Wall Street slumped by more than 5% on the back of Mr Obama’s victory. The morning after the great result, reality set in.
We need change in policy. We need the right sort of change.
Changing to a more protectionist stance would be damaging. Markets are now hoping there is one breath of life and hope left in the outgoing Bush Administration. They are looking to the incumbent to chair a successful G20 on November 15th, and to bring together a trade deal. Mr Obama’s rhetoric in this area has scared them.
Changing from the state borrowing too much to the state borrowing even more would also be unhelpful. Mr Obama seeks a targeted stimulus, but it will all have to be borrowed, on top of the huge borrowings the Bush regime has inaugurated to cover the expenditure on the banks, mortgage companies and AIG.
So what change do we need?
We need a government which understands you cannot solve a private sector debt crisis by turning it into a public sector debt crisis.
We need a government which ditches the Bush/Paulson plan. It is too expensive for the taxpayer, and not big enough to solve the banking problem.
We need an Administration which seeks to return nationalised financial companies to the private sector, whilst supplying enough liquidity and offering sufficient transitional guarantees to maintain confidence in the system.
Freed of the burden of carrying the financial sector with state equity and subsidy, then the President could cut taxes on the lower paid, to provide a needed stimulus to consumption. We are going to need more jobs worldwide. They have to come from individuals wanting to buy more goods and services. At the moment US families cannot afford them, as they are too much in debt, and new debt is too scarce to come by. If the US state could cut its own appetite for debt, it could leave US taxpayers with more of their own money, which would start to arrest the decline.
My worry about Mr Obama is not that he represents change, but that he will not implement major changes quickly enough. It is tough on him because he inherits a mess. It is now his mess, and the sooner he turns up at economic meetings and starts to assert himself the better. There is no time for partying and choosing the curtains. The very financial foundations of the house are being questioned, so it’s time for change, time to get rebuilding.
He should also quietly dump his idea of escalating the war in Afghanistan. The US needs to conserve her military strength, and concentrate on rebuilding her economic strength.