Toshio Matsuda, Commentator & Intl Economist

Straight from the Shoulder No.499

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The face of America has changed.

The presidency of the United States has shifted from the long line of white leaders, largely put into place by members of their own race, to a representative of the African American community that has effectively been supplied with white leaders over the generations. The America that we have known, dating from the Declaration of Independence in 1776, effectively came to an end on November 4, 2008. America’s first black President, chosen from the general masses and largely unknown and untested, will be taking the helm in the midst of economic dilemmas the likes of which the nation has never experienced before.

This would appear to embody a power shift in the United States from the elite to the masses, from the haves to the have-nots. We must pause and ask ourselves what the American people, who have effectively rejected the traditions of the past in favor of a largely unknown future, have in mind at this particular point in time. In response to the watchword appeal by now President-elect Barack Obama that, “We can do it!”, the crowds shout back, “Yes we can!” What, however, lies ahead for the cheering and jubilant masses, who have changed the course of the U.S. by 180 degrees overnight, as well as for “Battleship America,” a stumbling superpower on the verge of sinking?

I can only wonder if the world at large has ever experienced this great a “change” in the nation of America? For incoming President Obama and the general masses, the struggles can certainly be expected to drag on for the time being. Over the turbulent times ahead, I can only pray for the security and well being of the United States.

I admit it. My prediction for a victory in the election by Republican Party Candidate Senator John McCain, based on the perspective of what I perceived as American’s national interests, was totally off target.

The abject failure of the insurance taken out on America’s national interests to provide results is a signal, I believe, of the end of the so-called “Century of the United States.” A positive outcome of this election in terms of U.S. interests, however, can be seen as the success by the Democratic Party in seizing an absolute majority of the 100 seats in the U.S. Senate (winning the lion’s share of the 35 seats up for grabs this year). Along with gains in the House of Representative as well, Obama’s party has further raised its strength in Congress. With both the executive and the legislative branches of the government held by the same party, it should be possible to fast track through the needed financial policies with maximum speed and efficiency.

At a point when there is no time to be wasted in using fiscal policy to implement antirecession measures, the forging of a political system backed by such national unity should be a big plus for the U.S.

In terms of financial policy, meanwhile, even President Obama will be unable to avoid a course of war, played out under the name of public investment, in order to raise his country out of the pressing economic crisis. It is true that Obama’s campaign pledges include early withdrawal of U.S. troops from Iraq. With regard to how he will deal with Iran, however, Obama has yet to commit himself either way. I believe that the pundits who insist that Obama will be passive about using military force are in error. An examination of past Democratic administrations in the history of the United States reveal just the opposite ? namely, that the Democrats have not been reticent about going to war at all.

I continue to feel that the U.S. will be an active factor in the brewing clash between Israel and Iran (which should come next year). In that sense, the emergence of monolithic unity between the White House and the Congress may very well be a development that serves to lay the groundwork for the next Middle East war.

With regard to tax hikes on high income earners in the U.S., the concept of applying such a taxation measure to persons with annual incomes of $250,000 or more was lowered to the $150,000 line on the eve of the election. If tax increases are allowed extend to the ranks of middle-income earners, the U.S. economy will not pull out of recession, but rather continue its freefall until hitting bottom.

In my view, if former Federal Reserve Board Chairman Paul Volcker rises to wield influence over economic policy in the Obama Administration, the recession will worsen further. Back in the days when he headed the Fed, Volcker refused to take action again the recession underway at the time, instead choosing to rely upon the autonomous adjustment function of the market, in which the economy is allowed to fall as far as it will, to restart positive business activity. In fact, my recent remarks in this column about how I would reserve judgment on my tentative conclusion that Japan’s Nikkei stock average has bottomed out in the event of an Obama presidency, stem from my concerns about the influence that Volcker may yield in his administration.

On election day (Tuesday November 4), expectations for a new administration drove New York stocks higher by $303. The following day, when it was clear that Obama would be the next President, share prices fell back by $486. The dawning of the presidency of Barack Obama, therefore, was greeted with what can be described as a “Black Wednesday” in its own right.