After a seemingly endless transition period, US President Barack Obama has a daunting to-do list as he finally takes office. He inherits an economy where the recession is deepening daily, the banking system is shot, the Detroit car industry is in effect bankrupt, the housing market is in an advanced state of meltdown and the budget deficit is going through the roof even before he announces a US$800 billion stimulus package.
He is having trouble getting his choice of treasury secretary, Tim Geithner, approved by Congress because of questions being asked about his tax affairs and the work papers for a domestic employee.
Geithner’s expertise as the former head of the New York branch of the US Federal Reserve is needed at a time when Wall Street has lurched back into crisis mode.
Since August 2007, there has been a distinct rhythm to events: bursts of turmoil followed by weeks or months of beguiling tranquillity.
Last week’s fresh US$20 billion bail-out of Bank of America and the rumors surrounding Citigroup marked the end of the rally that followed the market mayhem of the autumn.
To make matters worse, he is expected to solve all these problems — and more — instantly. Not since former US president Franklin Roosevelt was sworn in, in March 1933, has the in-tray been so full; it is unlikely even FDR carried Obama’s crushing burden of expectations.
If the US believes that the new president can solve his economic problems in a whirlwind of activity that apes Roosevelt’s first 100 days 76 years ago, it is in for a rude awakening.
By 1933, the US was past the nadir of the Great Depression, although few realized that at the time. Most of the recent evidence — be it jobs, real estate, consumer spending, industrial output — suggests that Obama takes over with the economy still going backwards.
The new president is aware that he can’t do everything. He will make the economy his priority, putting some issues on the back-burner and leaving others in the hands of senior members of the Cabinet. It is improbable that Obama will take personal control of the situation in Gaza or of plans to reform health care. Those who believe that the president’s Kenyan roots will reap an instant dividend in terms of a huge increase in US spending on development are likely to be disappointed. While there is no evidence that Obama will renege on his pledge to double aid, the timetable for doing so has already slipped.
Making the economy a priority makes sense. US Secretary of State Hilary Clinton will be able to advise her boss on the perils of a lack of focus in the honeymoon period of his presidency, because that is what left her husband, former US president Bill Clinton, hamstrung after his inauguration in 1993. If Obama can get the economy right, he will have both the money and the moral authority to fix all the other problems. If he can’t, nothing else he does will really matter.
This is going to prove tougher than it sounds. As the crisis of the past 18 months has unfolded, policymakers have had to confront the fact that this is a downturn entirely different in its origins from any other in the post-war era. As Stephen Lewis of Monument Securities said, other contractions since 1945 were the result of a temporary mismatch between demand and supply. This one has been caused by a breakdown in the financial system that has unleashed wealth destruction on a colossal scale.