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The Big Fix Verses the Bigger Economy

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The Big Fix Verses the Bigger Economy

Tuesday, 04 November 2008

By Andrew Gordon
You really want to know one thing about the new president. Can he use his presidential powers, huge majority in the Congress, and the inevitable honeymoon period (first 100 days or so) to fix the economy?
That's why we're electing him, right? TO MAKE THINGS BETTER.

It works in reverse too. That's why we're not electing John. Things got worse with his Republican Party in power. John was the scapegoat. Voters couldn't punish W. So they did the next best thing.

I've thrown myself a slow curve ball – very hittable – even for me. Here's the answer: OF COURSE NOT.

The economy is bigger than the president. Bigger even than the Fed chief (ahem, I'm being sarcastic here).

Yes, the President with the cooperation of Congress can put money into our wallets – either by sending us another economic stimulus check or cutting back taxes. But he can't tell us what to do with our extra money.

He can give banks money but he can't tell them what to do with it either. If they give half of it to shareholders in the form of dividend checks, what can the government do about it?

Alright, this very subject is being hotly debated in Congress and the Treasury Department. Maybe for the government's latest round of “loans,” they can attach quid-pro-quos. But for previous money banks have borrowed at one of the Fed windows, the government can only hope the banks lend more.

I'm okay with that. I'd hate to give the government that much power – to tell banks how much to lend and when.

Even the Chinese government doesn't hold that much sway over their bank lending. For the past five years, Beijing begged provincial banks to lend more responsibly. And, god bless them, they did just the opposite. As the Chinese economy flourished and generated hordes of cash, provincial banks financed more not fewer wacky projects.

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That's progress. I like that provincial banks in China are not under the thumb of central government bureaucrats. I would hate to see the day when Chinese banks enjoyed more freedom from government dictat policy than American banks. But that day may be coming.

In its own sweet time the economy will turn around, but not before it gets worse. President Obama or President McCain may hasten that day or delay it. I have no idea. If that sounds cynical to you, so be it.

I don't have much faith in the government doing the right thing. I've seen both democrats and republicans do too many stupid things – from the fantasy of “guns and butter” to price controls to encouraging banks to lend to high-risk home buyers.

Both presidential candidates are very smart. And soon one will assume the most powerful position in the world. But the American economy is bigger. And it's heading irresistibly down. The new president will try to stand in its way. But the president of the United States is no immovable object when it comes to the economy. It's going to steamroll over him and keep on heading down.

The honeymoon could well come with a bear rally attached. But don't mistake it for a true recovery. That's a ways off, new president or not.

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