Obama, Osama, and the US economy

By: Tallha Abdulrazaq
 

Apart from the very beginning of his presidency and the events unfolding now in May post-mortem Osama bin Laden, President Barack Obama was certainly not inspiring too much confidence domestically or internationally. Apart from a few domestic political victories, such as the passing of a new healthcare bill that has benefitted many Americans, Obama has presided over a time of US political and economic decline. International events also shape the level of confidence that his people have in him, and whilst Obama convinced many that this was a “chance for change” with such addresses as his speech in Cairo in 2009, his failure to navigate the defunct Palestinian-Israeli peace process, to decrease perceived and real tensions in the Middle East at US military presence, as well as his lack of movement on closing Guantanamo Bay amongst other promises have seriously drawn down his approval rating among Americans.

One of Obama’s main problems was that he was being perceived as always trying to take the soft approach. Although Obama allowed the continuation of illegal drone strikes into Pakistan, and also increased the US military presence in Afghanistan, he has been irrationally criticised mainly by Republicans as being too much of a soft-power proponent. In reality, the only difference between Obama and his predecessor, George Bush Jr., is that the former actually knows how to conduct politically acceptable discourse whilst still pursuing hard-power policies. However, Republicans have attempted to capitalise on Obama’s mild-mannered appearance and silver tongue, and have even questioned his Americanism – an apparent national ideal seemingly defined by neoconservative politicians as blasé aggression – via incredibly odious assertions even being made by infamous business tycoon, Donald Trump, who openly doubted whether Obama was born an American. Clearly, this was never likely to be the case as the White House would be stupid indeed not to check the credentials of potential presidential candidates. Nevertheless, such was the pressure felt by Obama that he felt compelled to release the long-form of his birth certificate to the media to dispel any myths about his national heritage.

Whilst the above certainly will not be inspiring confidence in Obama and by extension the US, a look at key economic indicators shows how there is a distinct lack of faith in the American leadership, its economy and the US dollar. At a most basic level, the US economy is a high credit, high energy economy requiring copious amounts of fossil fuels, nuclear reactors and other sources of energy to keep it going. It goes without saying that the US is also dependant on oil for fuel, and much of that comes from other nations via large privatised oil companies. The problem with oil, as a fossil fuel and a strategic resource, is that it is finite; it is impossible to rely on it forever. Even if new sources of oil are located, the gluttonous growth of the US economy has relied upon it so extensively that more and more oil is necessary to maintain that growth and so therefore speed and efficiency of oil extraction becomes an issue of paramount importance. However, this is where things begin to get interesting economically.

Kurt Cobb, American energy activist and author, has been trying to put across the message of ‘peak oil’ and the threat that this poses to the US and even the global economy. Peak oil represents the maximal rate at which oil can be extracted and refined for use and Cobb has accurately argued that mankind is close to reaching peak oil levels. Even if more oil sources were found, they might be so far underground or even possess a lower viscosity making it difficult to extract and therefore an oil production constraint is born. As it currently stands, prices of oil are at a record high, over $100 per barrel and climbing and this is largely due to the aforementioned constraints as well as conflicts in or near key oil producing states. But what are the economic effects of this undeclared oil crisis?

Obama has blamed the rising prices of oil on commodity speculators who have apparently kept an upward trend in oil prices, hoping to go long and sell at a price peak for maximum profits. Whilst there is no doubt that speculators and traders are keen to ride this wave of rising oil prices, this is not the only reason that oil is so expensive. As previously mentioned, oil is running out and extracting it is becoming more of a problem. Also, unrest and instability in the Middle East, where a large amount of the world’s oil resources comes from, has certainly helped to push the price of oil up. Indeed, even though Saudi Arabia recently increased oil production to bring prices down, the overall turmoil and the growing realisation that oil is running out has managed to easily break their efforts, and this is not good news for Obama and his administration; if oil remains at such high levels it will affect the US economy in a multitude of ways. Average Americans will have much higher petrol costs to keep their cars running to get to work therefore affecting productivity; businesses will suffer due to an increased cost in logistics and supply chain management; and higher oil prices means higher energy costs overall. This increase in price means oil companies and their lobbies on Capitol Hill benefit in the short term at the expense of the common American, but even they will have to find a new source of revenue once oil finally runs out.

This, as well as an endemic credit problem, has forced the US dollar to weaken significantly, and this could spell serious trouble for not just Obama, but US power as a whole. With this dire economic situation to contend with, Obama made a political decision to boost his own popularity and, with it, the US economy; he killed bin Laden. Whilst a previous article discussed the actual murky killing of bin Laden, this article will instead limit itself to the effects of this action. The real effect of bin Laden’s death is very minor indeed. He has not directly controlled al-Qaeda for a very long time and was pretty much impotent whilst he was in Pakistan. For all we know the US may have, as economist Max Keiser dryly remarked, “defrosted” him and finally announced to the world that he was dead. However, the perceived effect of his death has managed to rally support not only for Obama, but also the US economy. This month alone has shown some dire US economic indicators, with unemployment rates still high amongst other problems arising from quantitative easing (QE) and the printing of more dollars. Nevertheless, after the reported death of bin Laden, the dollar has skyrocketed and increased in value and is now up to 74.84 from 72.95 on the dollar index. This strong rally reflects the recent surge of American patriotism as well as increased international confidence in the US government and its perceived power to be able to still take risks when the chips are down, or so they would like everyone to believe.

Unfortunately for Obama, whilst his political credit may last a while longer, his economic credit is about to run out again. Strong down trends are usually punctuated by surging rallies before resumption of the down trend and vice versa, and the death of bin Laden reflects one of these instances. Obama and his team have not addressed the underlying problems of the US economy and rather than making sound public policy decisions, they have instead allowed oil and energy company lobbies to force them to accept corporate profiteering. The US Federal Reserve has kept interest rates low to encourage borrowing in a poor attempt to act like a junkie and get a quick fix. At the same time, they have engaged in successive rounds of QE and this basically means that the dollar is quickly losing its value, and people are borrowing valueless currency which is not based on something like a gold standard. The US government has given large Wall Street banks – largely to blame for the economic crisis in the first place – a lifeline and trillions of dollars worth of support to prop them up. This has the effect of allowing a failed bank to stay in business to repeat or make even worse decisions to increase their own profits thereby killing private credit and making these banks and the people reliant on government credit. As private credit in the US has shrunk significantly, the US will be in dire straits indeed if their government credit runs out, which is a final reserve. The best option for the US is to let these banks die, encourage fresh blood into their banking system while changing laws to prevent a repeat of such mistakes again, and to disengage from their highly expensive and unpopular military campaigns abroad. Unfortunately for Americans, this is unlikely to happen so long as corporate lobbies so closely affect domestic politics, and we may even see the US economy weakening so drastically that the US dollar will no longer be the international reserve currency in five or ten years time.