January 25, 2010

Prez O's First SOTU Address, On Deck

Probably the blog post of mine which prompted the most reaction was something I wrote years ago, when W still ruled the land, called "A Guide to Controlling Your Gag Reflex During the SOTU," or something very close to that. It became apparent during Bush's term that his subjects simply reached the point where they couldn't stand the sight or sound of the man. It was a low point in citizen disaffection, you could say.

I don't feel that way at all about Barack Obama. He's having a rough go, that's for sure, but a lot of it, I would say most of it, is that he inherited a country which was way, way down the path toward collapse when he was sworn in. It is part of his conciliatory nature that he doesn't really emphasize this point very often. Compared to the way that another, more aggressive politician (in other words, someone other than a Democrat) would handle the same situation, Barack has been remarkably reticent about assigning blame. Meanwhile, he's attacked from all sides, by the Right for being a Socialist/Fascist/Communist/Muslim/Kenyan Tyrant, and by the Left for selling out.

The hysterical nature of the criticism reflects the hysterical fear rampant in the country. Very strange and unprecedented things are going on. For example, the Brookings Institution recently published a somewhat astounding social analysis which demonstrated that the fastest growing areas of poverty in America are in its suburbs.

By 2008, suburbs were home to the largest and fastest-growing poor population in the country. Between 2000 and 2008, suburbs in the country’s largest metro areas saw their poor population grow by 25 percent—almost five times faster than primary cities and well ahead of the growth seen in smaller metro areas and non-metropolitan communities. As a result, by 2008 large suburbs were home to 1.5 million more poor than their primary cities and housed almost one-third of the nation’s poor overall. http://www.brookings.edu/papers/2010/0120_poverty_kneebone.aspx

Did you see that one coming? The suburbs are supposed to be where you go to escape, or rise above, the poverty of the inner cities, right? Wasn't that what Leave It To Beaver and Father Knows Best were all about? It's another example of what I have called, during Blooging moments, the parallax of nostalgia. Reality keeps going out of focus; we look at it through dated lenses, like glasses with an obsolete prescription. Lots and lots of poor people are filling up the burbs.

You can get a sense of that sometimes when driving through the conjoined and contiguous towns and cities of Southern California, through housing tracts which were built to last maybe 50 years and are now in their six or seventh decade. South Central L.A. and East Oakland are both suburban slums, really. As all the other old housing tracts age, they undergo a similar devolution. They go down in the world. And now with the blight of foreclosure, the process of decay has been accelerated.

You can't blame all this stuff on Barack Obama, to say the least. There isn't a lot that can be done, in fact, except very gradually re-orient the country toward... something else. Most of his critics don't see it that way. Most of his liberal detractors are Cornucopians who believe, in their hearts, that there are no fiscal restraints on the U.S. Treasury. Oddly enough, many of these kibbitzers are also the main detractors and opponents of Ben Bernanke, but it is Gentle Ben who has devised nine or ten sleight-of-hand tricks to prop up the U.S. Treasury auction business so that despite falling demand from the countries who used to fund our debt (Japan, China), the auctions keep right on humming at interest rates approaching zero.

As the fellow over at The Automatic Earth archly notes:

Kyle Bass’ Hayman Advisors estimate that 45% of the $4.5 trillion in sovereign debt to be issued in 2010, or $2.025 trillion, will be American. Multiple voices have expressed grave doubts about the true identity of the buyers of US debt. There are serious suspicions that most of it has anonymously been bought by the Federal Reserve, simply for lack of other buyers. And that would mean the country buys its own debt, presumably in an effort to keep Treasuries attractive internationally.

You can be assured that Prez O does know who is actually buying American debt, and you can also be certain that he's not going to be talking about such a delicate subject on Wednesday night. The jabbering critics (like the guy at "Waldenswimmer") prattle on endlessly (and irresponsibly) about where Obama should be spending the money we don't have, but Obama actually has to deal with this simple, implacable reality: we're broke, tremendously in debt, and we may actually have resorted to conjuring trillions out of thin air to keep the game afloat.

Those are deeply disturbing ideas, and I think Obama is caught in a kind of cognitive dissonance where he must keep a sunny, optimistic mien for public consumption while he conducts closed-door meetings with his money people where they tell him about stuff like the Fed's program of buying up all the toxic garbage (mortgage-backed securities) on the books of insolvent banks, on the understanding that the "payments" (printed money) paid to the banks will in turn be used to participate in Treasury auctions. And the "Primary Dealer" participation in recent auctions supports the idea that this is what is going on. When you think about it, it's an enormously clever game. The Fed's balance sheet has become an elephant graveyard - it's where the bad debt goes to die, and where its worthless nature is forever hidden from view. And at the same time, by treating this garbage as real value, it gives the Fed a cover story for giving the banks "money" (which the Fed simply prints), and which in turn funds the U.S. deficit. C'mon, folks: give it up for the Bernank; could you have thought that one up?

Although: it is, however, a high-wire act with no net, and may end in the utter worthlessness of the dollar.

The hope, the dream, of the Obama Administration and its designated Merlin at the Fed is that all this levitation will reinflate the housing bubble, and then, in some magic moment, the mountain of debt on the books of American banks and Fannie & Freddie, and on the Fed's own balance sheet as it takes on more and more of this toxic sludge, will be made "good" as the underlying equity in the houses again approaches loan values. And then the mighty American consumer can again drain out the "wealth" and the buying fiesta can resume.

Well, hell, the cavalry used to arrive right after the first of the conestogas caught fire, and the Indians circled tighter and tighter, and Ol' Jeb had an arrow sticking out of him just below the clavicle - not mortal, just indicative of how desperate things were getting. This is pretty much what the Obama Administration is hoping for now. Barack will give the whole thing a different name Wednesday night - "jobs," I think he'll call it, but that's way too slow. Ol' Jeb will bleed out before that can happen. He's waiting for that bugle sound.

So let's give the guy a break, ya think? Meanwhile, jes' keep firin'.

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