"In the long history of the world, only a few generations have been granted the role of defending freedom in its hour of maximum danger".–Kennedy Inaugural Address 1961.
"We must do what no generation has had to do before."– Clinton Inaugural Address 1993.
"In the face of great perils never before encountered, our strong purpose is to protect and to perpetuate the integrity of democracy."– Roosevelt Inaugural Address 1941
It may be worth skipping the Inauguration, especially the address. No matter how good the orator, there is virtually nothing new that can be added to the speech which has not come before. The inclination to convince citizens that they face an unprecedented challenge and that it rests with them to create a solution for themselves and for the world, for this time and all time, is irresistible and repetitive.
While the parades go by, many economists believe that the global economy could fall into an unprecedented financial catastrophe. It cannot be called a depression because the events of the 1930s cannot be repeated. Government institutions and the fabric of world trade have changed too much. So has the composition of the population. Very few people now live on farms and have the opportunity to be self sufficient.
What cannot be said in an address is that there may not be a solution to the current crisis because nothing tried so far has worked to even a modest extent. The plan that the UK has introduced to guarantee bank debt and buy up private debt may help that economy. If so, the process behind it is portable and can be moved to other nations.
At this point, the new Congress and administration seem likely to use $825 billion in aid and $350 billion in TARP money to bring down the tax burden, salvage troubled mortgages, and create a great series of public works projects. These programs are supposed to create over three million jobs as they build energy, education, IT, medical, and broadband infrastructure. Getting the capital for these into the system means running them through government agencies and into the private sector. Many of the projects will operate in regulated parts of the economy like the health care system, so they will be subject to a set of bureaucratic rules which may slow down their implementation.
Except for China and India, every major national economy in the world now readily admits that it is in the midst of GDP contraction. The resulting slowdown in global trade will certainly affect China seriously, as well, and sooner than most analysts think. A deep recession in China may be only a quarter away.
A recent poll by The New York Times showed that most people are prepared to be patient with Mr. Obama. They understand the enormity of his undertaking. They have finally acknowledged to themselves that the worst may be ahead for the economy.
Because most of the money earmarked to come from the government into the financial and credit system will not arrive until the second half of the year, unemployment may well be over 9% before aid can support job creation. The retail industry is bleeding jobs. Circuit City has just liquidated, leaving 30,000 people out of work. Unless these newly and soon-to-be unemployed have special skills that will allow them to work in areas other than retail, the economy has no place to employ them.
Detroit may still collapse. This will be determined by the federal government. The government can keep the industry on life support even if GM (GM) and Chrysler do not get cooperation from the UAW and creditors. If the two firms are thrown into bankruptcy, the number of people then out of work would conservatively be measured in hundreds of thousands.
State and municipalities across the country are running deficits. Some cities and towns are already in receivership. Huge states such as Michigan and California are in terrible trouble. This could cause both the loss of jobs and pension benefits for retired municipal workers. The US economy has never been faced with the serial failures of a large number of pensions, both public and private.
The conclusion that many analysts would take away from this is that $1 trillion or so dollars will not be nearly enough capital to solve a legion of problems. There is no need to guess where the first trillion or second trillion comes from. The federal government prints it, selling it off as Treasury debt. Fortunately, there are not signs that the appetite for this paper is anywhere close to being satisfied. In a world facing economic ruin sometimes the best investment is the least bad one.
No matter what is said about what the nation will have to bear or suffer during the recession, the government will not admit what the cognoscenti already know. The chances that the downturn will be over in a year are tiny. The odds that it will be over in two years are starting to dim.
The most realistic hope is that in four yeas from now, the recession will be a memory and not a pox.
Douglas A. McIntyre