A poisoned chalice for Mr Obama

In his recently published book The new paradigm for financial markets – the credit crisis of 2008 and what it means the billionaire speculator, former hedge-fund manager and philanthropist George Soros paints an exceedingly grim picture of the state of the financial system today, primarily in America but also in other parts of the developed world. Based on the ideology of market fundamentalism initiated by Ronald Reagan but taken to new heights by the Bush administration,   the virtually complete deregulation of the financial industry has led to a credit crisis or crunch of enormous dimensions.  The US housing bubble has already burst (usually referred to as the subprime mortgage crisis), imperilling the ownership of a few million homes, often in lower income communities which were attracted by the often unrealistic credit terms on offer.  But, as Soros puts it:  “Superimposed on the US housing bubble there is a much larger boom-bust sequence which has finally reached its inflection, or crossover point.  The super-bubble is more complex than the housing bubble and requires a more complicated explanation.”  He refers to the massive expansion of credit by banks and other financial institutions, the huge development of credit cards, and a whole lot of new-fangled financial instruments which few, even in the industry understand.  Due to the reckless tax and other policies of the Bush administration, America has been living beyond its means for many years, relying on the savings of other countries like China and Japan to sustain them by buying US government bonds.
The credit crisis has already led to the need to bail out a couple of large financial institutions. Others have sought refuge by selling billion dollar chunks of their equity capital to foreign ‘sovereign wealth funds’ created and owned by Arab countries, China and other countries which have accumulated huge surpluses  (savings) and  are in effect emerging as lenders and investors of last resort.  Soros goes on to speculate, interestingly, on how all this will turn out in terms of the financial system itself, the use of the dollar as a virtual reserve currency, the valuation of the Chinese currency, the threat of protectionism and so on.

It is clear that there are serious problems ahead, the result of years of dogmatic and erroneous government policies.  Correcting them will be painful and difficult. The signs are clear that the current American administration will not take steps to confront these problems.  Accordingly, if Democratic Senator Barack Obama wins the November presidential election, as the vast majority of Caribbean people hope, he will inherit a poisoned chalice, namely a shattered financial system and two difficult wars which are also very costly and a drain on the budget. Tackling these problems will require measures (such as the withdrawal of the tax cuts for the super rich, some new regulation of the financial system) that can easily be exploited by his Republican opponents to make him extremely unpopular in the short term.  In short, he will be forced to pay the price for the years of maladministration of the current government.  Indeed there are some analysts who argue that a new Democratic administration will face such daunting problems that it cannot hope to last more than one term, setting the stage for the return of a Republican president in four years time.  The lightweight nature of the Republican choices for the presidency and vice-presidency might even suggest that some Republican strategists accept this view –  après George W, le déluge.

Change is essential, America has lost respect globally and betrayed its best heritage on issues ranging from respect for the rule of law to saving the environment.  As Senator Obama puts it, eight years of George Bush’s policies are enough; what he perhaps has not yet fully come to terms with is the massive problems he will face. They will require every ounce of the statesmanship and stamina he may possess, and the trust of the American people in the reforms he will be bound to undertake.