Letter XX – Half-way to Heaven or to Hell

It’s the Stupid Economy

One of the oldest rules of politics is that office transmutes the basest metal into gold – even if it’s only fool’s gold. And having gained office all politicians come to believe they’re deserving of its continuance.

The camaraderie of office ensures they all think the same. The world as seen from inside the official limousine is safe from the brutal realities that those outside are struggling to live with from day to day. Solidarity has come to mean supporting each other’s re-election bids.

The latest and most futile example was Mrs Merkel’s offer to campaign for President Sarkozy. But the cold political fact is that currently no incumbent has survived an election since the collapse of Lehman Brothers in September 2008.

Despite the endless ministrations; despite the endless summits; despite the mind-boggling scale of what’s euphemistically called Quantative Easing (printing money to you and me) the world economy has remained mired in the shallows of slow growth.

And now the crisis in the Euro zone looks likely to push the entire world economy back into another period of recession. Events have a cruel way of making great men appear to be pygmies.

It’s harder yet on the pygmies who hold great office. Many of the present political leadership wrestling with the most intractable economic, financial and political problems for several generations glister only in the clichés they employ. Their capacity for original thought or perceptive analysis is strictly limited.

The best like Mr Cameron deliver their lines with rhetorical flourish even while the content of what they say is filled by failed nostrums and weary commonplaces that masquerade as analyses. Truth told they’ve haven’t a clue and they haven’t the honesty to admit it.

Generationally amongst the dross there’s always a diamond that catches history’s light and reflects upon a future political direction. In the twentieth century there were some in Britain – David Lloyd George; Richard (RAB) Butler; Clement Atlee; Margaret Thatcher – perhaps Churchill and Blair.

In the United States such a list must include both Teddy Roosevelt and FDR; Nixon; perhaps Regan. Barak Obama brought such promise to his office. A man of enormous intellectual ability; gifted both with words and their use Obama was persuasive and engaging.

On coming to office in 2008 Obama found himself in the midst of a banking crisis and a full blown depression beckoned if government failed to meet the challenge. He was lucky in so far as he found Gordon Brown in office and the British Prime Minister (and his Chancellor Alistair Darling) had grasped, albeit late in the day, the scale of the disaster. The decisions at the G20 in 2009 probably averted a depression.

Of course staving off the immediate danger afforded others to opportunity to draw the wrong conclusions. The European ostriches stuck their collective heads in the sand. They thought themselves as immune from the contagion. In particular Merkel and Sarkozy were smugly self-assured that their banking system wasn’t corrupted by the gambling excess that permeated the Anglo-American economies.

Ah, how the mote in one’s eye makes the ablest blind to their own faults.

The denizens of Europe over looked inconvenient facts as they had all the way through – from the moment they allowed Greece and Italy into the single currency knowing they did not meet its criteria. The Euro was based upon a hypothecation of risks engineered by massive transfers of risk capital at massively reduced rates of borrowing into high risk investments in the least politically and financially robust of Europe’s economies. Just as the housing boom in the USA transmuted the base metal of sub-prime mortgages into the gold of AAA bonds so cheap Euro loans did the same in Ireland, Spain, Portugal and Greece.

At the top more housing units were being commissioned in Spain than created at the peak of the sub-prime boom in the USA. Had the EU taken the same measures as the US and UK and other global players in 2009 we would not now be sitting poised upon a further billion Euro bail-out of the Spanish banks. But they didn’t and we are….

And now the re-election prospects of the President are falling foul of the continuing Euro crisis. It has already dragged the UK into recession and now it threatens the recoveries in both China and the US.

Thus far the president’s famed powers of persuasion have signally failed to persuade the governments of Europe to both follow his policies and underwrite all the banks in Europe with a massive Euro-bond issuance or to follow his policy of allowing government debt to rise significantly as a countercyclical corrective to recession. He has had four years to make that case. And most strangely in may be his failure there that now scuppers his re-election at home.

This week the jolt from the recall election in Wisconsin has set off a bout of jitters amongst Democrats. A far right Republican Governor bent upon taking on the highly unionised workforces in Wisconsin became the first Governor ever to survive a recall ballot. What’s worse he outspent his Democrat rival 7 to 1 and won handily on a decent turnout – particularly in strongly Republican suburban areas.

Were this trick to be repeated in November then Mitt Romney will be in the White House in January 2013. And although the polls continue to move around Romney is slowly making ground up in the states that matter.

On current available polls Obama would only take 263 Electoral Votes to Romney’s 240 with 35 too close to call- (Florida and Iowa are tied in the last polls). This is the first time Obama’s Electoral College vote has fallen beneath the magic 270.

If his numbers remain fixed beneath 270 the psychology of the election will be changed. It will no longer be Obama’s to lose; it will be Romney’s to win. And the normally phlegmatic President smiling easily at camera has looked just a little less self-assured. It is true that although the race has tightened that Obama still has the math in his favour and more ways of getting to the magic 270 than Governor Romney.

Nevertheless to squeak back into the Whitehouse a weakened President facing an almost certainly hostile Congress with his opponents energised is probably not only the worse outcome for Obama and the Democrats. It is possibly the worst outcome for the entire world economy.

If only the stupid economy would come right…if only – the cry of lost causes through history…