Impasse and Paralysis
November 23, 2011

Untitled Document

I had my November newsletter ready to go on Sunday, the 20th, but on Monday I decided to change the content. In the morning, not to my surprise, I learned that the Super committee failed to reach an agreement to reduce the deficit which led to the subsequent fall of the stocks. I also read the Wall Street Journal. That is when I decided to change it. No, I am not going to talk about the failure of the Congress- which actually can be a good thing- or the consequences to the US economy. I am also not going to talk about the unsolved crisis in Europe and the empty statements of their leaders. As we all know, the only thing that will save Italy, Greece, Portugal and Spain (we keep adding countries to the list) is money. Lots of money. Let's be clear, they can change Governments, give the power to technocrats instead of politicians, but the "market" can read the numbers. Whatever economic measures they take, even those embraced by the adepts of austerity, will not solve their short term problem. They need the ability to access the credit market without paying higher and higher rates, because these rates make it more difficult for the government to meet its obligations. In order to restore market access they need money. It doesn't really matter what one calls it, or what financial engineering is necessary to find it, but money is exactly what they need. They have to find a lender of last resort; the ECB - alone or with the IMF - or any other combination.

I am going to talk about the American presidential campaign and the article published in the Journal today "The Hillary Momentum". Basically the authors defend that Obama should withdraw his candidacy, like Harry Truman and Lyndon Johnson did in the past, for the greater good. They go so far as to say that Hillary Clinton should be the democratic candidate, with which I completely agree. Why?

The premise is that even if Obama wins the election, which has been appearing less and less likely, we will have 4 more years of paralysis and impasse. Obama can't govern with republicans; everything he proposes is blocked and rejected. I hate to say that Barack Obama has been a big disappointment. As a democrat, a strong democrat who would vote for a tree against a republican if the tree were a democrat, I feel comfortable saying that. As an economist, I also acknowledge that he inherited a horrible economic crisis. As we all know, the country was in shambles. However, instead of facing the situation and having good advisors, he chose the same ones that helped create the crisis - Larry Summers, for instance (see the book Capital Offense- How Washington's wise men turned America's Future over to Wall Street, by Michael Hirsh). He also decided to prioritize the health care reform. I don't want to get into the merit of the reform, although it is shameful that the most powerful and rich country in the world doesn't guarantee universal care. However, that is not the point. The point is that, when facing the biggest crisis since the depression, Obama came with half measures and, after having the health care reform approved, he was nowhere to be found….Of course, I am exaggerating, he was at the White House, but what was he doing in 2010-2011? I recommend the excellent article

Unfortunately the only thing I remember from Obama was that in the end of 2010, he cave to the republicans and postponed the Bush tax cuts, and that was the first of a series of mistakes. It reminds of the book I use to read to my kids…"If you give a mouse a cookie". From then on, the republicans understood that we had a president that didn't like conflict and avoid it at all cost. A president who didn't stand by his principles. Since that December, every time I think about Obama, I think of him as a weak President.

In September 2011 Obama resurfaced. He presented his jobs bill to the Nation and Congress and started campaigning. The fact that the bill was not approved shows how the country is divided and ungovernable. Initially, the bill would be financed by the end of exemptions and loopholes on the tax code. As it was rejected, the senate democrats broke the plan into different pieces, trying to finance the bill with a rise in taxes for those who earn more than a million dollars per year, the infamous 1% that are the target of the OWS movement. To be sure, we have to say that a group called "the patriotic millionaires" does not oppose tax increase for themselves. It is interesting to read the letter they sent to the super committee. ( As I said, it would have been good to have that proposal approved, but ultimately, I think that Obama and his team were relieved it was not approved so that they could blame the republicans.

From Cain to Perry, to Romney and Gingrich, the republican candidates are a joke. Unfortunately the candidate that seems to have a little more substance, Jon Huntsman, is stuck at 1% on the polls. We never know what can happen but it looks like Romney will be the nominee and the polls show a very close race between him and Obama. However, even if Obama wins, with a republican congress, we are going to have more of the same: impasse and paralysis. That is the argument of the article of today's journal

The argument is that Obama "cannot win running a constructive campaign and he won't be able to govern if he does win a second term". Hillary Clinton, on the other hand, could win - the polls show a 55%-38% when compared to Mitt Romney. She can raise funds, she was first lady, she was a senator and she is now secretary of state, which means she has more experience than the other contenders. We need a leader who is bold and courageous enough to put everything on the table, from taxes to entitlements. We need someone who isn't afraid to pick a fight and make hard choices. We need pragmatism, not ideology."

We need two acts of patriotism: one from Obama, to withdraw, and one from Hillary to be the democratic candidate.

Happy Thanksgiving !

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