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Unwilling to embrace the obvious and take action on the real underpinning of the country’s enduring economic crisis – an unemployed, underemployed and overall underpaid workforce – President Obama went to his playbook and came up with the same razzle dazzle: a combination of inflation fighting, distortion of data and reliance on a tired old team— this week in the form of the re-appointment of Ben Bernanke to head the Fed for five more years. Keeping on Republican Bernanke was the play.. his reupping served to demonstrate the president’s compulsive bi-partisanship even in the face of a GOP assault on health care reform, as it were… the same Bernanke, Greenspan protege, praised by Obama for "courage and creativity", the nod to him jogs a memory of the president, newly elected, summoning up his own measure of courage and creativity to bring forth Rahm Emanuel to lead the West Wing. In sum, Bernanke is no longer Bush’s man, but Obama’s, and his retention is an indication that the West Wing has no idea how to take the US in any new direction, anywhere away from profiteering and war.
What is the same old direction? Industrial production has plummeted — US industry was operating at 68 per cent of capacity in June — and inventories sold off. In theory the only way to go is up. But how far up and who gets to make the ride? It’s a tick up, and while nice for headlines and the stockmarket, it means very, very little. There are areas of strong growth, such as the assembling and operation of drone aircraft, an area of economic activity heartily embraced by Obama. And of course, cash for clunkers, alas a one-time jolt, hardly a recipe to jump start America. In the end people have to buy stuff. But how?
Consumer spending, a category broader than the proverbial side of the barn, is on everyone’s lips, except perhaps for the 35 million Americans getting food assistance. Keep in mind that about half of all consumer purchases are made by fewer than 10 per cent of American shoppers, the so-called "Yuppie" effect. BMW has a spanking new ad campaign featuring a reporter who worked for The Daily Show. It’s cool, I’m told. Root for the Yuppies? Do the president and his pollsters count on convincing Americans that we are all "in this together?" Lectures on responsibility play well to elites and their admirers, but have little effect on supermarket shelves, school supply depots and clothing racks. Just as the wage scheme, de-linked from real housing costs, could not be fooled in the national pyramid scheme otherwise known as the housing market, consumer spending has defined limits, penciled out by inquiring economists, few as they are. Is it true that every one of the 30-odd members of the UC Berkeley economics faculty favored NAFTA?
Real estate? Sure, residential buys went up in July, but almost four in ten were sales of foreclosed properties. Bank-owned houses and condos now make up one in eight American residences. Is that a recipe for a meaningful recovery? Opportunity in demise equals demise in Obama’s America. As the reality of today’s merciless unemployment sinks in, it comes as no surprise that prime loan borrowers lead the default pack… those are the people with good credit and who pay low interest now losing their homes at the fastest pace of all– 9 per cent of prime loans were in default at the end of June. The "cure rate" for prime loans — how often a defaulted loan is paid up and put back on track — was 6.6 per cent for July, a whopping decline from the 45 per cent averaged in 2000-06. Free fall. I don’t wish foreclosure on anyone; but now might be the time for prime borrowers to think about the plight of the sub-prime borrowers and the harsh judgment passed on them by, among others, the president who before Congress in February scolded the lesser off for "hoping" to have more.
Now comes the bad news. Wages. In the heroic struggle to keep down inflation, spearheaded by Obama’s man, Bernanke, the Fed has set as its highest priority soaking up excess funds, rather than unleashing (private) market forces to buy galloping US debt. That would mean higher interest rates across the board and slow down business. Analysts this week were warning of "seven lean years" as a result of over-heated stocks. It IS going to take some time!
None of this is good news for American families, in particular as pertains their wages. Lots of unemployment means lots of people competing for jobs. "Companies are enjoying the cost advantages of their slimmed-down workforces," is how Business Week put it this week, adding, "[I]t will be a long time before the job markets are strong enough to push up hourly wages." Alas, that is the Obama-Bernanke equation. Lesser notions have won the Nobel Prize.
CARL GINSBURG is a tv producer and journalist based in New York. He can be reached at firstname.lastname@example.org