Business Times - 10 Oct 2008
As Americans despair, a distinct lack of confident leadership a la FDR is felt across the US
By LEON HADAR
I T'S not that officials and lawmakers in Washington aren't doing anything about the deepening economic crisis. On Wednesday, the Federal Reserve, in coordination with European central banks, announced a half-percentage point reduction in the key interest rate - reducing the target federal funds rate to 1.5 per cent from 2 per cent.
And, indeed, the heads of the US central bank indicated that, unlike Republican presidential candidate John McCain, they believed that the fundamentals of the US economy were weak.
'Incoming economic data suggests that the pace of economic activity has slowed markedly in recent months,' the Fed said, and that the financial crisis was 'further reducing the ability of households and businesses to obtain credit'.
These comments seemed to correspond with the conclusions by economists of the International Monetary Fund. In its annual report issued on Wednesday, the IMF warned of a recession in the US and forecasted slowing economic growth worldwide.
The dramatic announcement by the Fed on Wednesday followed its unprecedented move on Tuesday to establish a new body that will buy up the short-term debt that businesses need in order to finance their operations. And then there was the US$700 billion bailout or 'rescue' plan for Wall Street that Congress approved and that President George W Bush signed last Friday.
It's not clear if and how these decisions are going to reverse the bearish mood in financial markets and prevent the evolving recession from turning into a devastating depression.
While investors wait to see whether the credit markets are going to 'unfreeze', it's becoming clear that most Americans - those who cannot figure out the difference between the TARP (Troubled Asset Relief Program) and the CPFF (Commercial Paper Funding Facility) and who don't read International Monetary Fund (IMF) reports - expect things are going to get worse in the coming months.
Indeed, according to the Fed, even before the credit market turmoil worsened substantially in September, consumer borrowing contracted in August for the first time in more than a decade, reflecting the worries about the economy's health.
Opinion polls, media reports and anecdotal evidence suggest that home foreclosures, job losses, the credit card crunch and the dramatic fall in the stock markets have exacerbated Americans' fears about the security of their jobs and about keeping their homes.
According to a study commissioned by online investment firm Scottrade, three out of four Americans were 'stressed about their current financial situation' and about 20 per cent believe that their job could be at risk.
While the economic conditions around the US vary, the data indicates that home prices around the country are continuing to fall, Americans are driving less, hotels report rising vacancies and air carriers find their passenger numbers declining. And with consumer spending in free fall, there are growing worries that many retailers could go out of business.
And then there is the occasional news story about personal tragedy involving consumers who lost their investments or their homes, like the 90-year-old widow in Akron, Ohio, who shot herself in the chest when sheriff's deputies came to her home last week with an eviction notice.
One would assume that against the backdrop of presidential and Congressional election season, lawmakers in Washington and the two leading presidential candidates, not to mention the current occupant of the White House, would be able to project a sense of leadership at this difficult time. Americans recall President Franklin Delano Roosevelt who, during the Great Depression of the 1930s, told his fellow citizens that 'the only thing we have to fear is fear itself'. Compare the sense of confidence that FDR had projected in those years to the management of the current crisis by President Bush.
Mr Bush - only in response to pressure from Congress and the media - agreed to discuss the economic mess during a brief televised address that was high on cliches and low on substance. Instead of communicating directly with the lawmakers, the president seemed to be Missing in Action, dispatching his Treasury secretary and the Fed chairman to Capitol Hill as the messengers of the bad economic news.
And for several days, Republican and Democratic lawmakers allowed politics to take precedence over the economic problems facing the nation, with the cantankerous Senator John McCain pressing the destructive forces of presidential politics into the debate on Capitol Hill and making it even more difficult for the Democrats and Republicans to reach an agreement.
While his rival, Democratic presidential candidate Barack Obama, seems steady and calm, he has failed to advance any new ideas a la FDR's New Deal to resolve America's long-term economic problems.
Indeed, the leadership vacuum in Washington and the intellectual mediocrity of its political class became quite evident during the second presidential debate that took place in Nashville on Tuesday evening - after a day that saw more panic on Wall Street. While most of the televised debate - which was in the form of a town hall meeting during which 'regular' Americans had an opportunity to question the two candidates - did focus on the economy, neither Mr McCain nor Senator Obama were willing to admit that the financial crisis would force them to make huge cuts in their proposed domestic and foreign policy programmes.
They both promised to cut taxes, to advance ambitious healthcare insurance programmes and to continue US military interventionist policies. Hence, they both promised increased economic assistance to Georgia while expanding the US military presence in Afghanistan.
And they refrained from assigning any responsibility to American consumers and businesses for the accumulated national debt which is making Americans more dependent on the goodwill of Chinese, Russian and Arab bankers.
And then the two candidates started the blame game, with Mr Obama pointing an accusing figure at the free-market policies of the Bush administration and Mr McCain suggesting that government spending promoted by Mr Obama and other Democrats was responsible for the current crisis.
Hence, the Republican candidate accused Mr Obama of voting for 'US$3 million for an overhead projector at a planetarium in Chicago' and took a shot at 'Senator Obama and his cronies' at Fannie Mae and Freddie Mac, noting that 'Senator Obama was the second-highest recipient of Fannie Mae and Freddie Mac money in history - in history'.
Mr Obama responded that Mr McCain's campaign chairman's firm was a lobbyist supporting proposals for 'tax cuts that would give the average Fortune 500 CEO an additional US$700,000 in tax cuts'.
The blame game spectacle provided entertainment as did the events on Capitol Hill where the CEOs of Lehman Brothers and AIG were grilled by angry lawmakers.
On Monday, Richard Fuld, CEO of the bankrupt Lehman Brothers, blamed Washington, short-sellers and journalists for the collapse of his venerable financial institution, while the lawmakers accused him for defrauding investors. Similarly, while interrogating two ex-AIG executives on Tuesday, lawmakers pointed out that heads of the company continued to maintain their lavish lifestyle events while they were bailed out with US$85 billion by the American taxpayer. This included US$442,000 in expenses for a weeklong retreat. Part of that bill included US$150,000 for food and US$23,000 in spa charges.
These Congressional testimonies - like the presidential debates - make for a great television spectacle. But it is doubtful they will do anything about the large bills that Americans will be forced to pay soon.
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