U.S. President Barack Obama dramatically altered policy direction during his first State of the Union address by announcing plans to focus fully on creating jobs while doubling exports in five years.
This could put the United States on a collision course with China’s export strategy. And a head-on crash, possibly centered on China’s foreign exchange rate policy, might occur before America’s mid-term elections in November.
No one wants confrontation, especially at such a critical time for global trade, the world’s recovering economy and China’s property market. But a changing political mood is steering Washington into Beijing’s lane. China can respond by turning the wheel before it’s too late.
The trigger for Obama’s policy turnaround was the defeat of the Democratic Party in the Massachusetts election for a U.S. Senate seat left vacant when Ted Kennedy died. The Democrat tapped to succeed Kennedy was a well-known attorney general, and no serious Republic candidates had emerged until a little-known state senator, Scott Brown, accepted the GOP nomination. Brown won by a landslide.
Few doubt this was a protest vote against the Obama administration. Massachusetts voters apparently thought the country was on the wrong path and that Obama had ignored their top concern – employment – while being bogged down by an unpopular Wall Street bailout and poorly timed healthcare reform.
Why protest the bailout? In previous financial crises, big shots who contributed to bubbles went to jail; Americans expect heads on pikes after a financial crisis. Jailing even a few crooks is extremely important because it resets the system with a new psychology. For example, after the junk bond bubble burst in the 1980s, junk bond king Michael Milken and top executives at many bankrupt savings and loans went to jail. And after the IT bubble burst in 2000, jail terms were ordered for top guys at Enron, Tyco and even some Wall Street analysts.
The bubble that just burst was bigger than any in the past, yet none of the big shots went to jail. Instead, the president has dined with them and begged them to support his financial reforms. Americans see this as a farce. And if the Obama administration is unwilling to change, voters will choose someone else.
In addressing the financial crisis, Obama’s team continued a Bush administration policy aimed at protecting the status quo. Obama didn’t have to, but the government needed a financial system to protect the economy. It could have let the system go down before nationalizing it, leaving a clean sheet for a new system without the flaws that led to the bubble. Instead, the Obama administration created an enemy to its own financial reforms by bailing out the existing system wholesale. No one could expect the same people who benefited from the system’s flaws to support abolishing them.
Since the bailout, the administration has focused its remaining energy on healthcare reform — no doubt the biggest problem for the U.S. economy. Health costs account for 16 percent of GDP, twice as much as the OECD average, and they are growing twice as fast as the rest of the economy. The sector’s excess costs are comparable to total profits for the U.S. corporate sector.
The truth is high costs have not brought a fair system; between 40 and 50 million Americans (or up to 16 percent of the population) have no healthcare insurance. This is the country’s biggest social equality issue.
Read the rest of this entry »
Tweet
Facebook
Reddit
Digg this!
