World Financial Blog » Politics
Today, history has been made. Barack Obama officially became the 44th president of the United States of America. In his inauguration speech he clearly points out that the country is in a recession and hard times must be faced. He stated various issues his administration is about to change and appealed to the people to not give up hope and get to work.
We will see what effects President Obama will have on the U.S. economy in a manner of time. The challenges America has to face for the next few years have to be met fast and precisely. As an investor you should now follow the news about significant changes the Obama administration is about to introduce, be it in health care or renewable energies. There will be companies which will clearly benefit from his presidency.
Barack Obama’s Inauguration Speech
You can read the full text of Barack Obama’s speech given before nearly two million watchers on Washington’s National Mall on the website of the Chicago Tribune. A short extract may be given here:
U.S. President Barack Obama:
“Today, I say to you that the challenges we face are real. They are serious and they are many. They will not be met easily or in a short span of time. But know this, America–they will be met.
On this day, we gather because we have chosen hope over fear, unity of purpose over conflict and discord.
On this day, we come to proclaim an end to the petty grievances and false promises, the recriminations and worn-out dogmas, that for far too long have strangled our politics.”
Video of Barack Obama’s Inauguration Speech
I have never seen that the Dow has reacted so strong on a decision of politicians, as it did when when I saw the decision about the 700 billion dollar bailout on CNN on Monday. CNN presented this decision really exciting and I think for many people this 15-minute decision was the most exciting decision of the whole year. Especially it was very funny to see how much the presenters believed in this plan and incredulous they looked when the votes finally were 228 against and 205 for it.
However the only problem is that actually this really was not funny, but I think everybody with a relative sound common sense knew that the house wouldn´t rubber stamp Bush´s funny 700 billion rescue plan so easily, especially in times of election campaign. So Bush has to hurry to find a new ingenious plan, but in my opinion the house of Representatives will be hard to convince because Bush already accumulated debts worth 10,6 trillion dollars. It´s really a bad bad situation but, let´s go back to what will happen to the markets and the economy, while I´m writing this post at Monday the 29th of September the Dow-Jones is 7 % in the red which meas that the wallstreet has lost more than one trillion U.S dollar again while the representatives are still debating if 700 billion could save the economy. So if the representatives don´t agree on something more and more banks will fall under chapter 11 like I discussed in my last post “Facing a world economic crisis” yet. I think after the shock waves are finished in the banking sector they will achieve insurance companies, then hedge fonds and private equity companies and in the end the whole world economy with every participant.
But let´s imagine what happens if the U.S. government would yet again make it the force the bailout through even only in another form?
Of course the wallstreet would leap for the joy and the Dow would probably close with a plus of 5 or 6 %, but does that really solve real problems? In my opinion the the bailout would just distort competition between the banks and in the end bad banks would finally become good ratings again. Also the idea that short sales on banks are forbidden is a very bad one because they short sales are an essential component of the price formation at the wallstreet. In my opinion and remember it´s a crisis of confidence we are facing. So be aware of the rise in the market if the bailout really comes because it won´t be here to stay. In my opinion the best thing the U.S. government could do know is to nationalize or bomb the rating agencies which in my opinion are the main reason for the crisis, because if they hadn´t distributed AAA rankings for incredible bad financial derivatives we probably wouldn´t have these enormous problems now.
So in my opinion we are facing a very very deep recession but despite that I hope that I was wrong with my last post that this crisis would finally end in a world monetary reform, but at the time many things point to that. However as hard as that sounds:
“Sometimes it´s better to burn the sick forest so that new trees can grow on a rebroductive ground.”
If you don’t know how the US election system works, check out this educational video.
It´s really hard to understand what Ben Bernanke the chairman of the FED was doing in the last months. Hasn´t it always been the main priority of this facility to ensure price stability? Things have changed ostensibly, but which reasons had Ben when he lowered the prime rate constantly ? Did he want to be nice to the stockholders , beware the U.S. economy of a recession, or just help to allay the U.S. foreign depts ? To be honest I don´t know his intention but I can imagine that the government wanted to have a working economy ahead of the coming elections.
The phantom of the stagflation
But the problems which this policy implicated now slowly appear, because the coming recession is not the same like the one in 2001. The difference is that the inflation rate is much higher as it was in 2001 and so America now faces a stagflation. Stagflation a really accused word by every economist, fundamentally means nothing else as recession and inflation to the same time. Sounds funny but that´s a really nasty thing because when you want to fight the inflation you raise the prime rate but that is toxic for the conjuncture. So it´s a doom loop and the only way to solve this problem is to raise the prime rate and to sit out the recession.
The Low Dollar as a slide effect
A few month ago the international top-model Gisele Buendchen properly the best paid model in the word, said that from now she only accepts Euro for her work.
The reason was that the government didn´t want to have a recession now, and so the only thing the FED could do is to pour more and more money into the banking system with the hope to boost the economy. But this had slide effects, the Dollar was loosing in value more and more, because when the society has more money for the same amount of goods the money is loosing it´s value and that´s what we call an inflation. This again has effects on the international economy for example the high oil price can definitely be affiliated to the low dollar, the reason Oil is noted in USD and when the money is loosing in value you have to pay more for it. But there are also positive facts especially for the U.S. export economy here you can list very high rates of growth cause for example me as a European can afford more goods for my euros when I buy it in the U.S.
All in all we can say that the coming months won´t be easy, but in my opinion the fight against the inflation is definitely more important as the one against the recession.
It is probably the most important election in the world, the presidential election of the United States of America, but this time we got a big change in this election which probably opens a new door to freedom and emancipation.
I´m not an American but as an European I am very happy to see that now for the first time in the history of the United States of America a woman and a man with Afro American roots stand for this task at the same time. No matter who wins the fact that they also got the chance shows a new level of emancipation, which stands for a modern, enlightened America.
But who do the Europeans prefer? “I skimmed through the biggest European newspapers and came to the result, that since there are so many conflicting studies done by online universities there is no clear result. The only thing I recognised is that Hillary Clinton and Barack Obama are definitely the stars of this election and if the Europeans could vote they would probably pick one of them.
However the question who Europeans want can´t be answered so easily. The question what Europeans wish can. Most Europeans await changes in the US environmental, trade, and foreign policy. Especially, problems like the climate change should be taken seriously by the United States. Also problems like the Iraq which destabilised the whole Middle East should be avoided in the future. But that are just wishes the decision lies in the hands of the voters. Personally I wish you a fair election and the best for your country so may the best win.