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November 4, 2008
Can President Obama’s ‘little task force’ solve America’s big problem?
By Brady Willett

Last Friday’s 3Q08 GDP report said that real consumer spending fell by the most since 1980.  Yesterday the ISM Manufacturing Index registered its lowest level since the 1982 recession.  Intermixed within these two ominous economic reports has been a record monthly decline in consumer confidence, horrific automobile-related news, and what promises to be an ugly employment report (due out this Friday). Finally, there is the following chart to remember (Courtesy of Schwab):




With the financial markets seizing/crashing in October and a global slow down taking root, that U.S. home prices continue to fall – and may continue to fall for some time – is a point easily forgotten.  Liken this situation to people ignoring an earthquake as they run from a tsunami. However, with the most volatile period of the current financial crisis potentially over, it may not be long before attention is drawn back to the U.S. housing market.

Obama:
“What we need is a floor in the housing market, a, a stop to the decline in housing values." July 27, 2008

Assuming the polls are accurate, Obama should win the U.S. election and with victory be bestowed the unenviable honor of trying to turn the U.S. economy around.  There is every reason to believe one of Mr. Obama’s primary focuses on this front will be trying to mend the ailing U.S. housing market.
 
Can Another Bailout Effort Fly?

With the rest of the world having already caught the U.S.’s cold and a flight from ‘safe’ U.S. dollar assets probably the furthest thing from global policy makers’ minds, Obama may have some leeway in pressing for a housing fix.  Quite frankly, another massive bailout effort aimed directly at the U.S. housing market may not spook the markets and/or rile foreign investors (as some previous bailout efforts have done).  Instead with the Baltic index being decimated, decoupling proven a myth, the price of gold having plunged, and a frightened world no longer blaming but looking to America for leadership, dramatic intervention on the housing issue may become the prerequisite of recovery.  Enter Mr. Obama and – as Robert Rubin recently mentioned – his little task force.

ZAKARIA: And the basic issue that you're trying to solve is, the underlying asset here, which is housing prices, continues to decline. And so, you want to in some way shore that up, because this mountain of debt and these financial instruments are sinking, in large part, because that underlying asset is sinking.

RUBIN: It is the -- you're absolutely right -- the central problem, although there are plenty of other problems -- are the declining housing prices, plus a terrible problem for families all across the country…
 
But I will tell you this from having our meetings with Senator Obama, he is intensely focused on this [falling housing prices], and he has a little task force working on this right now, so that -- to try to take all the proposals that are around, and find something that people think has a high probability of working.

CNN Transcript. October 26, 2008


A Quick Look At The Horizon

As doomed as the U.S. dollar and U.S. borrowing/spending model is, there can be no guarantee that the end game will arrive before more episodes of bailout and [artificial] recovery.  As for the question of whether an Obama-led housing bailout plan can really ‘work’, remember that Greenspan’s policies supposedly worked wonders for 18-years but that he is now being viciously attacked on numerous fronts for causing today’s crisis. In other words, do not be surprised if efforts aimed at trying to solve the problem of falling U.S. housing prices are successful, but be less surprised when the solutions create more problems in the future.

In short, Obama may indeed bring with him a pocket full of ‘change’, but his other pocket his packed with unbacked fiat dollars. With the Fed up for anything and Obama’s new Treasury Secretary likely readying major plans for January 2009, real changes to the unsustainable American-way of delaying a day of reckoning will likely be put on hold.  Longer-term consequences be damned, as further exploitation of a world still bereft of alternatives to USD hegemony opens the possibility of the U.S. eventually acquiring policy traction.  Welcome to the driver’s seat President Obama!


BWillett@fallstreet.com