So the Obama bubble has burst.
Not the political bubble — that would be too much to hope for. The economic bubble, the thing which created the illusion that, without much change in policy, the U.S. economy could be saved for fraud, greed and the pursuit of profits without productivity. The New York Securities Exchange averages are down to 6 600, from 8 500 when Obama took office — a fall of 22% in a month and a half. Most significantly, last November when the Bush bailout for banking banditry began taking effect, the averages briefly hit 6 900. So — this is almost where we came in. (Well, not “we”, for the Creator does not deal in such things, being opposed to them on principle.) Oh — and that means that the averages have also fallen by about 6 200 points since their 13 000 high under Bush — that’s a fall of about 48% if anyone is counting.
Who’s Bush again?
That’s an interesting thought. The stock market crash is not actually Bush’s fault, although the Democrats would like to pretend that it is. However, Bush certainly contributed to it by encouraging the inflation of the market. Bush also rendered the U.S. less capable of responding well to a stock market crash, both by making the economy more dependent on financial services (he only just failed to privatise the U.S. government’s pension and social security system, and if he had succeeded, the U.S. would be in a far worse state even than it is in now) and by running up gigantic deficits which make the fiscus less resilient.
Oh, dear, what does that mean again? We’ll come to that in a moment.
But nevertheless, all eyes are on Obama, who stupidly promised to sort things out. (He would probably not have been elected had he pledged to stagger around aimlessly pretending to do things in the hope that everything would come right on its own. On the other hand, honesty is sometimes the best policy — if he’s going to do this, he might as well have lost the election so that McCain could be confronted with the storm of shit coming down upon everyone’s heads.
One thing, though. Why did the stock market bounce like that? There was no objective reason for it. The amount of money being injected into the system by the so-called bailout was trivial in comparison with what had been lost. The economic indicators were declining, and continued to decline. A sane and sensible person would look at the market and sell. Some people were buying despite this. Why was that?
Interesting that just as public money was being handed over, with virtually no controls over its spending, to the most corrupt financiers in the country, the market started to rise and stayed up for the duration of the government which those financiers particularly liked. Then, once a new government which those financiers disliked was installed, the floor which appeared to have mysteriously constructed itself under the value of the market disappeared again. Mysterious. Like what’s happened to the bailout money, which appears missing without trace.
Or is it? Supposing that the money was mostly used, not so much on buying corporate jets and paying golden handshakes as we are currently told, but on something else. Supposing that there was organised share-purchasing. That would make a lot of sense. Nobody would use their own money on a falling market — if the bankers learned anything from 1929, it was that. But the bailout money wasn’t their own, it was free money from the government. The stock market is much more important than it was, for the U.S. economy, partly because financial services are a much bigger part of the gross domestic product than it has ever been, and partly because so many Americans have been obliged to invest their savings in the stock market, in order to keep its value up. So it’s likely that if the money was used to pump up shares, the Federal Reserve people would have winked, and so would Obama and his team who are all subject to unwarranted admiration for financial services.
Huh. That seems plausible. Of course, once the money was pumped in, others would have followed. Hence, for a little while, a bubble. Which might have pleased Obama, and perhaps also made him overconfident.
But let’s consider the political implications of this — if it happened, of course. What would it mean? Effectively, it means that for a couple of months, the last months of Bush, the stock market went up and stayed there. For investors it seemed that the worst was over. Things aren’t so bad. But then — bugger me, that darkie’s taken over. He’s a Democrat! We hate Democrats! Out upon them! So suddenly, the stock market ceases to be your friend. If it goes up, that means that the Democrats are looking good. Besides, Democrats don’t know anything about money, they’re all at best dilettantes and at worst Communistic enemies of the system. They will smash it, smash it! So smash it first, before they can!
So most investors were getting nervous around the glib, egregious orotundity of the 20th January. And maybe just about then the public money ran out anyway and so the floor fell away and things began to fall. Fall far and fast, even if not quite as fast as in October. (But with 40% of the market’s value already lost, there was less room to fall in.) So suddenly Obama looks like a loser. The market has fallen under him. Fallen even as he organised bailouts, even as he pledged not to nationalise banks, even as he promised that everything would be all right for the American ruling class. The American ruling class seems quite happy to blow out its brains provided that the blood spatters over Obama’s reputation.
This may not be exactly true. Herbert Hoover suspected that someone was rigging the market to drop whenever he delivered one of his asinine observations about how the market was bound to rise sooner or later. However, it seems at least plausible, especially since the Republicans have voted against the “stimulus packages” evolved by both Bush and Obama as if they do not really want the economy stimulated, at least not while Obama is in charge. Perhaps they don’t want it stimulated at all.
A large chunk of the country, including the majority of its richest people, are digging in their heels and refusing to accept that anything needs to be done to improve the financial and fiscal situation. This means, in its turn, that the Democrats, who are cowards to a person, will wonder whether as much needs to be done as Obama wants. Meanwhile, Obama must be dimly aware that what he has proposed is insignificant compared with what needs to be done. However, with the Democrats only tepidly supporting him and the Republicans rapidly opposing him, he is unlikely even to get that insignificant proposal sorted out.
Is this serious?
Well, probably. Some commentators, like Greg Palast in Armed Madhouse, have suggested that this is not really a problem for the American elite because they will just move their money out of the country, in the same way that they would in any other Third World country. In principle, that sounds fine. In practice it is less fine. The global economy depends, not on the globalisation of corporations, but on the survival of the national system. This is because the U.S. and Britain buy from abroad and provide financial services in return. If this system breaks down, the companies cannot themselves work the system — it depends on governments. If the governments break down, the companies will not receive the social support which they need to survive. Therefore, moving your wealth to Myanmar or Jamaica will become less useful because there will be very little to buy — and most probably your wealth will depreciate almost as rapidly as the Zimbabwe dollar. In consequence, the collapse of the U.S. economy will make a difference to the global ruling class.
But they probably do not properly realise this, because having been wrecking economies for so many decades and making money out of it, it is difficult for them to believe that sawing off the branch they are sitting on is no different from chopping down the Amazon forest. They are inoculated against understanding sound economic management and sensible policies, and so they refuse to have this happen to their own economy.
That is why they have promoted budget deficits over the last eight years, while the economy was growing. These deficits were not happening because the economy was being stimulated and hence was growing. The deficits were happening, predominantly, because vast amounts of money were going into an ever-weaker military, and because of tax cuts, which applied particularly to the wealthy. (This was also happening to the British, where the basic rate of income tax is now down to 20% for the upper middle-class — in order to keep the economy running, they zapped up the lowest rate of income tax for the working class to 10%. In the United States, the very poor don’t pay income tax at all, though they do pay sales tax.) This is important, because in 1929 the U.S. was a creditor power with a budget surplus and therefore could afford to spend-spend-spend under Roosevelt. Eighty years later the U.S. has a massive overall trade deficit, so it has no economic favours to call in from foreigners, and it has a huge budget deficit and therefore cannot afford to spend at all under Obama. (Indeed, Obama wants to balance the budget, which will finally destroy his own Presidency and hand power back to the Republicans.)
All this is, in fact, wonderful, if you are alarmed by U.S. power. U.S. power is economic power, and if Obama cannot persuade the American ruling class to help him save it, then that economic power will very speedily wane. Pouring real money into the bottomless pit of imaginary cash is a very good way of doing that.
But this, unfortunately, does not actually save the rest of us. The global economy is structured to serve the United States and its friends. If the United States and its friends go bottom up, then the global economy will come unglued. The consequences for small countries, which depend on manufacturing industries in China and Europe and Japan, which in turn depend on mining and mineral industries in Brazil and South Africa and Australia and India, are not good if those manufacturing industries disintegrate and drag the mining and mineral industries down with them. Then what will the rest of us live on? Especially those of the rest of us who are growing agricultural produce which the new bankrupt world can no longer affored to process or import? How to suddenly stop growing cotton and cut flowers and start planting mealies? The Zimbabwean example shows us that it isn’t just a case of issuing commands. It must be prepared for, and nobody is preparing for it. The classical theory, increasingly becoming conventional wisdom, is that the world is screwed.
So the Obama bubble has burst.