The Inauguration Beer Goggles Are Coming Off and Our Ugly Economic Problems Are Still Here
Whoa! What a bash, huh? We liberal/progressives have been dry for so long that all that Obama bubbly went straight to our heads. By the time the oath of office was administered, I was already a blubbering goner.
A few days later, it's all blur. I've completely sobered up, and I'm back to normal.
I said, I'm back to "normal." My inauguration day beer goggles are off and -- jeezusholychit! -- what's that ugly thing my bed?!
Oh, yeah, it's the same ugly thing that was there before the change of administrations. A closer look reminds me it's the body of our once-vibrant economy. Rigor mortis has set in and, frankly, it's beginning to stink.
A growing number of people are just starting to figure out that we're on a lifestyle-changing path, a path 95 percent of us alive today have never imagined, much less been forced to travel.
I only mention all this because I suspect a lot of you out there are clinging, in an unhealthy and unhelpful way, to your inauguration beer goggles. Believe me, leaving those goggles on will not make the troubles go away. It'll just mean you're caught unprepared when it all gets around to you.
Don't get me wrong. I'm not dissing President Obama or his ambitious plans for confronting these troubles. I am only saying that, if you take those goggles off, you too will see that what was there on Jan. 20 is still there, and getting uglier by the minute.
Ironically, the only person who seems not to be clinging to his beer goggles is Barack Obama. He has repeatedly warned against expectations of any quick fixes. Good advice.
But if Americans have been conditioned to expect anything over the last 50 years, it's expecting quick fixes. And, why not? After all, those of us of a certain age have been through all kinds of scares, none of which actually resulted in the kind of epic hardships we've only seen portrayed on the History Channel. You know, like the Middle Ages plague or the Great Depression or the Holocaust.
In that regard -- and it's no small regard -- we post-World War II Americans have been unusually lucky. We've had our share of crisis, but they were all resolved before their worst potentialities could be realized. You know, the Cuban Missile Crisis could have resulted in a nuclear exchange between the United States and Russia, but it was resolved in a matter of days.
The whole Cold War thing ended with a dull thud, rather than a bang. The swine flu didn't sweep death across America, nor did the bird flu -- both those potential pandemics were nipped in the bud. The S&L crisis of the 1980s was managed before it could spread and bring down the financial sector.
Which is why Americans have become accustomed to treating any crisis de jour as the latest goofy reality show episode. CNN and MSNBC take the scare-ball and run with it. And we tune in and watch the show, as politicians and military folk and vacuous network anchors fill hours of on-air time chewing on little more than the hard-news equivalent of cotton candy.
Then a day, or a week or a month later, the crisis is resolved and we go on with lives that had not changed one iota.
This time it's different.
First, the crisis upon us is worldwide. And it is not just an economic crisis, but our first genuine species-wide crisis. It's going to force major realignment of -- well, everything. Like how we power our lives, how we feed ourselves, how we populate, how we build, how we travel and how we create sustainable economies. Distinctions between "capitalism" and "socialism" will disappear, a process already under way. They will disappear because neither offers a solution, neither has and neither can. What emerges will embody only parts of each that can provide solutions that work and are sustainable.
And those are the two linchpins: stability and sustainability.
(Warning: metaphor ahead.) A global economy is like a spacecraft traveling in deep space where terms like "up" and "down" and "sideways" are meaningless. The only state that counts for a spacecraft is "stability." If a spacecraft loses stability, it tumbles out of control. And, unlike an airplane that can leverage earthly forces like gravity and aerodynamics, a spacecraft cannot. Once a spacecraft goes out of control, more often than not, it's curtains. So, the trick is to make sure the damn thing does not become unstable to begin with.
And that's where we are right now. The economies of the world have tumbled out of control, and no one is quite sure how to regain stability. Just how stability is re-established will be the story of our time.
For example, if Obama does as he says he will do -- like strengthen the dollar -- that solves one set of problems by trading them for another set problems. (It's like firing only the port-side thrusters on our tumbling spacecraft.) A strong dollar will help the financial sector, but will make our $11 trillion national debt, which is priced in dollars, even more of a burden. If the dollar were allowed to fall it, would hurt the financial sector, but allow us to repay our national debt with cheap dollars.
A strong dollar would also require higher interest rates, which would only worsen conditions for America's debt-burdened homeowners and consumers. A strong dollar would also hurt U.S. exports, because a weak dollar makes U.S. goods cheaper overseas, thereby boosting domestic production/hiring.
"For the United States, a structural tendency for domestic savings to fall short of domestic investment leads to significantly higher interest rates when economic activity picks up speed. Government policy can also affect interest rates and the exchange rate. Large government budget deficits will tend to push up interest rates and the exchange rate. Budget surpluses have the opposite effect. Tight monetary policy tends to raise interest rates and the exchange rate. A stimulative monetary policy has the opposite effect. Recent U.S. economic history has demonstrated the great importance of these fundamental factors in determining the exchange rates path.
"And that's just one tiny corner of the mess. There are literally hundreds of similar Hobson's choices Obama will have to make in the months and years ahead, each an action with it's own opposite and equal reaction somewhere else in the system." (Full policy paper)
It's the push and pull of the laws of economic physics, laws that are just as real, and just as unavoidable, as the laws of that govern our physical world -- like gravity. Violate the physics of economics, and you do so at everyone's peril, as we are now learning.
My cousin dropped me a note the other day complaining that "you are always screaming 'iceberg ahead,' but never telling us where the damn lifeboats are."
I replied, "There are lifeboats, unfortunately our new banker, China, is holding them as collateral."
My point, I guess, is that Obama and his team may be able to regain stability, but it'll be a long time coming. They will push every button, pull every lever and fire every thruster. In the meantime, the rest of us are in for something our great-grandkids will watch on the History Channel some day.