There Is a Lot of State in the US Market

2012 is not 2008, and it would be wrong to expect the same enthusiasm and the same promises from the U.S. presidential elections. They’re in the middle of the worst financial crisis of the industrial age, as Adair Turner, the supreme arbiter of British finance, defines it. There are more numbers, often heavy numbers, than visions.

Obama promises to save the middle class, but for him the vote is more about what he has done than what he promises to do. It is always a referendum on the past four years when the president in office runs for reelection. The Republican challenge is one of the market against Obama’s supposed “state,” as if the America of today, supported by a heretofore unseen level of public credit, doesn’t yet have the financial capital in Washington or on Wall Street either. This is a fact that Republicans would have difficulty changing.

For voters, the first question is simple: Does the man in the White House deserve to be re-elected? If so, the game’s over. If a voter is not convinced, he or she observes the opponent, and sometimes prefers that person. But the voter always considers the opponent. The clash is therefore rarely between two views, but between actions on the one hand, and promises on the other.

Two visions have really only clashed two times in the past 60 years. It happened in 1952 and in 2008. In ’52 Harry Truman was defeated in the primaries and didn’t run, and neither did his vice president. This left the field wide open for Adlai Stevenson, a Democrat, and Dwight Eisenhower, the Republican candidate. They were able to outline their visions for America, more so in foreign than in domestic policy, because the Republicans shied away from Eisenhower’s challenging the New Deal.

In 2008, with Obama and McCain both unattached to previous administrations, it would have been a nearly perfect case of two visions — social concern against the efficiency and strength of the market — if the big financial crisis hadn’t come 45 days before the vote to mess up all the cards.

In contrast, the other 15 electoral contests, from 1944 to present, have been referendums on the incumbent President or his direct successor. The economy and personality are the two hurdles, the former for Obama and the latter for Romney, according to Pew Research Center President Andrew Kohut, speaking after the latest analysis of the electoral mood in mid-April. Obama will win or lose on the economy, which is not surging upward, and which could get worse, according to various growing signs. Romney must overcome the significant handicap of poor personal appeal, which according to the Pew Research Center is by far the lowest among the candidates in recent decades.

If the economy gets worse — and it might — and unemployment goes up to 9 percent, Obama’s venture becomes difficult. So far no one has been re-elected with more than 8 percent unemployment, and the low personal appeal of the too-rich Romney might wind up being overcome. Conversely, if the feeling of hope remains, despite the low scores that Obama gets for economic management, the president could be confirmed. No one with a favorability index as low as Romney has ever been elected. It’s a race to the bottom, in other words. It’s impossible for now to make serious forecasts. Only the bookmakers make them, usually with Obama winning.

But for which America will he be elected? Obama is for a “fair America” that saves the middle class, who’ve never been in trouble due to the crisis as much they have been in his four years. Romney’s for the market, which doesn’t fail, he says, and thrives with its creative destruction. Romney, as a champion of private equity, is a master of such destruction. No one, under the rather confused sky in America today, says in the rallies that hyperfinance and the crisis have made even the home of capitalism the shadow of herself, with financial markets largely dependent on Washington.

About a year ago, it became clear to those who carefully analyzed the data from the “flow of funds” from the Federal Reserve that public finance overtook private in the financing of private consumption. Lines of credit issued from Washington, and above all backed by Washington, climbed to first place in the financing of all mortgages and consumer credit. This was a sharp reversal from 2006, when for every dollar backed by Washington, there were two backed by the free market. Days ago, then, a study by Brookings — the venerable think tank close to the Democrats — put the seal on this data, pointing to an analysis by Douglas J. Elliott entitled “Uncle Sam in Pinstripes” (or “Uncle Sam, Banker”). By now, Washington with its financing and credit insurance for mortgages and families, agriculture, businesses, and students is the number one banker of America. It gave out $2.7 trillion by the end of 2011, more than the portfolio of the number one private bank, J.P. Morgan. And this doesn’t include the guarantees for the real estate megafinancers Fannie Mae and Freddie Mac, for the system of Federal Home Loan Banks, and for other commitments made by the executive (outside of the Federal Reserve) following the crisis.

The total would lead banker Uncle Sam to about $9 trillion of exposure. These are figures which will be discussed little in the election campaign. We talk and will keep talking (a lot) about public debt, but it’s a theme that in reality gets postponed until after the vote.

And of course the candidates won’t say that the public debt is close to the Italian public debt based on GDP, if you take the official figures, and not far from the Japanese debt if you take into account the main guarantees that Washington offers without entering them into the budget. It is one of the largest in the world, in other words. It won’t be a very inspired election. It will be tough, unpredictable and ambiguous in outlining the uncertain reality. And we hope that in 2016 some real inspiration will come.