Barack Obama: the Unspoken Truths

Barack Obama is miles ahead of his previous two predecessors, George W Bush and Bill Clinton in being frank and candid with the American people about the nature of the problems they face. For example, Barack Obama has been bluntly honest about the nature and depth of the economic problems caused by the Credit Crisis and how long and grinding the recovery may be. In contrast, George Bush either greatly underestimated the cost of his policies or never asked for sacrifice by the American people in the face of some great, costly and unfortunately shortsighted policy endeavors. Bill Clinton, after the health care reform policy wreck, refused to take on major issues which he felt could not be addressed successfully to Congress and/or the American public.But Barack Obama has not been completely forthcoming.


Two Key Unspoken Issues – There is a major issue that Barack Obama has not come clean with to the American people. That is the issue of not just conspicuous but profligate consumption by the US populace. The US has 4% of the World’s population but consumes 20% of the World’s resources. That simply cannot continue for two reasons. First, there are resource barriers – many of the World’s non-renewable resources are coming up against hard limits like Peak Oil and dwindling key mineral resources. But even more ominous, many renewable resources like trees, farming space, fish stocks , and grazing land are being harvested faster than they can be productively maintained and/or replaced. Second, 2/3rds of the World’s population subsists on 1/5 to 1/10th per capita of what Americans consume annually. With globalization that is changing – and very rapidly. China has a middle class now bigger than the total US population. And the Chinese middle class is actually only 1/4 of the total Chinese population. Ditto for India, Brazil, and other rapidly developing economies. The MIT book Limits to Growth postulates limits being reached in the mid 2000’s driven by population growth patterns. But the real problem that may spark global crises may well be the one-two punch of population and consumption pressures that are unsustainable and therefore wreaking havoc on social, economic and political institutions causing current world terrorism to look like a walk in the park.See the book Collapsed by renowned geographer and historian Jared Diamond for a further delineation of the basic human conundrum. The problem is that to achieve his desired goals in energy change, health care reform, environmental balance, and educational improvements – Barack Obama has got to get the very tough, living sustainably cat out of the bag.

 


The Second Unspoken Truth – During the current credit crisis Barack Obama has had to work with and rely upon the very same bankers and financiers who exploited the moral hazard equation – they profited mightily on the way up, but have run for public bailouts on the way down. Financiers have shown no mercy to consumers who over extended with banker’s tacit or explicit encouragement, and have refused consistently to discipline themselves or help rescue their fellow financial players in the face of systemic financial exigencies and failures. In fact it is the very opposite, financiers are eviscerating each other in vicious shorting and complex derivative zero-sum games(I win means you must utterly lose). But most tellingly these financial players have succumbed to an unsustainable greed in their compensation packages such that they have become reckless in their pursuit of “profits” and the consequent overweening compensation rewards – this means annual total wage packets that range from 50 times at the “AIG low end” to 35,000 times the US average family wage. By these standards , using basic Six Sigma statistical assumptions top financiers should have acted infallibly (and of course each will say but for the machinations of others, they did so). The net result is that under the cover of ballooning financial wages, general executive compensation has also gotten way out of whack. Top executives commanding total compensation packages that never reflect relative performance (i.e. they never go down when their companies profits or ROI go down) and are 20 to 6000 times the US average wage of $43,000. So it is no wonder that 2% of the US population gets 20% of the national income. Yes, this a mirror of the first unspoken truth.

 


The World Reacts– Now the problem is that due to globalization, the rest of the World has had to suffer a debilitating recession made in the USA by Wall Street Greed. So big US dollar holders like China, Japan, Korea and a number of European states who have acted prudently are starting to press back against the US and its “financial leadership”. The Chinese for example, whose $1.2 trillion US debt holdings is crucial to US economic recovery, are starting to ask for an independent world currency. And why not, with the US deficits scheduled to double in size in 5 years such that the Chinese holdings of a $US trillion of US dollars could decline notably due to US inflation and a drastically declining dollar. Likewise the Europeans who imported much of the US financial disease due to lax US regulations (despite assurances from key US financial policy makers like Alan Greeenspan and others that everything was under control) are now resisting doing a 2% of GDP stimulus package the US is insisting on and demanding more financial reforms and regulations now. But Treasury Secretary Tim Geithner and Barack Obama appear to be beholden to the same financiers who have gotten us into this mess. Witness:

1)Despite campaign promises to rollback the US tax cuts to the wealthy, Barack Obama is going to let the tax cuts for the wealthy to continue to 2010 and then let them maybe? lapse.
2)Despite the outrage and pressures from the US public on the AIG and other financial bonuses, both Tim Geithner and Barack Obama continue to demur on both financial reforms/regulations and bonus/compensation limitations. “We are going to have to do something, but we are to busy rescuing the economy to do anything right now.”
3)Despite their recent huge financial shenanigans, Tim Geithner and Barack Obama are offering US Private Equity and Hedge Funds a very sweet deal on the $700Billion in the toxic asset rescue plan. The crux of the matter is that the US Taxpayer takes 95% of the risk but shares with the Private Equity and Hedge Funds 50-50 in any profits.


Talk about dependence on the financial wolves – this is double moral hazard. Not only does the US taxpayer have to bailout the big financial players for fear of financial market collapse; but also they have to pay them again very royally to get the US out of the mess some of the very same financiers are responsible for.


The Bets – Now maybe this is a Texas Holdem Poker trap. That is when you know you ultimately have the better hand, so you let the financiers in with warnings about regulations, compensation reforms, and an enticing role in the financial rescue. Then if the financiers play fast and loose on any of the fronts, WHAM, you close them out with appropriate legislation knowing John Q. Public is overwhelmingly on your side. I don’t know about you, but this appears to be some very risky bets on these unspoken truths. I need to take a 5th of my favorite elixir while waiting this one out. But keep in mind Barack Obama is betting very very big. By doubling the US national debt the ability to get out of another financial bubble(and they have been occurring in the US with greater frequency and even greater impact since the Reagan years), the room to maneuver in the case of another big financial bubble will be asymptotically approaching zero. We might as well let an asteroid hit the Earth and see who Darwin favors. So you can see why Tim Geithner and Barack Obama are covering their big bets …. uhhh acceding to Asian and European demands for fundamental financial reforms.   

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