Bits and pieces on the economy

Whilst at home the Obama administration seems to be getting a degree of centrist kudos for boffing a few CEOs on the head, things abroad are looking hairier and hairier.

Following the ouster of Rick Wagoner, the administration is sounding out the public (and presumably the Democratic party) on the implications of a managed bankruptcy of GM (see Washington Post and Wall Street Journal). This kind of heaviness is painted as a big risk by the WSJ, but the political risks of renewing the auto bailout without intervening dramatically are surely far greater. I was suspicious of the auto bailout from the start; but it's good to see at least there's some serious conditionality being applied to the money. Certainly, the Politico.com seems impressed, calling Obama "the nation's CEO" - which is, despite all that's happened in the past year, apparently still a term of praise.

Still, as Newsweek points out, Krugman remains the liberals' favourite Treasury Secretary in waiting and the new Geithner bank plan could fail in any number of ways. And, as Irwin Stelzer puts it in The Weekly Standard, Obama officials are trying to lower international expectations in equal proportion to Gordon Brown's efforts to raise them before the forthcoming London conference.

Are we going to see one of the big players storm out in a huff and blow the deal a mile high in order to win support at home? (Sweepstakes on Sarkozy, Merkel, or Lula...?) Dan Drezner at Newsweek certainly seems to be concerned that this is a last roll of the dice, that a deal on regulation might be on the cards but that fiscal conservatism in Europe will scupper any effort at a coordinated stimulus.

Underpinning this is the fact that the rising forces in the world see this crisis not so much as a crisis as an opportunity to rebalance global power away from the global hegemon. But this is a very dangerous game to play. The more pressure put on the US for spending itself out of this alone, the more likely that this will end up producing serious currency crisis in the medium term, and that could be dangerous for everyone.

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