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The economic challenges before Obama

By M R Venkatesh
November 10, 2008 15:21 IST
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In his first press conference as President-elect of the United States of America, Obama was asked to answer one of the major issues that captured the attention of the nation. Press reports from the US suggest that it was indeed a matter of national speculation during the entire length of the presidential campaign.

The issue that had the entire country engrossed right through the campaign was whether Obama's choice for the first pet in the White House would be a cat or a dog?

Mercifully, he gave broad hints of the same during his victory speech earlier in the week on how he proposes to deal with this very important issue. "With respect to the dog, this is a major issue," Obama told the press corps with a smile, and added "I think it's generated more interest on our web site than just about anything."

The alacrity demonstrated by the President-elect in the selection of the first pet is equally matched by the lack of clarity in his proposed approach to the serious economic, political, social and environmental issues confronting the US. Human proclivity to be obsessed with trivia is often matched with its ability to obfuscate real and serious issues.

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  • The global financial crisis is in effect the American problem, exported under the ideological garb of globalization and effectuated primarily through the financial sector integration of various countries to the American financial sector.

    As someone put it brilliantly, the sub-prime crisis is actually the 'American loan mela carried out with other's money.'

    That the rest of the world was sucked into the vortex of the financial crisis without ever realizing the same -- in fact we all walked into the trap with willing suspension of disbelief -- remains at the core of this depravity. That explains the obsession of the Americans with the First Pet while the rest of the world waits with bated breath to be delivered from the horrific economic crisis.

    Till date, if American prosperity acted as an engine of global growth, from now on global economic recovery will follow American recovery. Naturally, the elevation of Obama as the President of America and his ability to clear up the mess within the US -- which the world believes would act as the elixir of economic recovery across continents -- explains the fixation of the entire globe with these elections.

    Put pithily, world economic recovery is linked, in more ways than one, to the American recovery.

    Obviously, the trillion-dollar question remains. Who is the real Obama? What are his prescriptions to fix the global economy? How does he propose to deal with the global imbalance caused by flawed currency valuations?

    How does he seek to fix the lack of confidence in the US economy -- and by extension the global economy which is in a state of unprecedented crisis? How does he propose to de-freeze the frozen credit markets?

    America -- a country of lobbies -- can he change it?

    To understand the issues at hand a reference is made to the energy policy of Obama. According to his new plan, Obama proposes to reduce the overall US oil consumption by 35 per cent, that is, 10 million barrels per day. This is ostensibly to reduce the dependence of US on OPEC (Organization of the Petroleum Exporting Countries) for its energy requirements.

    This is titillating stuff on a superficial read. In fact, if this plan were to be implemented it would instantly dynamite the oil prices, devastate OPEC and, perhaps, allow energy security to many developing countries, all in one stroke. But that is not a simple case of oil, its demand and supply, and its prices.

    Readers may be aware that after 1971 when the US unilaterally broke its gold standard (when the US dollar was pegged to the gold at the rate of 35 dollars per once of gold), the dollar has been backed virtually by oil. In effect, the de jure gold standard was replaced by the de facto oil standard in the early 70s through what is (un)-popularly called the First Oil Shock.

    That would explain the symbiotic link, since then, between the US dollar and oil, and the US foreign policy with the Gulf.

    Consequently, any plan that reduces oil consumption within the US will surely affect international oil prices. And unless this possible reduction in oil prices is factored in, in the management of dollar value, any unilateral plan at managing oil consumption is bound to have impact on the dollar value and perhaps on global currency markets too.

    Further, the Obama's idea to have natural gas through pipeline from Alaska and Canada, allow more oil exploration within the US and force clean coal technology is not an immediate solution.

    No wonder, the target date for this proposal aiming at the reduction in the oil consumption in US by 35 per cent is 2030, long after Obama would have demitted office!

    Politicians are politicians after all. In more ways than one this promise of Obama is akin to promises made by our politicians during election time: with a crucial difference, of course: it is constructed with absolute care, sugar-coated with clinical precision and delivered with absolute finesse so as to escape any sort of critical examination.

    But one way out, experts opine, is that Obama could put in place massive expenditure on the public transport system (by, say, putting in place a massive rail network) that could revive the American economy while bringing down the dependence on oil. In effect, that could be the modern version of the 'New Deal' that was used by America to come out of Great Depression in the 1930s.

    Again while this looks inviting in theory, in practice, this plan would be extremely difficult to implement. The reason for the same is obvious. American economy runs through lobbies and cartels. Two powerful lobbies that would get hurt by this plan of Obama are the auto and the oil lobbies. Needless to mention, the other powerful lobby that could get impacted under this proposal is the US financial sector.

    Of course, the steel lobby would stand to benefit by this act. Therefore the success of Obama would there depend on the success of the US steel lobby to neutralize their powerful auto and oil lobbies. Should he succeed, he would be seen as a sympathizer of the steel lobby rather than a leader who has the nerves of steel!

    US Federal system: Mother of all lobbies

    Therefore the road map for Obama is perhaps not to use one lobby against the other, but to destroy them altogether. And therein lies the challenge for Obama as the US Federal system itself is a lobby group and the mother of all cartels -- an omnipotent, omnipresent cartel of powerful global bankers structured by law to keep the intervention of the US government to the bare minimum.

    This was ostensibly to keep the Fed autonomous. But the owners of the twelve district bankers who constitute the cartel that owns the US Fed is still a secret. Different studies have speculated that Rothschild, Lazard Brothers, Bank of Paris, Seiff Banks, Warburg Banks, Lehman Brothers (yes!), Kuhn Loeb Bank, Chase Manhattan, and Goldman Sachs are some of the ultimate owners of these banks that in turn control the US Fed.

    Of late, there has been a flood of publications based on extensive research into the Federal Reserve System and those exercising control over world monetary policy. These studies clearly bring about the fact that the US central bank is a banking system in which it has a complete monopoly on the issue of the currency in the US.

    It exists as a result of a law in the US, which is the key to its unbridled power. In effect, the US Fed is a central bank with the power of a government yet owned by private parties.

    David Icke, in his book . . . And The Truth Shall Set You Free, describes the Federal Reserve System in the following words: "The Federal Reserve is a cartel of private banks, of which the Bank of New York is the most powerful. To this day, it controls the US economy and thereby affects all of our lives. This gave them control of the Federal Reserve System and the American Economy. The cartel lends money that doesn't exist to the US government. . ."

    The power of private currency manipulators is there for all to see -- Fed or no Fed. Clearly, Obama has a choice -- to eliminate all these cartels and lobbies and be a genuine ambassador for change. Crucially, can he rein in the US Fed that is virtually out of the control of even the US government?

    In the alternative, he can tinker with the US economy like the makers of the Ambassador car in India in the seventies who tinkered with the tail-lamps and dashboards to bring about newer models. At this point, he seems to be going the Ambassador car way.

    The author is a Chennai-based chartered accountant. Comments can be sent to

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