St Patrick’s Day should have been a day of celebration this past Monday, at least in Washington. It has become popular in the US to commemorate (generally with a lot of beer) the feast day of Ireland’s Patron Saint. However, George Bush canceled the celebration in order to speak on a topic he claims is not so serious: the global financial crisis.
It should be obvious even to the novice operator of the market that Bush (or any other head of any economically prosperous state) couldn’t have said anything other than what we heard today. Instead of “crisis”, the American president prefers the word “challenge.” And have Americans reached a recession? “Soon the world will envy us,” Bush retorted.
One could much less expect the President, or one of his chief subordinates, to say if the government in Washington is willing to come to the aid of other banks in difficulty (as was the case with Bear Stearns) or if there is another package in preparation for relief from negligence of the mortgage system (Bush recently approved a package of 170 billion dollars).
So, why call meetings at all and issue statements? Critics, cited mainly in the European press, say that this second attempt by Bush to offset, with words, an economic Tsunami (the proportions and consequences of which cannot yet be ascertained) recalls the crisis of 1929, which converted then Republican President Herbert Hoover into a folk legend--for ignoring the signs of catastrophe. “Bush is behaving exactly like Hoover,” Democratic Senator Charles Schumer lashed out today in the International Herald Tribune.
It isn’t so much a question of what the American government is able to do, a fact that is universally acknowledged. Republican Presidential hopeful John McCain issued a statement praising the attempt of the Central American Bank, the Federal Reserve, to breathe life into the financial system (even if the bank doing the breathing created the difficulty to begin with). This much Bush mentioned. The powerlessness of the government keeps the market quiet. They are afraid to admit that the Fed may have come to the end of its resources.
The President of the Institution, Bem Bernanke, is respected in the academic world as one of the great scholars of the 1930’s depression, initiated by the economic crash of October 1929. But the main argument of those opposed to the Fed's ability to lessen the crisis is fundamental: in order to combat the dilemma of liquid capital, not even the Fed's provision (some 800 billion dollars) is sufficient. In order to combat the problem of insolvency (that is, the lack of foresight of those who took out mortgages), much less still.
A few weeks ago the renowned columnist Paul Krugman summed up the most unsettling characteristic of the crisis and that is trust, the basis of the proper functioning of any economic system. In view of this, Bush seems, in the end, quite insignificant. The same type of solution was applied to the 2001 recession and the crisis seems to be quickly escalating.
If the economic consequences are indeed difficult to anticipate, as said above, the political consequences seem to be relatively clear, above all, for the American political system, which will be coming to a critical decision come November. The idea that the American government is incompetent or incapable encases a situation in which the word “change” becomes much more pronounced.
Change benefits the Democrats – a saying that conforms to the general perception of a government that is once again attempting to cover up reality with words. Even when Bush, as is the case now, is not able to do anything other than appear optimistic.