Thursday, November 6, 2008

Obama's Challenges

To start, the financial crisis and recession. The Economist:

What distinguishes today’s economic environment is that it is such a sharp break from a long period of low inflation and shallow recessions, an era lasting 26 years which some economists named “the great moderation”. Indeed, the median-age voter this year has known little else, notes Michael Barone, a political expert at the American Enterprise Institute. There have been financial upsets, such as the 1987 stockmarket crash and the 2001 dotcom bust. But they lacked the destructive power of this year’s financial tempest which has capsized banks, money-market mutual funds, insurers, hedge funds, car manufacturers—and countries as disparate as Iceland and Ukraine.

Against this background, Mr Obama confronts three distinct though related challenges: the financial crisis, mortgages and foreclosures, and recession. Of these, the financial mess has to be dealt with first. “Problems in the financial system”, explains Douglas Elmendorf, an economist at the Brookings Institution, “evolve in a matter of hours, days and weeks."