Friday, May 29, 2009

How does Mr. Geithner like his tea?

Obama’s Secretary of Treasury is off to China this weekend. Most of the early meetings will revolve around formalities and ceremony with photo ops posed with cups of tea. At some point the Mandarin speaking Geithner will be expected to convey the new official policy of the United States. This new policy reverses sixteen years of official policy and in reality 40 years of government policy. The new policy is to revive the American manufacturing base. Mr. Geithner is tasked with convincing China to reverse its Dollar policy that enables Chinese goods to overwhelm the US market.

It is doubtful that China will agree to this or that this would even fix the problem given the dismal condition of the economy. But the real purpose of the visit will be to convince China that Obama has a plan and what he expects China’s role to be.

Given the looming crisis in the US, China has little choice but to make some sort of agreement. The number of Americans on unemployment sets a new record every week. Most of the holders of commercial real estate are teetering on the edge of bankruptcy. The number of homeowners behind on their mortgages has gone past twelve percent and is climbing. Eight million foreclosures are expected this year. The next big downturn is expected this fall and could make 2008 seem like the good old days.

So far, all President Obama has done is to attempt to re-inflate the banking bubble, but with no real economy to support it this won’t last. Layoffs, business bankruptcies and wild swings in prices could ignite deflation which would drive a collapse that the government is not prepared to deal with.

As worker’s extended unemployment benefits begin to run out, the real pain that has be postponed will begin to set in. People will start to demand that action be taken. Unfortunately few Americans have any idea what that action should be. Most Americans alive today have been raised on a steady diet of antiunion, pro-corporation and "government is the problem" pabulum.

You can count on the Pigman to be there to tell them his nonsense. The question then is will Obama be there with a plan the American people can get behind before the panic starts.