The long and often endless road to the White House is finally coming to an end. This week we will find out who the next president of the United States will be and in all likelihood, it will be Senator Barrack Obama.
President Obama and his staff have their work cut out for them. They are inheriting a fiscal mess and they will need to move quickly to dampen the effects of the credit tsunami that threatens the U.S. and global economy.
Not surprisingly, Reuters reports that the new president-elect may move quickly to fill the top jobs:
Some analysts believe certain jobs, such as Treasury secretary, could be announced within days of the election and speculation is already rife about several names.
The next Treasury secretary will inherit one of the hottest seats in Washington, tasked both with guiding a $700 billion economic bailout package and the regulatory reform needed to prevent a repeat of the current crisis.
Should Obama win, the short list for Treasury would likely include former Treasury secretary Larry Summers, former Federal Reserve Chairman Paul Volcker and Timothy Geithner, president of the Federal Reserve Bank of New York.
Both candidates have spoken favorably about investor Warren Buffett, an Obama supporter.
McCain has also mentioned former eBay chief Meg Whitman and Cisco Systems CEO John Chambers as possible Treasury picks. Also in the running would be Sheila Bair, head of the Federal Deposit Insurance Corp who has pushed a plan to modify home loans to prevent mortgage defaults.
For secretary of State, Massachusetts Democratic Sen. John Kerry; former diplomat Richard Holbrooke, outgoing Republican Sen. Chuck Hagel and former Georgia Democratic senator Sam Nunn are names circulating for Obama. Connecticut Sen. Joseph Lieberman, an Independent, and World Bank President Robert Zoellick are two people McCain would consider.
Both Obama and McCain might consider keeping Robert Gates on as secretary of Defense. Obama could also consider tapping former Navy secretary Richard Danzig, a close adviser.
McCain has been willing to discuss a few names for jobs such as Treasury secretary. Obama is not tipping his hand either on names on his short lists or the timing of any picks.
Obama's campaign is maintaining the utmost secrecy on planning for the transition, which will occur in the 11 weeks between the November 4 vote and January 20, when a successor to President George W. Bush is sworn in.
Obama, a Democratic senator from Illinois, told ABC News he had "some pretty good ideas" about people he might tap for senior jobs, although he emphasized he is focused on the final days of the campaign and takes nothing for granted.
He said he would "absolutely" include Republicans in his Cabinet but he sidestepped a question about whether he would ask Gates to stay on at Defense.
The Bush administration has emphasized its willingness to make resources available to both candidates to enable them to vet candidates prior to the election.
Stephen Wayne, professor of government at Georgetown University, said that in addition to those major Cabinet posts, it would be important for an incoming president to designate a chief of staff early.
Rep. Rahm Emanuel, who hails from Obama's home state of Illinois, would be a potential chief of staff for the Democrat as would former Senate Majority leader Tom Daschle. Former Navy Secretary John Lehman might serve that role in a McCain administration.
I would include Paul Krugman among those being vetted for the position of Treasury Secretary.
Needless to say, the stakes are high in these elections, and no matter who wins, there are tremendous challenges ahead.
To understand some of the economic challenges, you need to read John Mauldin's latest weekly letter, Electing the Janitor-in-Chief:
No doubt about it, the honeymoon will be short and expectations are running high to deliver real change.
The second quarter of 2008 saw an anemic $9.5 billion. At that run rate, we could see a drop-off of well over 90% from 2005! Now, think what the second quarter would have been without the federal stimulus program of $150 billion. It might have looked and felt like this quarter!
In the economic data which came out today, consumer spending was down 3.1%. You have to go back to the intense and deep recession of 1980 to find a worse number. And we are just in the middle innings of what is likely to become a much worse recession.
So, did American consumers cut back on borrowing? Not if they had a credit card! Total loans from commercial banks to consumers grew by $89 billion for the 12 months ending in September. $61 billion of that was credit card debt, and the amount in recent weeks has exploded.
Let's look at this analysis from my favorite slicer and dicer of numbers, data-wizard Greg Weldon (www.weldononline.com). Going with a Halloween theme:
"FAR MORE 'telling' is the LOPSIDED degree to which Credit Card balance growth is 'contributing' to total growth in Consumer Loans, a sign of intensifying 'stress' on consumers, amid accelerating job loss, home price deflation, and equity-market paper wealth devaluation.
"Even the raging Frankenstein stops to note the shockingly UGLY data details:
Commercial Banks, Outstanding Credit Card Balances ... SOARED by an eye-opening + $7.1 billion in the WEEK ending October 15th, representing a +1.9% single-week rate of expansion ... or ... nearly ONE-HUNDRED PERCENT annualized (+98.4%).
"Even more 'telling' is the 'read' acquired by contemplating the following pair of data FACTS:
* Credit Card Loans, 10 months Sep07-thru-Jul-08 ... up + $29.1 billion
* Credit Card Loans, 10 weeks Aug-08-to-mid-Oct-08 ... up + $32.3 billion
"In other words, Commercial Bank 'exposure' via the total amount of Credit Card 'loans' outstanding has risen MORE in the last ten WEEKS, than it did in the previous ten MONTHS COMBINED !!!
"Moreover, the growth in the last ten-weeks, $32.3 billion, or about $600 million per 'shopping day' since the beginning of August ... represents nominal growth of + 9.3% ... or ... + 48.3% annualized over the last ten weeks.
"According to American Express, delinquencies on credit payments rose to 4.1% of all credit outstanding in the 3Q, up from 2.5% in 3Q of 2007, with Bank of America's rate rising even more steeply, to 5.9% in the quarter.
"Moreover, the 'pool' of loans deemed 'uncollectable' rose to a high 6.7% in the 3Q, soaring from 3.6% last September." [Emphasis mine.]
What consumer spending there is has been fueled in part by credit card. Greg notes this uncomfortable piece of data: the second largest "merchant-vendor" for credit card use is now McDonalds. This suggests that many consumers are in serious distress when they need to get their $4 Big Mac and fries with a credit card.
This is the problem facing the economy next year. Credit card growth like we have seen in the last few months has never been sustained at such a level, and is unlikely to be this time either. This is especially true as credit card delinquencies have been rising, as noted above.
The next administration is going to be faced with a retrenching consumer, which will likely push the economy even deeper into recession. This will of course result in higher unemployment. In the first year of the next president's term, he is likely to see another one million people lose their jobs, pushing unemployment to almost 8%.
Peter Bernstein, in his regular letter, notes the rising levels of the DURATION of unemployment. It is now over 9 months, close to 38 weeks. As the recession deepens, this means a lot of people will stop receiving unemployment benefits. Oh, and of course, unemployment is not good for consumer spending. And it will put even more pressure on homeowners behind on their mortgages. And unemployed people do not pay taxes, widening the deficit.
If you thought the recovery under Bush was the "jobless recovery," wait until you see the next version without the benefit of profligate consumer borrowing and spending.
President Obama and his new administration need to restore the United States to what it once was - a great nation with a strong middle class.
I remain optimistic that they will succeed in bringing about meaningful change to millions of Americans that are suffering right now, but I am worried, knowing full well that the path to success will be long and tortuous, not only for the United States, but for the rest of the world.
Make sure you read Joseph Stiglitz's latest article, Reversal of Fortune:
We are in the midst of microeconomic failure on a grand scale. Financial markets receive generous compensation - in the form of more than 30 percent of all corporate profits - presumably for performing two critical tasks: allocating savings and managing risk. But the financial markets have failed laughably at both. Hundreds of billions of dollars were allocated to home loans beyond Americans' ability to pay.As stated above, the challenges for the new Obama administration will be daunting but let's hope they can get us out of this mess.
And rather than managing risk, the financial markets created more risk. The failure of our financial system to do what it is supposed to do matches in destructive grandeur the macroeconomic failures of the Great Depression.