Economic woes pile onto Barack Obama’s in-tray

With more big bankruptcies and job losses hitting by the day, Obama’s options for an economic rescue are bleak

FIRST POSTED NOVEMBER 14, 2008

Back in the spring Republicans used to chortle at the prospect of handing over power to a Democratic president who would promptly be engulfed in recession. It would start in March of 2009, discredit the new president and prepare the way for a Republican renaissance in 2012.

Six months early, the crash swelled up in September, leaving an incumbent Republican president tarred with the same brush of historic failure as Herbert Hoover in 1932. He may mismanage the sequel, but no Republican will be able to claim it was all Obama's fault.

Bush is urging the world's leading economic powers, soon to muster in Washington, not to give up on capitalism. The mere fact that an American president should feel obliged to issue this worried advisory shows how desperate things already are and how much worse they will soon get.

Scores of cities, towns and even states are on the edge of bankruptcy

Each week brings a terrifying lurch, like a house on the edge of some cliff being pounded into slush by a Pacific storm. On the Doppler radar, we can see one financial tempest after another lined up out there. Next to burst: the credit card overhang, of some $2.8 trillion in consumers' plastic debt, much of which will have to be written off. The week after? Meanwhile, scores of cities and towns and even states are on the edge of bankruptcy.

The latest storm centre has been the US auto industry, effectively bankrupt. "What's good for General Motors is good for the country," said GM's chairman Charlie Wilson in 1952, amid the glorious surge of the postwar auto boom. This week GM's stock was trading at around $3, and analysts at Deutsche Bank said America's largest industrial corporation, the ninth-largest company in the world, is effectively worthless. GM has 266,000 employees. If it goes under, the ripple effect will put 2.5 million Americans out of work.

Drive through any American town and you'll see hundreds of acres of malls and box stores, almost all of them built in the past 20 years: Target, Best Buy, Circuit City, Home Depot, Borders Books, Linens 'n Things... Each day brings another bankruptcy. Circuit City, Borders, Linen 'n Things have gone. Home Depot is shutting down branches.

In my local town of Eureka, northern California,

"If GM goes under, the ripple effect will put 2.5 million Americans out of work."

the mall owner, General Growth has gone broke. With malls from Hawaii to Maine, it was the second largest in America. The US Postal Service, with almost a million employees, and $2bn worth of red ink this year, is considering the first layoffs, of 40,000 workers, in its history.

Already America's real unemployment rate, if shorn of statistical tricks designed to conceal bad news, stands at around 15 per cent and is rocketing up. Consumer spending in the third quarter was the worst in 28 years. As the country totters wanly into what promises to be an appalling holiday sales season, Obama and his advisors gingerly finger the poisoned chalice handed them by Bush.

Vivid in their minds is Bill Clinton's terrible transition, which permanently scarred his presidency. An incorrigible and absolutely disorganised procrastinator, surrounded by a self-indulgent, arrogant and inexperienced staff, Clinton left crucial

Add to:

Comments

Hide comments

I am not sure that people quite understand references to WWII ending the 30s depression. It was the mass mobilization of the population and the open-ending government spending that did it. These were incidental to the war effort but mass mobilication and sky-is the-limit spending don't have to be for war. The US is decades behind on R&D and infrastructure investment; a perfect time to put J. M. Keynes ideas to work. It is a time to think much bigger.

Posted by Jack Vast-Binder at 3:48am on November 15, 2008

Note the similarity between what's happening in the US and in the UK. Both Brown and Bush have left a legacy of debt.. huge debts running into hundreds of billions of dollars... Both David Cameron (if he is elected) and Barack Obama will have to shore up battered economies when/if they are sworn in. This should never, ever happen left to happen ever as we are putting our children's future in jeopardy. www.blatherskite.com

Posted by Mr Blatherskite at 3:39pm on November 18, 2008