Thursday, November 6, 2008

Economic Outlook Dims After Presidential Hype

I got quite a few e-mails from readers asking to give my thoughts on the US election of Barack Obama and what impact I think it will have on the economy. So here are my thoughts:

The media has proclaimed Obama as an almost god-like figure. People were shedding tears of joy at his acclamation. "Change has come to America," was a line I probably heard 100 times over the course of a day. I've taken to asking random people what they think of Obama's election. Aside from one responder at a gas station who was happy that "Obama would end the foreign wars," every other respondent could only say that it is good for America to finally have a black president. Their awareness of the issues he stood for was essentially nil. That's not to say it's not a great accomplishment. It is. But if race was really made "an issue of the past," then why all the talk about it? Just askin'.

People seem to be thrilled about this supposed "change" that is coming. And who can blame them? The last 8 years under the Bush administration have been terrible on so many fronts, that not wanting change seems a bit ludicrous. But is it change that Americans want? Or do they just want to be told, "everything is going to be just fine?" Do they want to hear, "don't fret, things will be back to normal soon?" Sadly, the election of a new black president aside, Americans voted undeniably in favour of the status quo. In fact, 87% of congressional representatives (rough equivalent of MPs in Canada) were re-elected. 7.3% retired or ran for the Senate. And 5% were defeated.

If the Kansas City Royals hired a new coach but kept the same players from last year, would you bet on them to win the world series?

Obama has no new ideas (or understanding, from what I gather) on monetary policy. He has no intention to bring American troops home from the 130 countries they occupy. And he has no stated plan to address the fiscal deficit and mounting government debt. And although he is a fantastic speaker, a champion for equal opportunity health-care, and anti-poverty crusader, I fail to see where he will get the money to fund any of his grandiose plans for a utopian world where everyone is equal.

So in summary, no, I don't think an Obama presidency will do anything to stop the economic crisis. And I do have concerns, as I did equally under Bush, that Obama will attempt to lead America in a push for a one world currency to replace the dollar. I have heard the line, "It's a global problem, so we need a global solution" many times. To me that wreaks of a push toward a one-world currency and eventually one-world government. Obama, with his charismatic speaking and multi-ethnic background is the perfect vehicle to satisfy such an agenda. Individual liberties would essentially cease to exist if our legislative abilities were turned over to multinationals. Global Corporate Fascism is what we would get. The notion that the tyranny of the Bush years are over seems a little far-fetched to me. Obama retains all of the dictatorial powers Bush gave himself. And the fact he is a Gen-Xer, not typically known for their discretion, does nothing to ease my concerns.

The potential for Obama to turn out as a wolf in sheep's clothing looms large.

None of this is to say a John McCain win would have been better. I think both candidates were equally as terrible. But the great expectations being put on Obama to "fix" everything seem illogical from a non-partisan perspective.

People are likely to be very disappointed.

Of course, just because there's a new president doesn't mean the economic data is going to get any better. And here are a few examples:

From the Wall Street Journal - At the Supermarket Checkout, Frugality Trumps Brand Loyalty
Though low-income consumers have been cutting back for the past several months, now upper-income shoppers -- those with household incomes of $100,000 or more -- also are making significant changes, according to a new survey by IRI.

The report, titled "Shopper in Crisis," found that 41% of upper-income consumers reduced spending on nonessential groceries, and a fourth of these consumers said they gave up favorite brands over six months in 2008. Nearly one-third of high-income shoppers said they bought more private-label products during the second quarter, up from about 20% in the first quarter of this year.

And notions of the wealthy keeping the economy afloat can be tossed out the window.

From Times Online - Commerce Becalmed Over Letters Of Credit

The credit drought is undermining international trade in goods and raw materials with savage increases in the cost of funding for exporters. At the same time, buyers of goods are being denied access to letters of credit - the banking instruments that are the nuts and bolts of global trade.

HSBC, a leading trade finance bank, has said that the cost of guaranteeing a letter of credit, a routine instrument used for payment of goods, has doubled. Concern is growing in the shipping industry that business is foundering because of failures in trade finance, and Pascal Lamy, director-general of the World Trade Organisation, has given warning that the credit crunch is affecting global trade, particularly in the emerging markets of Brazil, India and China. He said: “Trade finance is being offered at 300 basis points above the London Interbank Offered Rate and even at this high price, it has been difficult for developing countries to obtain.”


Anxiety about payment was pushing companies to ask for greater security, Mr Nivison said, and in such transactions, fees were soaring. He pointed to a recent case of a shipment of industrial equipment from Britain to India, where the confirmation and discounting of a letter of credit, which would normally cost 0.5 per cent of the value of the goods, had risen to more than 1 per cent. “These are big moves and reflect the nervousness in the market. People want to be sure they are paid,” Mr Nivison said.

Distrust of banks is compounding the problem. “We have received requests to guarantee the credit of top-tier banks and we have also seen cases of exporters in China saying to their UK buyers which banks they will or will not accept,” Mr Nivison said. He added: “Trade finance is the oil that keeps the wheels of commerce going. Without it, everything grinds to a halt.”

Remember that "global decoupling" everyone was talking about a year ago? Toss it out the window as well.

From Calculated Risk - Continuing Unemployment Claims at Highest since 1983.

Remember when this recession was going to be shallower than most because of "strong employment numbers?" Toss it out the window.

All over the place, long held misperceptions about the economy are unravelling. Barack Obama will be inheriting the worst economy of any president since FDR. And it is reasonable to assume he will be as ineffective as FDR was at doing anything to turn it around.

More time and lower prices are the cures for the world economy. Nothing more, nothing less. Messianic leaders included.

1 comment:

View My Stats