The Obama Dilemma: “Change” or Prosperity?

Little understood by those in the media (anyone surprised?) is what could cause the current credit blow-off and associated recession to devolve into a full blown depression. To understand, one has to take a brief trip down “Globalization Lane.”

“Globalization” is a a term generically used to describe the opening up of product and financial markets around the world over the past 25 years. Gone are the days of real protectionist trade policies and limited capital flows between countries. The 80’s, 90’s and 2000’s so far have been a golden era of relatively free markets.

Prior to the 80’s we had growth, to be sure. But since then we have had unprecedented growth in GDP, wealth, employment and equity appreciation. And this has occurred globally. Free trade and capital flows are good indeed. And these capital flows have gone disproportionately to the US, as we has been viewed as the mother of all investment opportunity countries. The flows of capital have been so huge as to finance both the US budget and current account deficits – despite all predictions to the contrary.

But, what could kill this environment, now 25 years and running?  What could cause a global financial collapse?

Policies that that make America a less attractive place for the world’s capital to invest, that’s what. If the foreign capital does not flow in, US interest rates skyrocket.  And we are in for one tough time.

And what might those harmful policies include?

  • US trade protectionism.
  • Global warming driven environmental policies harmful to US industries vis-a-vis China or India.
  • A more oppressive regulatory environment.
  • Higher taxes on capital, capital gains and profits
  • More silly regulation of the financial industries of the Sarbanes-Oxley type.
  • A general loss of US entrepreneurial spirit, driven out of the culture by government actions, coupled with a rising spirit of entitlement and grievance.

If any of these sound familiar, it’s because Barack Obama, Harry Reid and Nancy Pelosi have been identified with all of them.

Notwithstanding today’s (November 24) rally, the markets are awfully nervous. If the Obama Administration turns out to govern the way the Obama campaign promised, America is in deep trouble. If Obama recants all his promises, he’s really a Republican.

I don’t know what he will do. I just know he is in a box.

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