Obama--In Uncharted Waters

Major banks have said they are going to stop accepting California IOUs; the SEC says it is thinking of allowing them to be traded like stocks—so people can find some way to get money out of them.
Frightened consumers have begun to do something they haven’t done in years and years—save money. While that’s salutary behavior, it puts the 60% of the American economy that depends on consumer spending on hold for a bit.
Unemployment continues to rise at a clip that may scare even more consumers into saving rather than spending. PIMCO, the world’s largest manager of bond funds, suggests that while the actual recession might end this year, there will be no rampaging recovery like we’ve gotten used to since World War II. In other words, lots of people are going to go on saving or being unemployed.
Obama is perhaps the first president in ninety years to find himself in a situation in which he—and the United States—is not master of his and its own destiny. We had basically been a debtor nation since 1776, but in 1916, we became the world’s creditor. World War I was enormously good for business. We were about the only industrialized nation that wasn’t getting shot to pieces.
We allowed everybody else to do the fighting and dying until the last year of the war when we jumped in to “save Democracy” and protect our investment. The Allies owed us three billion dollars for war materials, a huge sum back when autos sold for $500.
(Germany and Austria only owed us about $30 million. They had no way of getting through the British blockade to buy anything from us. So, even if we hadn’t liked the Allies better, we really had to go with them. And, of course, the Germans made some disastrous PR blunders—like the Zimmerman Telegram in which they promised to give California and Texas back to Mexico if Mexico would distract us by attacking along our southwestern border.)
Because we got in the war at all, we were able to sit at the adult table at the Versailles Peace Conference, and Wilson got to force a bowdlerized version of his Fourteen Points on everyone. (Clemenceau muttered that God had only ten commandments and we hadn’t kept them.) Wilson had to be listened to. His was the most powerful nation left standing.
We had the money, we had the military potential—in the Naval Conference of 1922, England ceded to us the right to build a fleet equal to her own. Had anyone been so presumptuous in the previous century, it would have meant war. She had conceded the Caribbean as an American sphere of influence nearly twenty years before.
When we lost our footing economically in the Great Depression of the 1930s, we took everyone else down with us. During World War II we supplied every nation fighting Japan and Germany with material and munitions—free.
In 1944, we could summon the entire world to a conference at Breton Woods and basically dictate how the post war economy was going to be run. Today all sorts of nations and currencies could veto an agreement like that.
Only in the 1970s, when the Soviet Union finally recovered from World War II and had in its possession sufficient nukes to assure mutual destruction did a President have to take someone else into serious consideration when deciding on his foreign policy.
In the 1980s, Reagan upped the ante in what had become an international poker game between the USSR and the USA to a point where the Russians could not afford to continue playing. They folded in 1991, and we were left as the only Super Power on the planet.
America under Clinton and George W. Bush continued to be perceived that way until Wall Street REALLY laid an egg in 2008. Now it’s a totally different game, with totally different rules—some of which haven’t even been written yet.
All we really know is that the old ones—that FDR, Ike, Johnson, Nixon, Reagan, Clinton—played under don’t apply. We aren’t even back to the Nineteenth Century. Then, at least we had the British Navy standing between us and the rest of the world.
Our situation in the 1800s, after 1820, was very comparable to Japan’s today. We defend Japan and do all the heavy lifting in their national defense. After Britain made it clear in 1820 that her fleet would keep Europeans from intervening in the United States and the rest of the Americas, all we needed was a handful of regiments of cavalry to handle the Indians.
American presidents were pretty free to do as they pleased with Indian tribes and Mexico. Britain even backed off and gave us half of Oregon. We were free to buy Alaska and Guam. When we took over the Philippines, Britain put her Asiatic Fleet across the bows of any other European power that might want to interfere. (Specifically the German navy.)
We had a very small expense on military affairs. This left us free—like Japan—to plow our investment into factories and product development. Within the boundaries of Britain’s vital interests, we had basically a free hand. Our army was so tiny that as late as 1916 a French general could sneer at us that France lost “more men before breakfast every morning than you have in your entire army.”
But this is a new day. There is no Britain to stand between us and anybody else. The incomparable power we enjoyed in the aftermath of World War II is badly eroded. There are other kids in the sandbox who have ideas of their own—and the heft to make people listen.
We have been a debtor nation again since 1986—a date that should seem hugely significant, but we tend to ignore it. Breton Woods is long gone. The dollar itself is being questioned as a world currency. Our consumers—whose spending drove world prosperity for so long—have pulled back.
Obama faces a whole new world. There is no one to call for advice. No one since James Madison has faced anything quite like the world situation he faces. Nothing at Harvard, the Senate or the neighborhoods of South Chicago could have prepared him for what he faces.
It’s probably going to be a lot less fun than the world most other presidents faced. It’s going to be lonely—who can he go to for ideas? I only hope that this quite facile and intelligent man quickly realizes he is in terra incognito—and adapts effectively.
Otherwise it could be an unpleasant ride for all of us.