Seventy-one years ago this spring, after the German army had broken through the French lines, British Prime Minister Winston Churchill flew to France to consult his embattled allies on how to stop the advance.
“Where is the strategic reserve?” Churchill urgently asked the French commander in chief, Gen. Maurice Gamelin, and then he repeated himself in French: “Ou est la masse de manoeuvre?”
“Aucune,” came Gamelin’s reply. “There is none.”
The French had no reserves to stop the Germans from overrunning their country. The Battle of France was lost.
The Obama administration, in its grand strategy to generate a rapid and strong recovery from the Great Recession, is at a similar pass. It has drawn and played all its cards: the $800 billion stimulus bill, three straight deficits averaging $1.4 trillion, the Federal Reserve‘s mass purchases of bad paper from the world’s banks, and QE2, the monthly purchase of $100 billion in Treasury bills that ends June 30.
Yet, from the numbers that came in from May, Obama looks to be holding a losing hand. The anemic growth of the first quarter of 2011 seems to have stalled, and the prospect of a double-dip recession looms.
Though the administration anticipated perhaps a quarter-million new jobs in May, as April produced, May generated only 55,000. The unemployment rate ticked back up to 9.1 percent.
The rise in manufacturing employment went into reverse. Five thousand manufacturing jobs were lost. Consumer confidence sank.
Today 2 million homes remain vacant in the USA, putting immense downward pressure on housing prices. A fourth of U.S. homes are not worth the mortgages being paid upon them.
Says Federal Reserve Vice Chairwoman Janet Yellen, “Looking forward, I unfortunately can envision no quick or easy solutions for the problems still afflicting the housing market.” Recovery is going to be a “long, drawn-out process.”
A further decline in housing prices of 10 to 25 percent over the next five years, says Robert Shiller, the economist who invented the S&P/Case-Shiller index of property values, “wouldn’t surprise me at all.”
The economic malaise has now begun to affect the mood of the nation and its attitude toward the president.
Almost 90 percent of Americans think the U.S. economy is terrible or poor. Sixty percent think the nation is headed in the wrong direction. Forty-eight percent expect a second Great Depression next year. Fewer than 40 percent approve of Obama’s handling of the U.S. economy.
In one new poll, Mitt Romney leads the president 49-46 in a matchup in 2012.
The question Obama faces and, indeed, Congress and the nation face is: What do we do now?
Chairman Ben Bernanke of the Federal Reserve has signaled that there will be no QE3, no more Fed purchases of $100 billion a month in U.S. government paper. Buyers for that $1.2 trillion a year of U.S. debt will have to be found elsewhere.
And with the economy stagnant or sinking, the Democrats on Capitol Hill are starting to back away from any deep budget cuts, even as Republicans are now even less likely to sign on to any tax increases to reduce the $1.5 billion deficit.
Indeed, if the economy is stalled or sinking into recession, what economic theory is it that argues for austerity and tax hikes?
And the perceived economic stagnation not only diminishes the chance of a bipartisan budget deal but also points to deadlock on the debt ceiling.
Republicans are already holding out for $1 in spending cuts for every dollar increase in the debt ceiling. And the country seems to be behind the GOP position: If the Senate and White House don’t agree to $2 trillion in spending cuts, we don’t raise the debt ceiling by $2 trillion.
The U.S. government does not run out of money to pay its bills until August. But markets probably will be making judgments upon the likelihood of a U.S. default well before then.
How did we get here? How did the richest and strongest country in history, triumphant in World War II and the Cold War, approach so soon the condition of the late Spanish and British empires as they began their precipitous declines?
Answer: We overextended ourselves. We bankrupted ourselves.
We undertook the defense of nations all over the world having little to do with our vital national interests. We fought unnecessary wars. We doled out trillions in foreign aid to ingrates, incompetents, opportunists and thieves.
We promised all our seniors Social Security and subsidized medical care for the rest of their lives and failed to put the money away to pay for it. We dropped half of U.S. wage earners off the tax rolls while creating a mammoth welfare state to dwarf anything Norman Thomas and his Socialists dreamed of in the 1930s.
Not only for the United States but also for the West, the days of wine and roses are over.