Monthly Archives: January 2014

The Perils of Inattention – Financial Policy Council

In many sports, players are advised always to “keep your eye on the ball.” In 2008, we took our eye off the ball; as a result, we chose a president, and an administration, that did the same.

In the 2008 election cycle, voters were fed up with George W. Bush – and certainly not without some justification. They were ready to vote “not Bush” and “not Republican.” However, in a time fraught with enormous economic difficulty and peril, we elected a president whose background showed no particular familiarity with or interest in economics, and whose record revealed that he was likely to pursue, and to prioritize, the very sorts of policies he has in fact pursued.

For a man who has been president of the United States for nearly a full term, there is much that is not known about Barack Obama. What we do know, however, and can say with some certainty, is that Obama sees himself as a transformative figure in American history. His deepest and most abiding
concerns are with his perception that the economic system is unfair and demands reform, particularly in the form of more social benefits to those he sees as in some way underprivileged, a larger government role in the regulation of business, and higher tax rates for high earners.

Viewed from this perspective, it is easy to see how Obama and his administration lost their way. At a time when the American economy cried out for attention and a skilled hand on the rudder, Obama’s focus was always elsewhere and his best skills lay in other areas. During his first term, with nearly veto-proof majorities in both houses of Congress, Obama concentrated on passing a health care reform act that was never widely popular, expending enormous political capital to pass it.

Moreover, the economic efforts he has made were often ideologically driven: enormous sums were invested in “green” energy goondoggles, for example. Likewise, the GM and Chrysler bailouts were shaped by the administration’s desire to please the UAW – at the expense of bondholders.1 A scintilla of business experience would have suggested that inducing unpredictable risk into the bond market during a recession was not a policy designed to encourage investment; but despite his frequent statements about how important the economy was, Obama’s actions belie his statements.

Terms of Expansion and Investments on Brazil Market

Although the value of investments in emerging markets has been hit hard by the financial crisis, we should keep in mind that the sources of the crisis were definitely not the emerging countries. These markets did not suffer any severe credit crises. Mortgages, which triggered the crisis, are not a cause for concern in this region.

The Latin American economies were spared, in large part, because their mortgage systems are completely different from the U.S. system. Most Latin American mortgages are subsidized by the government. As a result, there was none of the speculations of housing prices and method of finance that we experienced here in the United States.

Some Latin American economies might, in fact, be better prepared to recover from the crisis than several of the more developed economies and are, in principle, in better economic shape as a number of them have generated stabilization funds to support their respective economies. A lot of those Western hemisphere countries are resource rich.

They have enjoyed significant additional benefits from the economic development in China while the Chinese have used their recent economic muscle in an effort to corner the world’s most strategic natural resources. This has contributed significantly to Latin America’s rise.

I see the Latin American – Asian relationship strengthening further as China spends billions to gain access to Latin America’s natural resources and create an infrastructure in the region that will not only enable resources to flow back to China, but provide a basis for further economic development and consequent political stability in South America.