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 World Affairs

Is Barack Obama blowing bubbles?

Following the global economic crisis, politicians of all varieties and even political reporters, commentators and analysts in the media, the world over, have become economists of some sort or the other. Consensus even among economists is rare on how the crisis can be resolved. What we as journalists can do in these circumstances is to present diverse points of view, till hopefully, the crisis resolves itself.

Obama Stimulus Plan

President Barack Obama, hardly one month in office had the US Congress and senate approve his $ 757 billion stimulus package (Recovery and Reinvestment Act)  last week. It is the most expensive piece of legislation in the history of the Unite States and thereby could be assumed to be the most expensive legislation in the world.

However there is no end to the resolution of the crisis in sight and a full blown debate is on whether this stimulus package will work or not. Broadly speaking the debate on the crisis could be seen as the American left  saying  that not enough funds have been voted in and the American right who see it as indiscriminate squandering of public funds.

To President Obama it is not a matter of scoring debating points. He has said that without strong government intervention, America 'is heading for or an irreversible downward spiral'.

The breakdown in the spending of the $ 757 billion is given as: Tax cuts 38%; aid to struggling state governments 38%; Federal government spending 24% which would act as an immediate stimulus to providing 600,000 jobs lost last month. The agenda for the next 12 months includes detailed plans for struggling house owners. It is aimed at helping millions of house owners to refinance or modify mortgages to lower monthly payments and prevent millions of foreclosures. It will help to re-float debt laden finance companies and help the big automakers who will create demand for jobs

But the announcement of this biggest ever rescue package had no impact on the US stock markets which plunged, last week. Investors were worried whether the government action could save the economy, reports said.

Pessimism

Some comments were downright pessimistic. Howard Davidowitz, Chairman of Davidowitz & Associates had said that the standard of living of American consumers would undergo a change but not for the better. The average American used to be able to borrow to buy a house, send his children to school and buy a car. All that is over he had said pointing to the trillions lost from declining home values, on weakened capital markets and consumer debts.

Fox News Commentator Glenn Beck has found Obama's Stimulus Package to be socialist. It is meant to reshape the economy not to jolt it, he had argued. Beck claims that only $ 26 billion or 3% of the package will be spent this year; 110 billion or 13% next year. Halfway through the Obama presidency only 18 per cent of the package will be spent. Is this a quick jolt to the economy? he asks.

He points out to the poor allocations for 'Green Jobs' and clean energy. Billions will be spent for new computers, replacing government cars with fuel efficient vehicles and much of the money will be going into 150 different federal programmes but it has not been made clear how a single job will be created, he claims.

Dr. Doom's prediction

The predictions of the man who saw it all coming two years ago, Peter Schiff, an American financial adviser, is the most depressing. Schiff, the chairman of Euro Pacific Capital warned two years ago of an impending real estate collapse and that it would result in the crash of the US economy and stock markets. At that time he was ignored but now Doctor Doom, as he is now called, is a celebrity.

In the Fortune magazine (February 2) which carries an article on him, it is said that this economic prophet's outlook of the economy has only grown grimmer while the federal government throws unprecedented amounts into circulation to prop up banks, car companies and the like. Schiff holds the view that everything that the government is doing now is going to make matters worse.

'They are trying to reflate the bubble. All along I knew that what would potentially be fatal wasn't the recession itself but the government's response. But what they've done exceeds my worst-case imagination.'

Schiff believes that the US economy has become dangerously and unsustainably dependent on consumption - fuelled by trillions borrowed mainly from countries like China and Japan.  'We don't save and we don't produce anything anymore. We simply borrow from the rest of the world and then we spend it.

'The bills are coming in' Schiff says predicting a 'wicked post party hangover.' A multi-year recession ahead marked by rampant inflation and a steady weakening of the dollar, soaring commodity prices, slumping US stock markets and falling wages are some of his predictions.

But all what he had predicted for his clients have not come true.

Schiff's prescription for the current mess in the economy: Shrink the government radically; cancel all bail outs immediately, take tough medicine and let the free market to do its job - however harsh it may be, say for auto workers in the meantime. But can Obama, just one month in office, take that bitter medicine?        


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