President Barack Obama

Larry Summers, Timothy Geithner and Ben Bernanke may be fated to go down in history as the three horsemen of the global financial and economic apocalypse. Though Fed Chairman Bernanke was inherited by the Obama administration, Geithner, Summers et al were the chosen economic team of the Obama administration. In effect, their selection was the single most important decision made by President Barack Obama  in response to the Global Economic Crisis. Regrettably, thus far their performance has been found wanting. Most disconcertingly, many of their public statements are Bush 43 redux, a smorgasbord of overly-optimistic platitudes utterly dichotomized from economic realities. Perhaps the one phrase that is most likely to haunt the Obama administration is one uttered originally by Ben Bernanke in the spring; those perennial “green shoots” that the Fed Chairman could see sprouting amid the recessionary quicksand engulfing the global economy.

Like a barbershop quartet, other senior Obama economic policymakers and advisors sang the happy melodies of these enigmatic green shoots. This happy talk was not without its effect; in large measure the bear market rally on Wall Street, what others have referred to as a “dead cat bounce,” was a by-product of investor optimism fuelled by the green shoots serenade flowing from the banks of the Potomac.

As Yogi Berra would say, “it’s déjà vu all over again.” George W. Bush’s economic team was also full of joyful verbiage, until the floor literally collapsed from under them with the disintegration of Lehman Brothers. In the case of the Obama economic crisis management team, however, this theory of hope triumphing over reality has been executed with even more creative dexterity. With all credible mathematical indicators revealing that most of the largest U.S. banks are functionally insolvent, the Treasury Department concocted a totally cosmetic set of so-called “stress tests” to “prove” that these insolvent banks were, actually, “solvent.” In addition, by forcing changes in the FASB rules through political intervention, some of these banks were even able to show a profit in their Q1 results.

The June unemployment numbers, however, are throwing a cold dose of reality in the direction of the pontificators of ephemeral green shoots. With the publicly released U3 Labor Department jobless report showing the level of U.S. unemployment having risen to 9.5%, and the less publicized but far more accurate U6 report showing actual unemployment and underemployment now at a staggering 16.5%, it is quite clear that the American economy, along with most of the planet, is still undergoing a painful contraction. The fact that one in six Americans is either unemployed or trapped in low-paying part-time employment due to the lack of full-time positions, is a far more significant economic indicator than short-term gyrations on Wall Street or periodic upward anomalies confronting an otherwise downward economic trend.

Amid all the green shoots fantasizing, it must be recalled that the United States economy depends on the spending of the U.S. consumer for more than 70% of its aggregate demand. The real significance of rising unemployment, exchanging full-time jobs for part-time employment and the fear factor inhibiting spending by those who think they may lose their jobs, is a radical contraction in consumer spending. It is this reality more than any other that is weighing heavily on the nation’s economic superstructure. Not only is joblessness rising. After years of American consumers spending more than they earned, they have now shifted radically towards a high level of savings. Transitioning from a negative savings rate, the U.S. wage earner now banks nearly 7% of his/her declining take- home pay, despite virtually zero interest being offered to savers due to the Federal Reserve’s zero interest monetary policy.

The American consumer is scared, and is not being seduced by talk of green shoots emanating from Washington. With consumer spending undergoing significant contraction not only in the United States but in virtually all major economies throughout the globe, increasing pressure will bear on securitized investments based on loan portfolios directly or indirectly linked to consumer spending. Retail and shopping mall mortgages will witness higher levels of defaults, in conjunction with the already virulent afflictions  hammering sub prime and prime residential mortgages, commercial office space mortgages, consumer loans and credit card debt.

The Obama administration apparently believed that the original $700 billion TARP Wall Street bailout passed by Congress in the last weeks of the Bush administration, and President Obama’s $800 billion stimulus spending bill, would suffice to stabilize the economy and put the brakes on the free fall in employment numbers. However, jobs are still being shredded each month by the hundreds of thousands, while banks still suffer from balance sheets saturated with toxic assets. The FDIC has already closed more U.S. banks this year than in all of 2008.

As I indicated in a recent piece, there is already serious discussion occurring in the corridors of power in Washington on the necessity of a second stimulus spending package. This is an acknowledgement that the Obama economic crisis team, thus far, has been an abject failure. However, with so much money already having been borrowed by the U.S. government on a variety of schemes supposedly aimed at saving the economy, further large doses of public debt bring along very dangerous negative implications of their own.

In a recent column in the Financial Times of London, Mohamed A. El-Erian, chief executive and co-chief investment officer of PIMCO, the world largest bond trading firm, offered the following observation:
“The bottom line is a simple yet powerful one. The global crisis is morphing again. Having already contaminated (in a sequential and cumulative manner) housing, finance and the consumer, it is now threatening the potency and credibility of the economic policy making apparatus. As far as I can see, there are no first best policy responses that are readily available and easy to implement. Instead, the economy will continue to struggle, navigating both the adverse implications of last year’s financial crisis and the unintended consequences of the experimental policy responses. Given the inevitable socio-political dimensions, this story will play out well beyond the realm of the economy, policymaking and markets.”

Mohamed El-Erian is not offering green shoots, but he does speak the truth. Unfortunately, the truth is so bitter, it is unlikely that President Obama’s principal economic advisors will face up to the harsh and even brutal realities of the Global Economic Crisis until it is far too late for any policy response to be effective.

For the second time in his young administration, President Obama will be conducting a prime-time televised new conference. Barack Obama will be addressing the news media at a time of much activity. His Treasury Secretary, Timothy Geithner, just unveiled a new rescue program for the toxic assets crippling U.S. banks. The Geithner plan was widely cheered by Wall Street.

It is expected that most question Barack Obama will be responding to will involve the economic crisis. President Obama has sought to convey a highly active and visible image in responding to America’s financial and economic difficulties. Recently, President Barack Obama was interviewed on the CBS news show 60 Minutes.

Barack Obama will probably maintain his high visibility as the Global Economic Crisis dominates the world’s attention. Obama will soon be joining other world leaders to discuss the economic crisis at the G20 summit in London.

President Barack Obama had an embarrassing situation with his nominee for Treasury Secretary Timothy Geithner, who neglected to pay $34,000 in taxes. Obama overcame that hurdle, and Geithner was confirmed. Now the President is experiencing a similar problem with his choice for Secretary of Health & Human Services, Tom Daschle. The only difference is that Daschle is far more in arrears in his back taxes.

In the meantime, the Republicans are increasing their resistance to President Barack Obama’s stimulus spending bill. Not a single GOP member of the House of Representatives voted for the Obama stimulus plan, and now the bill is being reviewed in the Senate. Many Republican senators are already on record as opposing Obama’s economic recovery plan. Here, too, a taxing issue exists, but of a different sort. The Republicans want more of the stimulus bill devoted to tax cuts and less to spending.

Barack Obama, 44th President of the United States, is now in his second week on the job. Already the he honeymoon with the Republicans has worn off, as they and President Obama battle over the final form of the economic stimulus package.

President Obama has been working at a furious pace to craft coherent policy responses to the worsening economic crisis. His Secretary of the Treasury, Timothy Geithner, has been approved by the Senate and is now on the job. Obama’s $819 billion economic stimulus bill has been approved by the House of Representatives, albeit without a single Republican congressman voting for it, despite attempts by Barack Obama to win bipartisan support. In the meantime, the economic and unemployment data betray a fast deteriorating American and global economy.

Barack Obama has announced his intentions to formulate a plan that responds to both the economic crisis and the collapse of the U.S. banking sector. President Obama will have a difficult decision to make with respect to the banking crisis. Even with the $700 billion TARP program, the bank crisis in the U.S. is getting worse. It may eventually require trillions of dollars of taxpayer money to recapitalize the banks.

President Barack Obama is beginning his term in office with the worst financial and economic crisis since the Great Depression on his plate. President Obama has warned the American people that things will get worse before they improve. Obama has also warned that doing nothing will lead to an even larger disaster as the Global Economic Crisis cripples the U.S. and other major economies.

President-elect Barack Obama has announced the names of his top economic advisers at a Chicago news conference. He indicated they would manage a massive economic stimulus package designed to save the U.S. economy from the worst financial crisis since the Great Depression since the 1930s.

The names and positions announced include:

Christina Romer, co-director, National Bureau of Economic Research

Timothy Geithner, currently the president of the New York Federal Reserve, will serve as the next U.S. treasury secretary.

Lawrence Summers, himself a former treasury secretary in the Clinton administration, will be appointed to become the new head of the White House’s national economic council.

Christina Romer of the National Bureau of Economic Research was selected to chair Barack Obama’s Council of Economic Advisers.

During the Chicago press conference, President-elect Obama said he had selected a team that would offer new ideas for confronting the global economic crisis.

Barack Obama stated very emphatically, “We need a big stimulus package that will jolt the economy back into shape. I look forward to working closely with them in the months ahead. And that work starts today, because the truth is, we don’t have a minute to waste. Our financial markets are under stress. While we can’t underestimate the challenges we face, we also can’t underestimate our capacity to overcome them.”

The announcement of Timothy Geithner to head Treasury sent the Dow Jones index up sharply. Geithner, who has also been vice chairman of the interest rate setting Federal Open Market Committee, was very involved in the bailouts of insurance giants AIG and Bear Stearns, and in the decision to allow Lehman Brothers to go bankrupt.

Obama’s top strategist, David Axelrod, said Geithner was “intimately involved with the situation now in his role as president of New York Fed. By temperament and experience, he’s the right man to lead the Treasury now.” Apparently, the stock markets and financial community agree with Axelrod.

It is reported that president-elect Barack Obama has chosen Timothy Geithner, currently head of the New York Federal Reserve, to be his Treasury secretary, at a time when U.S. financial markets are descending with alarming rapidity. The 47-year-old Geithner has been speculated on as one of Obama’s top picks for Treasury since the November 4 election.

The stock market, after suffering unprecedented losses earlier in the week, entered a rally with the news that Timothy Geithner would be heading the Treasury Department. Many in the financial community view Timothy Geithner as the ideal person to spearhead the incoming Obama administration’s response to the global economic crisis.

The news of Geithner’s appointment comes at a time when reports suggest that Citibank may be up for sale, after suffering staggering losses. Meanwhile, the domestic auto companies continue to stand on a cliff, being a knife’s edge from insolvency.