21 November 2008

The Obama Depression: How Low Can It Go?

US markets have been rapidly declining ever since it became likely that Barack Obama would be the next US President. Will widespread deflation of financial markets be converted into a genuine worldwide depression?
Should the current trends persist, living standards over a wide range of society are bound to decline precipitately. Unemployment, already at 6.5 per cent, could, who knows, zoom to Great-Depression proportions of 25 per cent or more. The United States of America would still remain the world’s mightiest power, but that would hardly be solace for a people drowned in joblessness and the turmoil of daily existence. _Telegraph
Under President Jimmy Carter, the US economy experienced stresses that triggered an intense national feeling of malaise. Under Obama, such malaise may grow deeper and more intense. The rest of the world will not escape.
the global financial system is going through a vicious process of deleveraging: financial institutions are reducing debt and raising capital, either directly from governments or from private sector sources. By desperately trying to rebuild their battered balance sheets and regain some semblance of investor confidence, banks and investment banks are not doing much lending. Indeed, the definition of deleveraging means reducing debt relative to assets. Assets, for banks, are loans. And these days pretty much everyone is deleveraging....That doesn't bode well for global growth prospects. _Time
Deflation: when the value of economic assets shrinks to almost nothing. When economic activity nosedives out of fear that any possible transaction will only mean more losses.
“For some time it has not been a question of whether we will see deflation but if it will be the benign kind, where lower commodity prices boost consumption, or a malign spiral of falling prices pushing up the value of debt,” said Julian Jessop, chief international economist at the consultancy Capital Economics. “Today’s figures all point to the malign variety.”

US figures showed 542,000 workers filing new claims for jobless benefits last week, the highest number since the early 1990s recession and well above economists’ forecasts of 500,000. _FT
Unfortunately, the election of Barak Obama at this point in time is probably the worst thing that could have happened for the world economy. Economies hate uncertainty, and Obama brings economic uncertainty to new heights. If Obama does what he has promised he will do, you can count on an extended depression, as long as that of the 1930s lasted. If you recall, that particular depression did not end well.

Electing an unaccomplished cult figure as leader of the largest economy in the world at this point in time, can only be explained as an act of electoral "temper tantrum." Like musicians on the stage destroying expensive musical instruments in an act of orgiastic destructiveness, US voters committed an act of incalculable destruction "because we can." Sometimes people just like to watch things burn.

Obama could do something remarkable at this time, and stave off the growing depression. How? By retracting most of his campaign promises to destroy the coal industry, to destroy the private US medical sector, to institute massive redistribution schemes from productive sectors in the US to nonproductive sectors, and from productive countries of the world to nonproductive countries. To destroy the protections of the US Constitution from government oppression. Retract those catastrophic promises, Mr. Obama, and you may surprise a lot of cynics.

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Blogger Rod Newbound said...

Clear insight, but with our government in the control of thieves and demagogues, what can we do other than prepare for the worst?


Saturday, 22 November, 2008  
Blogger al fin said...

Right. Prepare for the worst, and hope for the best.

Obama is hiring a large group of Clinton re-treads to run things, so he may not start out to change things as radically as many of his supporters might wish.

Keep your eyes on what the new Obama EPA does in regard to energy policy and carbon rules. Just a few changes there, and the US economy can be sent into a genuine tailspin far beyond anything currently imaginable.

Saturday, 22 November, 2008  

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“During times of universal deceit, telling the truth becomes a revolutionary act” _George Orwell

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