Last weekend’s FT Magazine had this excellent look back at the year – 2009, that is – from Niall Ferguson. The whole thing’s worth a read (especially on finance), but the section on the US government has the ring of authenticity to it:
Obama had set out to construct an administration in which his rivals and allies were equally represented. But his rivals were a good deal more experienced than his allies. The result was an administration that talked like Barack Obama but thought like Bill Clinton. The Clinton-era veterans, not least Secretary of State Hillary Clinton, had vivid memories of the bond-market volatility that had plagued them in 1993 (prompting campaign manager James Carville to say that, if there was such a thing as reincarnation, he wanted to come back as the bond market). Terrified at the swelling size of the deficit, they urged Obama to defer any expenditure that was not specifically targeted on ending the financial crisis.
In fact, though, Ferguson is remarkably upbeat about prospects for the US economy in 09. He continues:
Yet the world had changed since the early 1990s. Despite the fears of the still-influential former Treasury secretary Robert Rubin, investors around the world were more than happy to buy new issues of US Treasuries, no matter how voluminous. Contrary to conventional wisdom, the quadrupling of the deficit did not lead to falling bond prices and rising yields. Instead, the flight to quality and the deflationary pressures unleashed by the crisis around the world drove long-term yields downwards. They remained at close to 3 per cent all year.
Nor was there a dollar rout, as many had feared. The foreign appetite for the US currency withstood the Fed’s money-printing antics, and the trade weighted exchange rate actually appreciated during 2009.
Here was the irony at the heart of the crisis. In all kinds of ways, the Great Repression had “Made in America” stamped all over it. Yet its effects were more severe in the rest of the world than in the US. And, as a consequence, the US managed to retain its “safe haven” status. The worse things got in Europe, in Japan and in emerging markets, the more readily investors bought Treasuries and held dollars.
While we’re on the subject of Prof Ferguson, if you haven’t been watching his six part Channel 4 series The Ascent of Money (a tie-in with his new book), then you’ve been missing out: below is the first ten minutes or so of episode 1. If you’re UK based then all of the episodes are free to download on 4OD; if you’re elsewhere and have the patience, then all of the episodes appear to be up on YouTube if you hunt around.