Four More Years: A City Expert's View
Updated: 6:25am UK, Thursday 08 November 2012
By David Buik, Cantor Index
There is a considerable school of thought that Barack Obama was rather an insipid and ineffectual Commander-in-Chief and that his first term achieved very little.
Maybe it would be no bad thing to reflect on what did happen in the US and the world at large over the past 4 years and what he did achieve in his first four years as well as what he abjectly failed to do.
As they say in the trade, President Obama inherited a horrific 'hospital pass' from George W Bush in the form of a savaged economy, which was heading vertically in to a vortex of deep recession courtesy of the sub-prime lending crisis, which took the US financial sector to the brink of disaster, triggering 'bail-outs' orchestrated by Hank Paulson, Bush's Treasury Secretary, for Bear Stearns, AIG, Freddie Mac and Fannie Mae, but NOT Lehman, which clearly exacerbated the magnitude of the crisis.
This financial meltdown manifested itself thanks to the breathtaking and irrationally exuberant incompetence of the FED Chairman Alan Greenspan, who recklessly encouraged banks to lend money indiscriminately without adequate regulation.
Consequently, shortly into his Presidency, Obama was forced to agree a recommended $789bn 'bail-out support fund' for the financial sector, implemented by the new FED Chairman Ben Bernanke. This rescue act was the start of quantitative easing. At the end of November 2008 the DOW had dropped to 8829. Once QE had been introduced it rallied sharply and today it stands at circa 13000 – up 47%.
QE provided financial institutions with cheap money which underwrote the value of equities. However there is no doubt that Wall Street was not the flavour of the month for the man in the street – never has been; never will be!
Unfortunately equity markets are not necessarily a reliable barometer of economic activity. Unemployment was at 7.9% in November 2008 and steadily rose to 10% by October 2009. Since then it has slowly, but not resolutely fallen back to 7.9%.
The $50bn auto industry bail-out in 2009 probably saved 150,000 jobs and also certainly stopped the President losing the support of Ohio. However unemployment remains a huge problem and the rate of 7.9% is probably distorted as so many people have stopped applying for jobs in dismay. So the real rate is probably nearer 13%. Then of course there is the housing market, which is slowly improving from a completely trashed base level, though many people remain under water with negative equity.
President Obama has some way to go before he implements his healthcare/Obamacare and pension ideals against virulent opposition from the GOP in Congress.
Easily the most worrying aspect of the US economy is the manner the budget deficit has grown since 2008 – from $9 trillion to $16 trillion.
In the long-term this is totally unacceptable, particularly as the US is so reliant on outside support for Treasuries, particularly from China. If this support were to be withdrawn or even cut, it could have a very adverse effect on the cost of funding for the US, thus severely damaging the recovery process as well as increasing unemployment dramatically.
Very important changes are shortly being made in China's government. It will not be long before China overtakes the US as the most important economy in the world. President Obama will need to improve his relationship with China, cutting back on the jingoistic rhetoric on currency and trade protection. He should try negotiating!
President Obama has proved to be an extremely abrasive and divisive politician. The Democrats lost their majority in Congress on 2010 and Obama failed to find any common ground with the Republicans, which resulted in the government failing to get through its legislative programme. I cannot see that impasse changing.
The 'fiscal cliff' will appear over the horizon at the end of December. Common ground has to be found over public expenditure cuts and taxation increases need to be agreed. The President's interpersonal skills for dealing with his opponents need sharpening up. If not - There will be trouble in River City!" The President was very lucky to be up against a Republican candidate, who never really caught the public's imagination. He has a chance to redeem himself!
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