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Townhall...
Obama’s Dilemma --
and Ours
By Pat Buchanan
6/10/2011
Seventy-one years ago this spring, after the German army had broken
through the French lines, British Prime Minister Winston Churchill flew
to France to consult his embattled allies on how to stop the advance.
“Where is the strategic reserve?” Churchill urgently asked the French
commander in chief, Gen. Maurice Gamelin, and then he repeated himself
in French: “Ou est la masse de manoeuvre?”
“Aucune,” came Gamelin’s reply. “There is none.”
The French had no reserves to stop the Germans from overrunning their
country. The Battle of France was lost.
The Obama administration, in its grand strategy to generate a rapid and
strong recovery from the Great Recession, is at a similar pass. It has
drawn and played all its cards: the $800 billion stimulus bill, three
straight deficits averaging $1.4 trillion, the Federal Reserve’s mass
purchases of bad paper from the world’s banks, and QE2, the monthly
purchase of $100 billion in Treasury bills that ends June 30.
Yet, from the numbers that came in from May, Obama looks to be holding
a losing hand. The anemic growth of the first quarter of 2011 seems to
have stalled, and the prospect of a double-dip recession looms.
Though the administration anticipated perhaps a quarter-million new
jobs in May, as April produced, May generated only 55,000. The
unemployment rate ticked back up to 9.1 percent.
The rise in manufacturing employment went into reverse. Five thousand
manufacturing jobs were lost. Consumer confidence sank.
Today 2 million homes remain vacant in the USA, putting immense
downward pressure on housing prices. A fourth of U.S. homes are not
worth the mortgages being paid upon them.
Says Federal Reserve Vice Chairwoman Janet Yellen, “Looking forward, I
unfortunately can envision no quick or easy solutions for the problems
still afflicting the housing market.” Recovery is going to be a “long,
drawn-out process.”
A further decline in housing prices of 10 to 25 percent over the next
five years, says Robert Shiller, the economist who invented the
S&P/Case-Shiller index of property values, “wouldn’t surprise me at
all.”
The economic malaise has now begun to affect the mood of the nation and
its attitude toward the president.
Almost 90 percent of Americans think the U.S. economy is terrible or
poor. Sixty percent think the nation is headed in the wrong direction.
Forty-eight percent expect a second Great Depression next year. Fewer
than 40 percent approve of Obama’s handling of the U.S. economy.
In one new poll, Mitt Romney leads the president 49-46 in a matchup in
2012.
The question Obama faces and, indeed, Congress and the nation face is:
What do we do now?
Chairman Ben Bernanke of the Federal Reserve has signaled that there
will be no QE3, no more Fed purchases of $100 billion a month in U.S.
government paper. Buyers for that $1.2 trillion a year of U.S. debt
will have to be found elsewhere.
And with the economy stagnant or sinking, the Democrats on Capitol Hill
are starting to back away from any deep budget cuts, even as
Republicans are now even less likely to sign on to any tax increases to
reduce the $1.5 billion deficit.
Indeed, if the economy is stalled or sinking into recession, what
economic theory is it that argues for austerity and tax hikes?
And the perceived economic stagnation not only diminishes the chance of
a bipartisan budget deal but also points to deadlock on the debt
ceiling.
Republicans are already holding out for $1 in spending cuts for every
dollar increase in the debt ceiling. And the country seems to be behind
the GOP position: If the Senate and White House don’t agree to $2
trillion in spending cuts, we don’t raise the debt ceiling by $2
trillion.
The U.S. government does not run out of money to pay its bills until
August. But markets probably will be making judgments upon the
likelihood of a U.S. default well before then.
How did we get here? How did the richest and strongest country in
history, triumphant in World War II and the Cold War, approach so soon
the condition of the late Spanish and British empires as they began
their precipitous declines?
Answer: We overextended ourselves. We bankrupted ourselves.
We undertook the defense of nations all over the world having little to
do with our vital national interests. We fought unnecessary wars. We
doled out trillions in foreign aid to ingrates, incompetents,
opportunists and thieves.
We promised all our seniors Social Security and subsidized medical care
for the rest of their lives and failed to put the money away to pay for
it. We dropped half of U.S. wage earners off the tax rolls while
creating a mammoth welfare state to dwarf anything Norman Thomas and
his Socialists dreamed of in the 1930s.
Not only for the United States but also for the West, the days of wine
and roses are over.
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