Mission accomplished - Part 1
By Julian Delasantellis
Even with the polls relatively close until the end, I could see the results of
the American presidential election in a walk I took in early October at a swap
meet - for non-US folk, an unofficial bring-and-buy street market - in downtown
Los Angeles. There, amid all the clunky gold chains, bling medallions and pink
taffeta party gowns, I was amazed to see large numbers of Barack Obama
T-shirts.
The flimsy materials and cheap silk-screening made it obvious that these were
not official products of the Obama campaign, like the designs, which seemed to
imply that Obama's running mate in the campaign was not Joe Biden of Delaware
but the late Bob Marley of Jamaica.
I tried to think of a previous Democratic Party nominee who had
engendered such excitement. Who else would have spurred the micro-capitalists
who sell their wares at swap meets to such endeavors? It certainly would not
have been Michael Dukakis, the intelligent but crushingly, deathly dull
Massachusetts governor who was the party's choice in 1988. Perhaps the only
people who might have admired his style in charisma and excitement sufficiently
to put his face on a T-shirt would be the likes of the Middle Atlantic Express
Train Schedulers Association.
So Obamamania, the nationwide phenomenon that manifested itself everywhere -
from the rallies where just the candidate's presence caused young people to
faint away to the adult toy stores where the senator's image was drawn on the
most unlikely of devices - carries the day. The question now becomes, can he
even come close to meeting the ferocious expectations for a better life, in a
better country, that were raised by him during the campaign?
For most of the time since Obama clinched the nomination from Senator Hillary
Clinton in June, he carried roughly a 3-5% lead in the polls; this briefly
flipped to a similar lead for John McCain after the choice of Alaska Governor
Sarah Palin as the Republican vice presidential nominee. That effect faded as
soon as Palin opened her mouth. Still, the McCain/Palin campaign was doing a
serviceable job of maintaining contact with Obama-Biden until it hit the
iceberg - the month-long financial and stock market collapse that started with
the failure of investment bank Lehman Brothers on September 22.
When the Titanic's lookouts cried out "iceberg, right ahead", it was obvious
that the ship was doomed. Likewise for the McCain campaign on the breaking dawn
of the September financial crisis.
Most Americans supplant the relatively paltry returns of the government's
old-age social security pension support plan with stock investments in
tax-advantaged holding accounts called 401-Ks. When stocks fell to six-year
lows in early October a lot of dreams of early retirements on sun-splashed
Florida fairways had to be supplanted by nightmare images of dragging tired,
arthritic bones every morning until death to their station at the fast food
french-fry cooker.
Indeed, the financial crisis probably has gone a long way towards solving the
long-term funding crisis of social security, in that now millions of Americans
won't be able to retire and draw on the system, given that the stock portion of
their retirement package is now worth so much less.
McCain/Palin tried everything, throwing the kitchen sink, indeed, the entirety
of the house's plumbing, at their opponent - calling him a terrorist
sympathizer, a socialist, even a communist. All for naught. Americans listened
to the Republican charges, weighed them against the prospect of ending their
lives as galley slaves rowing away their last days for the McDonald's empire,
and decided that giving the terrorist/socialist/communist a chance wasn't such
a bad idea.
Last December, with the economy not nearly in as dire straits as it is now,
McCain pooh-poohed the idea that he should even be all that concerned with
matters economic by telling The Boston Globe, "The issue of economics is not
something I've understood as well as I should, I've got [ex Federal Reserve
head Alan] Greenspan's book."
Surprisingly, sounding like a stubborn schoolboy being forced to look at an
economics textbook when he'd rather be out playing war with his toy soldiers
did not hurt McCain all that much in the Republican nominating contests of last
winter, when all the candidates were competing to see who could proclaim their
intentions to bomb the most countries the hardest.
But as spring turned to summer and then to autumn, and slow growth turned to
deep recession, McCain's cavalier attitude towards economics-related issues
turned voters off. Nor was his cause helped by his series of highly gymnastic,
focus-group generated, policy undulations during the September crisis.
Besides, getting advice from Greenspan about the current world financial crisis
is a lot like the Chicago Fire Department taking advice on how not to start
fires from Mrs O'Leary's cow.
So, Americans are trusting Obama for a return to prosperity. Can he deliver? If
you read Henry Blodget, you'd have to have your doubts.
Blodget proves the adage that, in contemporary America, celebrity trumps
morality every time. In the 1990s, as an Internet stock analyst for CIBC
Oppenheimer and Merrill Lynch, he was renowned for publicly singing the
accolades of dot-com stocks he privately ridiculed and which eventually
disappeared. He was particularly famous for privately calling a stock he
publicly lauded a "p.o.s." - and no, that does not mean "particle of sunshine".
Eventually, the Feds caught up with him, charging him with securities fraud.
Blodget never admitted guilt, but he agreed to a big fine and permanent
banishment from the securities industry.
In his shame, did Blodget, like Leo Tolstoy's Anna Karenina, throw himself
under a locomotive? No way. He is now a prominent writer and blogger on
economics and investing, frequently advising small investors on how to spot
shady brokerage practices - who would know better?
But it was one of his recent postings, on the "Clusterstock" web site, that
caught my eye, and made me wonder if Obama has raised hopes impossible to
fulfill.
In an October 29 post, entitled "What Does 'Deleveraging' Really Mean? Cutting
$25 Trillion Of Debt", Blodget looked at the American economic history of the
past 75 years from a whole new perspective, graphing changes in the ratio of
total credit market debt to gross domestic product (GDP) over this period.
Around 1920, this number stood at 170% - that is, $1.70 of debt for every $1.00
of GDP. The ratio soared to about 260 during the Great Depression, as GDP
shrunk the ratio's denominator, then, following World War ll, was essentially
stable around 140 for almost 40 years, to 1986. It was then that the ratio
began its stratospheric climb, topping out at 356 earlier this year.
From this perspective, the economic history of the past quarter century looks
much different, and is much easier to understand. It was not Reaganomics, nor
even Clintonics, that was responsible for all the prosperity since the 1980s;
it was just Americans borrowing, being allowed to borrow, more than they ever
had before, and then spending away the proceeds.
But now, the debt engine has stalled and is going into reverse. Blodget notes
that about $700 billion of bank debt has been "written down", has evaporated
these past months. But that's just the proverbial drop in the bucket compared
with the amount he says debt must shrink for the ratio to return to the normal
post-war levels in the mid-100s.
How much does Blodget say debt levels must shrink? $25 trillion - 35 times more
than what has already been written down. Think of the current difficulties,
multiply by 35, just imagine what that would look like.
It is obvious what is happening here - it's a lender's strike. For years,
lenders have been giving away mortgage money cheaply, say at 5%, but after a
year of the real estate inflation typical of this decade it would take $1.30,
not the $1.05 the lender would get back, to buy as much house as the $1.00
bought the previous year. It was a losing game. Finally, the lenders walked
away from the table, and the deleveraging plague commenced.
What can Obama do to get lenders to lend, to re-leverage? Maybe he can spur
some growth with a fiscal stimulus, such as infrastructure spending, but that
won't necessarily get lenders to start lending again. He can put people to work
pushing brooms or leaning on shovels and keep them from starving, but neither
of these government-funded avocations will satisfy the real Joe-the-Plumber
American definition and vision of prosperity - multiple big houses with big
boats side by side with fast cars and/or monster SUVs in all their driveways;
big, flat TVs and anything but flat expensive second- or third-trophy wives.
Maybe all that Obama can really do is to counteract the contemporaneous
incredibly toxic and polarized American political and social culture -
President George W Bush and his former advisor Karl Rove's attempt to ensure a
permanent Republican future by making 51% of the population always want to draw
a knife across the carotid artery of the other 49%.
Recently, there were reports that a Midwestern American woman made
trick-or-treating children affirm that their parents were not going to be Obama
voters before giving them their Halloween treats.
If Americans really are tired of this, if they really do value most the
blissful comradeship of trusted neighbors all living in modest houses in happy,
contented communities, then Obama's route into the history books may be an easy
one.
If not, if what Americans really want is to once again be able to buy the big
plasma TV and sit in front of it in the plush media room of their big house,
isolated from the rest of the world by their big honkin' security system, well,
then it's all uphill from here.
Julian Delasantellis is a management consultant, private investor and
educator in international business in the US state of Washington. He can be
reached at juliandelasantellis@yahoo.com.
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So Obamamania, the nationwide phenomenon that manifested itself everywhere -
from the rallies where just the candidate's presence caused young people to
faint away to the adult toy stores where the senator's image was drawn on the
most unlikely of devices - carries the day. The question now becomes, can he
even come close to meeting the ferocious expectations for a better life, in a
better country, that were raised by him during the campaign?
