Federal Government and by State and local governments will completely solve the unemployment problem. But it is clear that even if we could raise many billions of dollars and find definitely useful public works to spend these billions on, even all that money would not give employment to the seven million or ten million people who are out of work. Let us admit frankly that it would be only a stopgap. A real economic cure must go to the killing of the bacteria in the system rather than to the treatment of external symptoms."

".....the problem of keeping the home-owner and the farm-owner where he is, without being dispossessed through the foreclosure of his mortgage. His relationship to the great banks of Chicago and New York is pretty remote. The two billion dollar fund which President Hoover and the Congress have put at the disposal of the big banks, the railroads and the corporations of the Nation is not for him."

"His is a relationship to his little local bank or local loan company. It is a sad fact that even though the local lender in many cases does not want to evict the farmer or home-owner by foreclosure proceedings, he is forced to do so in order to keep his bank or company solvent. Here should be an objective of Government itself, to provide at least as much assistance to the little fellow as it is now giving to the large banks and corporations. That is another example of building from the bottom up."

This is an excerpt from the famous Forgotten Man speechby US President Franklin D. Roosevelt in April of 1932 during the Great Depression.

Sen. Barack Obama, D-Ill., answers a question during the first Democratic presidential primary debate of the 2008 election hosted by South Carolina State University in Orangeburg, S.C., Thursday, April 26, 2007. (AP Photo/J. Scott Applewhite)
J. Scott Applewhite

Today,President Obama gives a speech on battling the public anger over 10% unemployment and steps to be taken to boost employment.

He will attempt to "progress" in a similar way, but will not be offering anything as aggressive as FDR did between 1932-1935.

Already leaked, we know that the speech will discuss that TARP cost $200 billion less than expected. This money will be supposedly split between deficit reduction and job creation. On the jobs side, they have three areas of interest: small business credit help and growth, infrastructure projects, and clean energy projects. (Note today's drop in NFIB business optimism as another reason to be concerned over small to medium sized company growth.)

The elephant in the room is that the Obama administration is going to provide money for reducing the deficit. It's the massive deficit that is acting as a the constraining force for progressive economic plans and for US economic growth going forward. The best example of this is the warning today by Moody's that the US may risk a test of it's AAA ratingbecause public finances are worsening. Debt to GDP in the United States is expected to reach almost 100% in 2010 according to the OECD.

Here's the ironic duality of the government spending creating jobs and massive deficits: it creates a small amount of short term jobs that steal a larger amount of long term jobs. Deficits are like weeds, when they are small they're not a problem. When they get large, they block out the growth of what we want. It's part of the reason why we have a conundrum of low interest rates while the deficit continues to expand. The markets are buying Treasurys because the prospects for strong growth are low and get further reduced with every new public sector spending initiative that adds to the deficit.

Let's see if President Obama can morph himself away from FDR towards another presidential acronym: JFK. Like the 1960's, it would be great to see corporate and individual tax cuts accompanied by a strong US dollar policy by the Federal Reserve to bring in foreign direct investment. Unfortunately, it will most likely take a year of sub-optimal growth to get the political momentum moving in this direction. It's where economic policy needs to go to create sustainable growth.

Until then, we'll be picking weeds.

Andrew B. Busch is Global Currency and Public Policy Strategist at BMO Capital Markets, a recognized expert on the world financial markets and how these markets are impacted by political events, and a frequent CNBC contributor. You can comment on his piece and

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