January 21, 2009

Op-Ed Columnist
NY Times

Radical in the White House

By THOMAS L. FRIEDMAN

For one day, for one hour, let us take a bow as a country. Nearly 233 years after our founding, 144 years after the close of our Civil War and 46 years after Martin Luther King’s “I Have a Dream” speech, this crazy quilt of immigrants called Americans finally elected a black man, Barack Hussein Obama, as president. Walking back from the inauguration, I saw an African-American street vendor wearing a home-stenciled T-shirt that pretty well captured the moment — and then some. It said: “Mission Accomplished.”

But we cannot let this be the last mold we break, let alone the last big mission we accomplish. Now that we have overcome biography, we need to write some new history — one that will reboot, revive and reinvigorate America . That, for me, was the essence of Obama’s inaugural speech and I hope we — and he — are really up to it.

Indeed, dare I say, I hope Obama really has been palling around all these years with that old Chicago radical Bill Ayers. I hope Obama really is a closet radical.

Not radical left or right, just a radical, because this is a radical moment. It is a moment for radical departures from business as usual in so many areas. We can’t thrive as a country any longer by coasting on our reputation, by postponing solutions to every big problem that might involve some pain and by telling ourselves that dramatic new initiatives — like a gasoline tax, national health care or banking reform — are too hard or “off the table.” So my most fervent hope about President Obama is that he will be as radical as this moment — that he will put everything on the table.

Opportunities for bold initiatives and truly new beginnings are rare in our system — in part because of the sheer inertia and stalemate designed into our Constitution, with its deliberate separation of powers, and20in part because of the way lobbying money, a 24-hour news cycle and a permanent presidential campaign all conspire to paralyze big changes.

“The system is built for stalemate,” said Michael J. Sandel, the Harvard University political theorist. “In ordinary times, the energy and dynamism of American life reside in the economy and society, and people view government with suspicion or indifference. But in times of national crisis, Americans look to government to solve fundamental problems that affect them directly. These are the times when presidents can do big things. These moments are rare. But they offer the occasion for the kind of leadership that can recast the political landscape, and redefine the terms of political argument for a generation.”

In the 1930s, the Great Depression enabled Franklin Roosevelt to launch the New Deal and redefine the role of the federal government, he added, while in the 1960s, the assassination of John F. Kennedy and “the moral ferment of the civil rights movement” enabled Lyndon Johnson to enact his Great Society agenda, including Medicare, the Civil Rights Act and the Voting Rights Act.

“These presid encies did more than enact new laws and programs,” concluded Sandel. “They rewrote the social contract, and redefined what it means to be a citizen. Obama’s moment, and his presidency, could be that consequential.”

George W. Bush completely squandered his post-9/11 moment to summon the country to a dramatic new rebuilding at home. This has left us in some very deep holes. These holes — and the broad awareness that we are at the bottom of them — is what makes this a radical moment, calling for radical departures from business as usual, led by Washington.

That is why this voter is hoping Obama will swing for the fences. But he also has to remember to run the bases. George Bush swung for some fences, but he often failed at the most basic element of leadership — competent management and follow-through.

President Obama will have to decide just how many fences he can swing for at one time: grand bargains on entitlement and immigration reform? A national health care system? A new clean-energy infrastructure? The nationalization and repair of our banking system? Will it be all or one? Some now and some later? It is too soon to say.

But I do know this: while a crisis is a terrible thing to waste, so too is a great politician, with a natural gift for oratory, a rare knack for bringing people together, and a nation, particularly its youth, ready to be summoned and to serve.

So, in sum, while it is impossible to exaggerate what a radical departure it is from our past that we have inaugurated a black man as president, it is equally impossible to exaggerate how much our future depends on a radical departure from our present. As Obama himself declared from the Capitol steps: “Our time of standing pat, of protecting narrow interests and putting off unpleasant decisions — that time has surely passed.”

We need to get back to work on our country and our planet in wholly new ways. The hour is late, the project couldn’t be harder, the stakes couldn’t be higher, the payoff couldn’t be greater.

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JANUARY 23, 2009, 11:32 A.M. ET
The Wall Street Journal

The World Won't Buy Unlimited U.S. Debt

We're asking others to sacrifice for our 'stimulus.'

By PETER SCHIFF

Barack Obama has spoken often of sacrifice. And as recently as a week ago, he said that to stave off the deepening recession Americans should be prepared to face "trillion dollar deficits for years to come."

But apart from a stirring call for volunteerism in his inaugural address, the only specific sacrifices the president has outlined thus far include lower taxes, millions of federally funded jobs, expanded corporate bailouts, and direct stimulus checks to consumers. Could this be described as sacrificial?

What he might have said was that the nations funding the majority of America's public debt -- most notably the Chinese, Japanese and the Saudis -- need to be prepared to sacrifice. They have to fund America's annual trillion-dollar deficits for the foreseeable future. These creditor nations, who already own trillions of dollars of U.S. government debt, are the only entities capable of underwriting the spending that Mr. Obama envisions and that U.S. citizens demand.

These nations, in other words, must never use the money to buy other assets or fund domestic spending initiatives for their own people. When the old Treasury bills mature, they can do nothing with the money except buy new ones. To do otherwise would implode the market for U.S. Treasurys (sending U.S. interest rates much higher) and start a run on the dollar. (If foreign central banks become net sellers of Treasurys, the demand for dollars needed to buy them would plummet.)

In sum, our creditors must give up all hope of accessing the principal, and may be compensated only by the paltry 2%-3% yield our bonds currently deliver.

As absurd as this may appear on the surface, it seems inconceivable to President Obama, or any respected economist for that matter, that our creditors may decline to sign on. Their confidence is derived from the fact that the arrangement has gone on for some time, and that our creditors would be unwilling to face the economic turbulence that would result from an interruption of the status quo.

But just because the game has lasted thus far does not mean that they will continue playing it indefinitely. Thanks to projected huge deficits, the U.S. government is severely raising the stakes. At the same time, the global economic contraction will make larger Treasury purchases by foreign central banks both economically and politically more difficult.

The root problem is not that America may have difficulty borrowing enough from abroad to maintain our GDP, but that our economy was too large in the first place. America's GDP is composed of more than 70% consumer spending. For many years, much of that spending has been a function of voracious consumer borrowing through home equity extractions (averaging more than $850 billion annually in 2005 and 2006, according to the Federal Reserve) and rapid expansion of credit card and other consumer debt. Now that credit is scarce, it is inevitable that GDP will fall.

Neither the left nor the right of the American political spectrum has shown any willingness to tolerate such a contraction. Recently, for example, Nobel Prize-winning economist Paul Krugman estimated that a 6.8% contraction in GDP will result in $2.1 trillion in "lost output," which the government should redeem through fiscal stimulation. In his view, the $775 billion announced in Mr. Obama's plan is two-thirds too small.

Although Mr. Krugman may not get all that he wishes, it is clear that Mr. Obama's opening bid will likely move north considerably before any legislation is passed. It is also clear from the political chatter that the policies most favored will be those that encourage rapid consumer spending, not lasting or sustainable economic change. So when the effects of this stimulus dissipate, the same unbalanced economy will remain -- only now with a far higher debt load.

If any other country were to face these conditions, unpalatable measures such as severe government austerity or currency devaluation would be the only options. But with our currency's reserve status, we have much more attractive alternatives. We are planning to spend as much as we like, for as long as we like, and we will let the rest of the world pick up the tab.

Currently, U.S. citizens comprise less than 5% of world population, but account for more than 25% of global GDP. Given our debts and weakening economy, this disproportionate advantage should narrow. Yet the U.S. is asking much poorer foreign nations to maintain the status quo, and incredibly, they are complying. At least for now.

You can't blame the Obama administration for choosing to go down this path. If these other nations are giving, it becomes very easy to take. However, given his supposedly post-ideological pragmatic gifts, one would hope that Mr. Obama can see that, just like all other bubbles in world history, the U.S. debt bubble will end badly. Taking on more debt to maintain spending is neither sacrificial nor beneficial.

Mr. Schiff is president of Euro Pacific Capital and author of "The Little Book of Bull Moves in Bear Markets" (Wiley, 2008).

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