Barack Obama faces ostracism

Barack Obama might have thought that he could succeed with his presidency by saving the US economy after the Great Crash in 2008.
• By Bringing the US economy back on track and presenting the electorate a strong US economy with high growth and high employment for the mid-term elections in November this year.

• Furthermore he might have hoped that the successful retreat of the US forces from Afghanistan and Iraq would convince the people that he a Nobel peace laureate has his mission accomplished by ending a quagmire his predecessor George W. Bush has begun.

• He himself considered as a symbol of racial tolerance in the US because he has been the first black American to become president.

• Finally he established Obamacare, not really universal healthcare for everyone, but for a larger number as before.
All this would have been enough to give him strong credentials and his party for his second term presidency.

The reality check is rather different

• However, things are working not out like this. The economy is not growing as strongly as expected. A weak first quarter with a decline of US GDP by 2.1% followed a strong one with 4.2% , but still this is expected to decline in the third quarter again. The long-term GDP growth rate of the US has been revised downward to a meagre 2%. This is significantly less than the 3% common before the 2008 crisis. Even if another setback of the US economy could be avoided, the reduction of US federal debt will not be feasible years until 2024. US economy will run major deficit of above 3% for the next decade. This will become a major liability since interest rates will not stay at the extreme low level of the past years. However, with interest rates raising the already high level of US debt will become significantly dearer when it has to be rolled over if government bonds reach maturity.

Janet Yellen still resists the louder voices from leading academics and policy makers in the US to raise interest rates of the Fed since there is a risk of a rapidly expanding financial bubble. She might hope that she is able to postpone this step until after the US mid-term elections, but she will be blamed anyway if she acts too little too late. So the possibility to control the financial cycle for political purposes of the US government might run sour. It has not given many examples that the political business cycle theory, i.e. the ability to control business cycle according to political needs has been successful. George W. Bush was the last example that the financial market crisis spread rapidly after the Lehman Brothers default. It was one of the main causes why Barack Obama succeeded in the following elections. He represented hope, but this has since then diminished rapidly. At the moment his approval ratings are not much better than those of George W. Bush two years before the end of his second term presidency. If the economy runs sour again, Obama may face a similar fate like Bush. There is still plenty of room at the bottom.

• Afghanistan and Iraq did not work out as well as expected. Both countries have failed to prove that nation building by the US and her allies have been accomplished and the retreat of US forces could be justified on this ground. Obama tried hard to avoid the disastrous retreat of his predecessor like in the Vietnam War. A trauma still present in the American public consciousness. But Afghanistan seems to be a hopeless case, which already the British and the Soviet leaders had to learn, when having their try to get this country – more or less a tribal nation – under their control. Since there is nothing to win anymore Obama has to decide if to retreat US forces and watch the collapse the regime he and his predecessor built from the distance.

The Iraq is even worse. With the emergence of the IS fighters in large parts of the Iraq and Syria the president will have to justify why this could happen to surprise of the US government. There is seemingly some evidence that he was informed regularly about this danger from the US intelligence services, but did not take political consequences. Now he has to send in troops again with the risk of mission creep, if the tiny US forces are insufficient to turn the balance. The Sunni-Shia-schism has not been overcome in Iraq, and the risk is that again a new round of civil war will destabilize the country possibly attracting neighboring countries to intervene on the different sides.

A successful retreat from these two US quagmires would look differently.

• Racial tensions have been overcome in the US. Barack Obama has been hailed at the beginning of his presidency. Racial tension in particular between black Americans and white and Latinos have been a problem of the past. The melting pot works. The outbreak of major racial tensions in Ferguson blew up this story to pieces. Sports always hailed as a unifier to overcome racism in the US has also showed up to have racism undercover when Donald Sterling racist statements about black players in his team were made public and forced him to sell the Los Angeles Clippers to Steve Ballmer. All this is only the tip of the iceberg.

• Obamacare was a promise that all American people would obtain universal healthcare at affordable prices. Instead of being a uniting issue it has become a divider between the US people. The key issue is the unsustainable costs of the current health care system which weighs heavily on the public debt burden. Since the now entering retirement age baby boomer generation faces the problem of rising health care costs, this will become a major issue over the coming years. It was one topic the radical tea party movement already attracted lots of support from American people in particular of the middle class. Since the very rich are not liable to for this healthcare scheme it is the internal transfers between those who had their health insurance coverage and those who obtain it now and need transfer subsidies to make it affordable causes the rift. Therefore it is doubtful that Obama and the Democrats will win lots of votes in particular of swing voters who worry that they are the losers of the Obamacare reform.

Ukraine debacle

Finally the handling of the Ukraine crisis by the US president will become a major liability in the coming months. US policy in particular was raising high hopes in Ukraine that the US government together with Nato will stand by the Ukrainian people when they faced Russian aggression and occupation of large parts of their country.

Now, it seems that this will not be the case leaving Ukraine to the mercy of the Russians. By just pointing out that Ukraine is for legal reasons not eligible to become member of Nato or even get military support by weapons urgently needed to withstand the Russian army forces, the credibility of US policy in Eastern Europe will face a major setback.

All this together is a major policy failure which will become more and more visible over the coming months.

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