We’re now five years down the line from that moment when the world watch Lehman Brothers collapse. And obviously, President Obama offered all Americans some words to mark the occasion.
Here’s a transcript.
The Summarised Verson
- The real victim of the financial crisis was the US auto industry. And, you know, the Investment Banks.
- The banks also stopped offering credit for a bit.
- By the time I took over from that useless Bush character, the US economy was shrinking at an annualised rate of 8%. Eight!
- The United States was shedding nearly a million jobs a month.
- It was a #PerfectStorm, yo.
- <anecdote about the middle class not having health insurance>
- <statement to the effect that the erosion of the middle class was happening long before Lehman>
- Cue: self congratulation.
- We begin with a list of actions taken:
- Dude saved the auto-industry.
- People were apparently put to work building bridges
- Obamacare begins in two weeks, baby!
- Investment to end the addiction to foreign oil
- Tougher rules were put in place to control those rascal banks
- Okay, so, confession: still need to finalise those rules, but they comin’.
- The government “cracked down” on evil mortgage providers and credit card companies.
- The tax code was changed to give tax breaks to 98% of Americans.
- Followed by a set of outcomes:
- 7.5 million new jobs added
- Some subjective improvements in the housing market (healing), the financial system (safer), unemployment (lower) and natural gas production (the best in the world).
- A well-done to the American people for being gritty.
- Some concern about the fact that the entire recovery process has only really benefited the top 1% of Americans.
- And then we get to the budget.
- Engage in a little Republican bashing about unreasonableness, unresponsiveness and general obstructiveness.
- And yet, hurrah, the deficit is less of a deficit than it was before!
- But damn this sequester. Those silly Republicans!
- The Affordable Care Act is awesome. And all the critics were wrong.
- God bless you all. Even the Republicans.
I may have paraphrased one or two things.
The Points That Were Missing And/Or Broad Interpretation
So there were obviously some healthy lashings of positive spin in that speech. A Republican would probably point out the following:
- Saving General Electric didn’t save Detroit, now, did it? In fact, given that of every 10 cars that GE produces, 7 of them are made in China…
- When you took over, the economy was going through a credit crunch, sure. Which is exactly why the economy
wasmay have been shrinking at an annualised rate of 8%. 8% of shrinkage was, by all accounts, a once-off adjustment to a serious crisis. You didn’t have to do anything to stop that – you just had to wait for the adjustment to be over.
- Obamacare has not started. Let’s not celebrate just yet.
- Even if there has been recovery – how much of that was you, and how much of that was Ben Bernanke? That guy has been funnelling billions of dollars into the economy each month. You, sir, have spent that time spatting with Vladimir Putin and trying to negotiate with the most useless sitting Congress in history.
- What rules on banks? Oh – you mean you told them to keep more emergency capital. Uh huh. But they can still do what they want with it.
- In fact, what rules on Mortgage Providers?
- The housing market had to recover eventually. It had sunk so low that the only place to go was up.
- Unemployment is down by statistical magic. It’s not the result of more jobs. It’s the result of more people deciding that they’re no longer looking for jobs.
- And as for your 7.5 million jobs added figure… Well, that doesn’t make up for all the jobs lost in the crisis aftermath – you’re still about 1.2 million jobs away from that. And even then, I refer you back to point 4.
- PS: the deficit only tumbled because of the sequester that you’re damning.
So what’s the real deal?
Here are my thoughts:
- Yes, I think America is beginning to revive. Sure – it’s not as nice as Obama would have us believe, but that’s life really. And I’m not sure if we can thank any one policy for the recovery. The simplest explanation is that this is just the general ebb of the economic tide. Things contracted until they became more profitable again – at which point: recovery.
- Yes, most of the recovery did go to the wealthy. But that’s also to be expected – they’re wealthy, and they’re the primary beneficiary of Bernanke’s monetary splurge. Obama can say what he likes – the only economics the Fed can do is the trickle-down variety. And the thing about trickling-down is that it takes some time.
- Yes, Obamacare is a good thing. Not because it makes moral sense, but because it makes economic sense. Has anyone read that Time Magazine article (the Bitter Pill by Steven Brill) on the charge-masters of American hospitals? You should. And I think his argument that more insurance will help to break the hospital monopoly is a good one. Hospitals are one area where free markets do not work – after all, when you’re having a heart attack, you don’t stop to google search the cheapest hospital in the vicinity. Because you’re having a heart attack.
- No, the financial system is not safer. Nothing has changed, really. The big banks are still pretty confident about getting bailed out – in fact, they’re bigger than they were before the crisis. The mortgage providers are still being encouraged to provide mortgages (to help with that housing market recovery…). And the SEC is still chasing scapegoats.
- About the Natural Gas… I don’t think anyone can claim credit for the highest natural gas production in the world. That’s a gift of Providence.
- Unemployment is not going anywhere. Manufacturing may be returning to the United States, but that does not mean that it will provide jobs that Americans are willing to take. The American Labour Force would still have to compete with the rest of the world. There is no fun solution to that: the wages will be lower. And if the labour force needs to be re-trained to perform other types of tasks (other than construction, manufacturing, etc), then that too will take time.
And America really needs to do more about climate change. Because what will be the point if, in all of this, they run out of water? Have a listen to this podcast/read the transcript: This American Life #495 Hot In My Backyard. Crazy.
Some final points:
- Thank you to Andrea, for suggesting I write this.
- And thanks Chris for telling me to listen to that podcast.
- You guys are awesome.
Ray de Jong September 18, 2013 at 10:26
Great article! Would be very keen to hear your thoughts on the impending announcement from the federal reserve regarding cutting monthly asset purchases and/or the reduction in US bond buying stimulus. What effect this will have on the Gold price if there is indeed a negative correlation between the US dollar and the gold price.
As always, such a great blog, I really look forward to reading your posts throughout the week, keeps my mind going and in check with what is happening in the world!Reply
Jayson September 18, 2013 at 11:46
Ray! Thanks for reading – I really appreciate the feedback!
I think that the Fed is definitely preparing the market for a “tapering”. Bernanke has been dropping hints since March, and he did say that he’d stop completely once unemployment dropped below 7%. It’s at 7.4% – if there was ever a time to start slowing, it’s now.
The standard theory is that a slowdown in QE would allow the dollar to strengthen, thereby weakening the gold price. But I wouldn’t necessarily bet on that link – mainly because I think that there is a natural time-lag between implementing accommodative monetary policy, and its inflationary impact. While the market was in recession, consumption was low – so even with extra cash floating about, you wouldn’t get the demand-pull, adaptive-expectations inflation that you might expect (because the demand to create the pull was so slack). What America has today is the market sitting on piles of cash that are yet to be used… When you add that to increased demand from economic rejuvenation, I think we might just find that the inflationary impact is still to come. At that point, the dollar should weaken, and gold suddenly emerge to give John Paulson his rather-unattractive I-told-you-so dance. If he lasts that long.
Do you have any thoughts that might be different?Reply