IDENTIFYING THE PROBLEM....WHAT THE OBAMA ADMINISTRATION NEEDS TO DO DIFFERENTLY

Although I believe that viewing reports of Barack Obama’s lowering approval ratings as an indicator of his failure in the office of the president are a bit premature, I do think there is a different mindset that needs to be embraced by his administration.

I’ve always been a bit unsure about the concept of injecting stimulus into the economy through these huge government payouts….However, I couldn’t quite describe what it is that bothered me about it….Now I know.

In order to solve a problem, you need to first identify it correctly….The current recession/depression is not similar to the great depression in that this is not a collapse of business due to an inability to offer goods and services at market prices….This economic downturn is also not based on the collapse of trade between the USA and other nations.

Rather this is about the spending habits of American consumers especially when it comes to credit and specifically starting with mortgages and home buying….This is about Americans financing lives they cannot afford on credit instruments and then not being able to pay what they owe when the banks and credit card companies come calling.

I’ve blogged about this before…. http://rgdinmalaysia.xanga.com/676023432/the-bail-out-plan-is-rubbish/

You can pass all the spending bills you want, it’s not going to change that….What is first needed is a drastic change in the personal finance habits of the American people….The cold hard reality that many cannot live the lifestyle they want on the salary they make should be driven home if it hasn’t been already.

Once this becomes the focus, only then can the problem be fixed with any sense of permanence….The high unemployment rate is due largely to the credit based industry falling apart and the subsequent belly up of many companies….Banks are also not lending money for the start-up of new business which is where traditionally much innovation has come from….This is a big problem as the USA will increasingly fall behind China and India in this regard if new companies are unable to gather resources to compete.

Once President Obama understands the real problem then he can focus….Bill Clinton didn’t see his own approval ratings go up until the third year of his administration and after a Republican takeover of congress so some trial and error is to be expected.

I also think compromise solutions rushed through the congress on issues such as health care and global warming satisfy no one and solve nothing but that’s another post.