obamas re-election

Written by The Financial Express | Updated: Sep 3 2011, 03:34am hrs
President Obama has much bigger problems on his hands than wrangling with Republicans over the date of his economic reboot speech to Congress. It looks increasingly like he knows that, too. How else to explain his fanciful comments this week that he has plans up his sleeve to make the economy grow a per cent or a per cent and a half faster and create half a million to a million new jobs Mr Obama may think his biggest problem is that it is ever more doubtful his electoral chances next year will be helped by a resurgent economy.

One has to feel for his luck. The recession was not of his making; it began 14 months before his inauguration, according to the National Bureau of Economic Research. But what was then a joyous recovery just five months laterwith growth peaking at almost 4% annualised at the beginning of 2010occurred too soon from where Mr Obama stands now. Still, the economy could well rebound from here. That is why growth should not be the presidents main concern. His biggest problem actually lies with Americas 75m-odd owner-occupied housing units, 65% of which come with mortgages. Why Because he risks alienating a huge proportion of voters no matter what he doesor does not doto deal with the roughly quarter of mortgages currently under water. It is unlikely that house prices will recover enough to ease the negative equity problem before next November.

Some policymakers, therefore, believe loan modifications are needed to boost the economy. Others reckon such interventions distort the market, hampering long-term recovery. If Obama guns for the former, hardworking Americans who never overstretched themselves will surely be angry. Doing nothing guarantees continuing pain for millions. Patience is the only solution. But politics has no time for that.