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I think we’re all getting a quite vivid sense that President-elect Obama’s way of handling tough situations is to set his jaw, furrow his brow, stare purposefully forward, say reassuring things, but on no account to make any clear statements of intent, or to actually do anything.
At least one of the consequences of this extremely risk-averse approach to leadership, is that financial markets are completely in the dark about what they can expect from the new government.
And when financial markets don’t know what to expect, they always err on the side of excessive caution. Hence the great difficulty they’ve been having in finding a bottom to bounce off from.
The stock and bond markets appear to be discounting an economic future that is little short of catastrophic. Since total catastrophe is one of the least likely outcomes, it stands to reason that markets are currently underpriced.
But that’s not to say they can’t very easily become a lot more underpriced!
Obama could sweep away a lot of this uncertainty and unreasoning fear with no more than a ten-minute news conference.
He could stand up, with the towering Paul Volcker, the sour-pussed Larry Summers and the sardonic-looking Tim Geithner standing behind him, and say the following:
“Ladies and gentlemen, I’ve consulted at length with my economic team. We’re acutely aware that our economy is facing great uncertainty. We understand that our system is a capitalistic one. We intend to do whatever it takes to get business and capital working again, for the sake of every consumer and working person in America.
We also recognize our critical responsibility to the rest of the world. As the pre-eminent economic power, it’s up to us to lead global markets back to health and prosperity.
I’m announcing the following key decisions, which we will stand by until our markets are back to normal, employment is growing, and our economy is healthy again:
All tax increases on capital, dividends, and business income are OFF THE TABLE.
All protectionist legislation, including increased tariffs and import duties, are OFF THE TABLE.
All new regulations, mandated costs and taxes on businesses, including export businesses, are OFF THE TABLE.
That is all. Thank you.”
If Obama were to give this speech, you’d see explosive market rallies, and everyone would heave a big sigh of relief.
So how about it, Mr. President-elect?