Let Us Pray for Obama!

I join all Americans in the hope and prayer that Barack Obama can help lead America out of danger, and ultimately I believe, he can and will.

But it is not going to be a smooth sailing, as he inherited the greatest financial catastrophe any US president has had to deal with in at least 76 years. Bank of America’s $2.4 billion loss, Citigroup’s $8.3 billion loss, and the probability that both banks will sink deeper despite government bailouts cannot be ignored. The problem is no longer domesticated in soil of America, but it has gone global – with a vengeance. The Royal Bank of Scotland (RBS) has announced that its losses for 2008 to be a staggering 28 billion pounds – the largest ever loss posted by a British corporate in history.

Beyond financial and economic problems, he has not one, but two, medium-sized wars – in Iraq and in Afghanistan – to deal with, of which neither look easy to end with a fully satisfactory outcome. The possibility of these wars turning into a Vietnam-war alike is real and is straining every possible resource needed at home.

He has an ally, Israel, with has been threatening with annihilation by its sworn-enemy, Iran and at the same time, Israel-Palestinian debacle is far from resolved. Beyond that, he has another rogue nuclear power, North Korea, which rationally would remain quiescent but is its leadership rational?

The US and the world are in essence currently undergoing the inevitable aftermath of a decade of excessive money creation that must be wound down – an agonizingly painful process.

During the election campaign, Obama and his supporters had great fun assigning blame for these troubles, but it is now Obama’s job to come up with solutions.

What I really know is that there is a clear conflict between minimizing the current pain of recession and minimizing its duration. Actions that provide short-term relief may create new problems that both delay the ultimate exit from the downturn and may cause a deeper economic pain before recovery actually takes place. Back in December 1929, the US Treasury Secretary Andrew Mellon argued that the appropriate response to a downturn was liquidation of bad assets that will establish a solid base for recovery quickly, that was quickly ignored by US Presidents Herbert Hoover and Franklin Roosevelt, and this had resulted the 12-year Great Depression!

Nevertheless, one thing that I can say about Obama is that he appears to be much deeper and more long-term thinker than ex-President Bush. He is also surrounded by economic advisors who all are committed to a free market rather than a government-directed economy, and who in Volker’s case at least, had demonstrated its commitment before in 1981-82.