The New President and The Depression

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By Jim Smith

In the days to come, Barack Obama may look back on his election victory as a mixed blessing if the economy continues its nose dive.

At least, readers of the Beachhead who heeded my article, last year, on the economy have been spared financial disaster. As I said at that time, 

“If you have your nest egg, 401(k) or other much needed wad of money invested in stocks, here is a word of advice: SELL! If you sell before the market tumbles, you won’t lose a thing. If the crisis passes, you can always reinvest as if nothing happened. But if you wait until half the value of your stocks is gone, you’re screwed. It might mean that you have to work another few years before retiring, or that you’ll have to live more frugally for the rest of your life. Such is the fate of many people every time there is even a modest downturn in the stock market, let alone a crash.” (Beachhead, Sept. 2007)

Those of you who didn’t follow that advice or are new readers of the Beachhead may be in deep doo-doo. And if you think the worst is over, think again. The other shoe has yet to drop. When it does, we are probably going to experience a 10 year depression, at least (The depression of the 1930s lasted a full decade).

Why are economists so gloomy about U.S. and world finances? It’s because the mortgage crisis is only the tip of the iceberg. The global economy is beset with multiple, interlocking crises that almost defy remedy under capitalism.

Obama’s ability to fix the economy is limited. There are some things that are beyond the control of even the President of the United States. Booms and busts are inevitable under capitalism, and trying to stop them can just make them deeper and more long lasting. The best that a President can do is alleviate the suffering of millions of poor, working class and middle class people. This is what Franklin D. Roosevelt did in the last depression, and it is what Barack Obama must do if he doesn’t want his current immense popularity to turn to anger and hatred. 

If you don’t think it’s possible for Obama to fall from grace, look at the trajectory of Mayor Antonio Villaraigosa, the Obama of Los Angeles. Not long ago he was hailed as a role model for Latinos and as a dynamic “people’s candidate.” Now, most progressives in Venice, and elsewhere, have soured on his leadership as mayor, and are openly critical of his coziness with developers and big business. It would be a tragedy of Shakespearian proportions if the same were to happen to Obama.

Here are some of the problems the economy – and Obama – are facing and possible solutions:

* The Mortgage crisis. The media and the pundits are blaming the victims – those who sought mortgages – for the problem. In fact, taking out a sub-prime mortgage wouldn’t have been a bad idea, provided housing values continued to boom. When the bottom dropped out of the credit market, it was the home owners, not the investment houses that took the rap. Obama should issue an executive order for an immediate moratorium on foreclosures and evictions of homeowners and renters.

* The Free Trade crisis. Despite what you hear on the corporate media, free trade will not solve all our problems and lead us to the promised land. In fact, free trade is disrupting the economies of countries around the world and causing massive unemployment. Mexico is a case in point, where free trade means that small farmers cannot compete with corporate corn merchants. The farmers are being forced off their land into the cities and across the U.S. border in the millions. Free trade wrecks the environment by transporting goods half way around the world when they can be grown and produced in the local area. Obama should renegotiate NAFTA and other trade pacts to apply only to foods and goods that can’t be produced locally. Protecting local farms and factories will create jobs and ease environmental problems.

* The Dollar crisis. This is not news to you if you’ve traveled abroad recently. In recent years, the dollar has fallen in relation to nearly every other major currency in the world. At present, the dollar is enjoying a slight uptick compared with some other currencies. If you can travel abroad, now is a good time. It won’t last forever. 

The dollar would be relatively worthless today except for two factors: 1) The dollar is the only currency used in the international oil market. If the oil producing countries began demanding Euros instead of dollars, most consuming countries would dump their dollars with disastrous results for the U.S. economy. 2) China owns nearly a trillion dollars in U.S. government bonds. Should the U.S. threaten China militarily, or otherwise piss off the Chinese, they could literally pull the rug out from under the U.S. economy by withdrawing their funds. 

In addition, every time the government turns on the printing presses to pay for a bailout, the dollars in your pocket become worth less. The government deficit has the same effect. There is not much Obama can do about the weakness of the dollar, except to try to get a handle on the deficit and the national debt, without a wholesale restructuring of the economy.

* The Overproduction crisis. Too many goods are being manufactured around the world for the level of demand. Everybody is making cars these days. Someone, likely GM, Ford and/or Chrysler is going to get stuck with a lot of vehicles they can’t give away. The same applies to other industries from machine tools to clothing to electronic gizmos. A flood of corporations are going to declare bankruptcy or be bought for a song by their competitors. Tens, perhaps hundreds of millions, around the world will lose their jobs. Obama should revive the WPA (Works Progress Administration) to put people to work on the federal payroll fixing our decaying infrastructure. This was probably Roosevelt’s most successful initiative.

* The Global Climate Change Crisis. This is an economic problem of the highest order. One of the major sources of misery in the 1930s depression was the great drought in the midwest. Fertile fields turned into dust bowls where nothing would grow. Millions left the farms and headed for California where they ended up in migrant camps or homeless on the streets of Los Angeles. Droughts, more tornados and hurricanes, floods and other climate disasters will wreck havoc with the food and water supply and the economy. The oceans are being polluted and depleted of fish, which much of the world depends upon for their food supply. Obama should create a program that makes slowing or stopping global climate change the top national priority. This was done with the Manhattan Project to create an atomic bomb and the Marshall Plan to rebuild Europe after World War II.

* The Crisis of Everyday Living. In the debates, Obama and McCain spoke only about Wall Street and Main Street (code words for the wealthy and the middle class). What about all those who are economically below the middle class? There are millions in what is called the economically distressed working class – those who spend more than 30 percent of their income on housing. Because so much of their income goes to housing, they are constantly at the brink of economic disaster. If they go over that brink, they become homeless. Obama should set a goal of zero poverty in this country. This can be done by instituting an annual income (paid monthly) that pulls everyone out of poverty. If we can bail out the billionaires, we can bail out the poor.

Sinking into the third world

Immediately after World War II, the United States created half of the world’s wealth. Today, it produces barely 6 percent. Meanwhile, the government acts as if it still rules the world. An impoverished economy cannot fund a worldwide empire. Americans will have to become more humble if we are to adjust to economic realities of the 21st century. The coming decades will be dominated by China, India and a united Europe simply because they have many more people and resources. It really won’t be so bad to be a second rate power. Ask a Canadian. Our northern neighbors are generally happier and better adjusted than we citizens of the Empire. There is life after we stop being the world’s boss.

When the depression is over, we will likely look around and discover that economically we’re a lot more like Mexico, Brazil, South Africa and Canada, than we are like Japan, Europe and China. The real question is what we will do with the limited resources we will command at that point. 

Here is where Obama can become a great president. If he creates social programs that benefit average people and winds down the military budget and corporate welfare, we can end up with happy, productive lives for a long time to come. If on the other hand, he caters to the rich and powerful on Wall Street and in the Military-Industrial Complex, life in our cities may become a living hell for all of us. Good luck to the new President.

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