Being elected during a time of crisis, US President Barack Obama faces the daunting challenge of revitalizing the US economy. Till today, it has been noted that the US is still stuck in the recession. Let us now analyze whether Obama can restore the past American glory.
To decide whether Obama can do so, it is definitely reasonable that we look at his administrative team first as this would provide us in-depth information about how he will proceed to save the economy.
Today, Obama's administrative team has the same people as Clinton's. Among them, Robert Rubin was the previous head of Citigroup who resigned when the company which was collapsing received US$45 billion in bailout money. Before being the Vice-Chairman of Citigroup which violated the Glass-Steagall Act, he was previously the Secretary of Treasury.
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The infringement of the Glass-Steagall Act existed because Citigroup was now a financial supermarket that could sell both savings and investments they previously couldn't because of the Act. With blessings from Clinton and his administrative team during that time, Citigroup was formed and now it could earn much more money. All these are done by being exposed to increased economic volatility.
Volatility is increased here because Citigroup could sell more risky financial instruments to the public as there was no longer a distinction that separated savings and investment banks. With this, the public undertook more risk by buying highly destructive derivatives.
This is especially seen in the case of collateralized debt obligations (CDOs) which the public bought a lot of. During that time, a boom appeared on the surface with a bubble to be eventually busted growing.
The increased demand for CDOs during that time forced many bankers to grant more mortgages to people of low credit ratings. Such subprime mortgages had to be given to supply more CDOs for sale. All these went on as it was assumed that home prices would rise.
As a side note, CDOs were sold when mortgages were packaged into mortgage-backed securities. This meant that mortgages were bought from lenders like banks and arranged in groups and subsequently bonds were issued on these groups. Investors earned money from the interest these bonds give.
Besides Robert Rubin, Lawrence Summers (director of the White House National Economic Council) was also in the team. As many know, he was a protege of Robert Rubin. In addition, he is the mentor of Timothy Geithner (former head of New York Federal Reserve and current Secretary of Treasury). Thus, with all these same men who repealed the Glass-Steagall Act still in power, it is hard for the economy to be revived since they laid the root for its decline in the first place.
Moreover, as many of you have noticed, politicians till today have used bailouts to save the economy whenever there is a crisis. The money for bailouts is usually provided by the Federal Reserve which itself is actually a license to print money. It is not a bank or government institution but instead a banking cartel owned by the richest in today's world. Money for bailouts is supplied when the Federal Reserve buys bonds issued by the US Treasury and prints the required amount subsequently.
Here, each time the Federal Reserve loans money, they will receive more interest payments and with more debt, they get richer with compounding interest. Thus, politicians bail out the economy because they were elected to protect this system the rich created, not fix it.
Until today, we see history continually repeating with bailouts being consistently used. In the 1990s, bailouts were used for the savings & loans crisis but did it work?
For the recent crisis in 2008, when Bush authorized the US$700 billion bailout, then Secretary of Treasury Henry Paulson (previously from Goldman Sachs) immediately gave billions in TARP (Troubled Asset Relief Program) to the biggest banks.
The money flowed from taxpayers to the biggest banks and corporations who caused the mess. To add on to their irresponsibility, they even declined to explain the use of bailout funds when questioned. Lending also fell despite the fact that bailouts should increase lending. All these bailouts were done to protect the rich and feed the Federal Reserve, with the rich getting richer while the poor being poorer.
Hence, to conclude, with such a corrupt system in place, it is hard for Obama to revitalize the US economy. He may be a kind man but he is not strong enough to fight the ultra rich who are manipulating the government and economy. In such a world, you should help yourself instead of waiting for the government to help you.
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