President Clinton Grades President Obama
by Charles Lemos, Fri Feb 20, 2009 at 06:29:10 AM EST
This morning on ABC's Good Morning America, former President Clinton graded current White House occupant, President Barack Obama, an "A" but noted that the President needs to put on a more positive face when speaking to the American people about the economy.
Regarding Obama's bleak warnings that "the economy could get worse before it gets better," and that the economic stimulus program is only the beginning of the end of the economic crisis, Clinton said, "I like the fact that he didn't come in and give us a bunch of happy talk. I'm glad he shot straight with us."
But he added, "I just want the American people to know that he's confident that we are gonna get out of this and he feels good about the long run."
Clinton thinks Obama should talk to the public in greater depth about the economy.
"I like trying to educate the American people about the dimensions and scope of this economic crisis," Clinton said. "I just would like him to end by saying that he is hopeful and completely convinced we're gonna come through this."
Well, the President should tell it like it is and President Clinton is right that the President should talk to the public in greater detail about the economy and the President should never fail in assigning blame for the mess we face and that means placing some of it on Bill Clinton's shoulders though obviously this is largely on the GOP. We're in for a bitter pill and to be frank the worse is yet to come. This is a systemic crisis. It is not an inventory recession nor is it like any economic downturn since the Second World War. We're likely in or headed for a depression. The other point to keep in mind is that this financial crisis has already taken down entire economies, Iceland and Estonia so far but Eastern Europe, Spain, Ireland and the United Kingdom loom large. Japan's most recent GDP report showed an annual decline of ovwer 12%. These are not insignificant numbers.
As Vice President Biden noted during the campaign it's time to gird one's loins.
Gird your loins. We're gonna win with your help, God willing, we're gonna win, but this is not gonna be an easy ride. This president, the next president, is gonna be left with the most significant task. It's like cleaning the Augean stables, man. This is more than just, this is more than - think about it, literally, think about it - this is more than just a capital crisis, this is more than just markets. This is a systemic problem we have with this economy."
I once thought that the Fall of Soviet Communism was the event of my lifetime. I now think that I am about to experience the most significant days of my time on this planet and I am not looking forward to it. We face the Augean Stables. Cleaning out trillions upon trillions of toxic manure is the daunting task we face. To quote Paul Krugman:
I've been saying for a long time that this isn't your father's recession -- it's your grandfather's recession. (I actually used the phrase about the last recession, too.) That is, it isn't something like the 1981-82 recession, which was brought on by the Fed to control inflation, and ended when the Fed decided that we had suffered enough. Instead, it's like the 1929-33 recession -- or the recession of 1873-1879 -- a slump brought on by the collapse of an investment and credit bubble. And monetary policy, at least in its conventional form, has already reached its limits.
Earlier this week, Martin Wolf of the Financial Times wrote a column on Japan's lessons for a world of balance-sheet deflation. This mirrors my thinking on the matter and I've written a number of posts on the matter since early December. The evidence points to a situation where monetary policy is non-existent and that only a significant and consistent fiscal stimulus will turn the economy around. The important metrics to monitor are those associated with corporate balance sheets such as debt loads, debt/capital, debt/equity. Most companies have overvalued assets on their books and their use of cash at this point seems more geared to paying off debts rather making new investments. This is despite near zero interest rates.
What has Japan's "lost decade" to teach us? Even a year ago, this seemed an absurd question. The general consensus of informed opinion was that the US, the UK and other heavily indebted western economies could not suffer as Japan had done. Now the question is changing to whether these countries will manage as well as Japan did. Welcome to the world of balance-sheet deflation.
As I have noted before, the best analysis of what happened to Japan is by Richard Koo of the Nomura Research Institute.* His big point, though simple, is ignored by conventional economics: balance sheets matter. Threatened with bankruptcy, the overborrowed will struggle to pay down their debts. A collapse in asset prices purchased through debt will have a far more devastating impact than the same collapse accompanied by little debt.
Most of the decline in Japanese private spending and borrowing in the 1990s was, argues Mr Koo, due not to the state of the banks, but to that of their borrowers. This was a situation in which, in the words of John Maynard Keynes, low interest rates - and Japan's were, for years, as low as could be - were "pushing on a string". Debtors kept paying down their loans.
However there are two differences between Japan's problem then and ours now. First, Japan's downturn was just that Japan's and not a global one. Second, Japan averted an outright depression (at least until now) because it had a vibrant export sector. And obviously, we can't all depend on an export sector to grow ourselves out of a global downturn. The fatalist in me seems to think that to clean out trillions of dollars of toxic assets the only true solution is letting the market hit bottom and start again. That's likely a multi-year if not a decade long proposition. The optimist in me hopes that the President will do what he has done so far and spend his way out of this and I remain hopeful that the Administration will act on the banks.