The world’s press spoke with one voice over the weekend:

“Now, the hard part...!”

“Obama faces huge challenges...”

“Not an easy time for president-elect...”

And for once...the press is right. It won’t be an easy time for Obama’s team. But the president elect is moving fast; he’s already got a meeting scheduled with an impressive list of advisors – including Warren Buffett and Paul Volcker.

And he’s already got a plan, or at least the beginning of a plan, to deal with the economic threat. He’s leaning towards what the press are calling the ‘big bang,’ approach – a combination of reform, quackery, giveaways, larceny, distortions, meddling, corruption and national bankruptcy. It will probably include a new health care plan, an energy program, a moratorium on mortgage foreclosures, higher taxes, income redistribution, loans and more bailouts.

“Obama can be a Roosevelt and not a Carter,” writes David Blake in the Financial Times . “The cure for inflation is tighter money, tighter budgets and more unemployment,” he continues. That is the situation that Jimmy Carter faced. And he faced it well; he hired Paul Volcker to run the Fed.

“The cure for deflation is a mix of interest rate cuts, more spending and lower taxes,” according to Blake. What luck for Obama. He can do all the things that people love. He can be a hero...he can be another Roosevelt.

And here is where the press errs. The reporters think a balance sheet depression can be “cured.” Just give the patient some of that old time medicine – the sweet syrup of more spending, more money, more credit and lower taxes. And almost all the reports we’ve read suggest that a combination of bold initiatives from Washington, along with Mr. Market’s natural tendency to bounce back, almost certainly mean that things are bound to start looking up soon.

Not likely...instead, the ‘big bang’ is going to blow up in our faces...as we explain in a moment...

But let’s stop and look at what happened last week: the Dow went down more than 900 points on the two days after the ballots were counted. Then, on the third day, the stock market rose from the dead. Or, at least, that’s what the bulls were hoping. The bears were just hoping for another chance to sell out.

In any event, the Dow went up only 248 points on Friday. There were few signs of a turnaround. Oil held above $60. Gold rose $4.70 to $736.

(We asked our old friend – Issy Bacher, who predicted gold’s drop – what he saw next. “The correction is not over,” says he. Gold could still lose another $100.)

Obama is lucky he wasn’t elected a year ago. At least now it is clear that he’s innocent. He comes to the office facing problems not of his own making. Instead, they were made by his predecessors – notably, Alan Greenspan and George W. Bush. Working together, the two bumblers squandered America’s fortune, drove off her industry, and put just about everyone deeper in debt than ever in history. Did two more hapless, more incompetent, more conniving half-wits ever before conspire to create such a mess?

Alan Greenspan courted power and fame. He got both. But you can’t get power and fame without being a jackass. At least, that’s our conclusion after reviewing the history of the United States of America. Just look at the presidents who got power and fame: Abraham Lincoln...Woodrow Wilson...Franklin Delano Roosevelt. The first two got the United States into unnecessary and disastrous wars...the last one got the United States into an unnecessary and disastrous depression.

Okay...okay...it wasn’t entirely their fault...but it’s our Daily Reckoning , we can exaggerate if we want to...

Alan Greenspan would have been much less popular had he put the brakes on the dot.com bubble in ’97...and the brakes on the housing bubble in 2005. Of course, he probably would have lost his job sooner. But the United States would have a much healthier economy as a result.

And talk about unnecessary wars! And unnecessary depressions! George W. Bush has brought us both! No president ever presided over such a spectacular turnaround in America’s fortunes:

...from a fake budget surplus of nearly $300 billion under the Clinton administration, Bush will leave office with a real deficit approaching $1 trillion...

...coming into Washington at the peak of the bubble of 2000...he’ll blow out of town leaving behind an economy in its worst slump since the ’30s...

...after taking control of the spiffiest, most widely respected country in human history, in 2000, he leaves a country that is widely regarded as broken down...(Russian president Medvedev recently charged the United States with causing the world’s financial meltdown...the French believe US-style capitalism is collapsing, like the Soviet Union in ‘89...the Latinos now mock the idea of taking financial advice from the United States.)

...after coming into office lauding the virtues of humble foreign policy and proud capitalism, the United States has taken up a breathtaking combination of bombastic military intervention abroad and abject, swinish collectivism at home.

*** Our intrepid correspondent, Byron King, sends us this note:

“President-elect Obama campaigned on a platform of launching a massive, 10-year buildout of renewable energy systems. In the process, this means that the government will exercise more control over emissions of carbon from the likes of oil and coal. Will the U.S. Environmental Protection Agency (EPA) start setting national industrial policy? Well, that’s sort of built into the election promise, isn’t it?

“But the election is over. Now it’s time to get real. Sure, we can build a lot of windmills and solar installations. More geothermal would be great, too. But the U.S. and world industrial base is limited in what it can turn out, and at what rates. There are constraints in manufacturing, in materials, in systems integration, in the grid, in the labor force and in the regulatory system. And we are going to overcome this in 10 years? By comparison, putting Neil Armstrong on the moon in the 1960s was a piece of cake.

“So will the U.S. – let alone the world – abandon carbon sources of energy in the next 10 years? You just gotta be kidding me. That ain’t going to happen. If it does happen, your world will turn upside-down. Count on it.

“So the long-term thesis of Outstanding Investments – in energy and resources – should still be valid. We just have to navigate our way through the economic and political land mines that are getting dropped like cluster bombs onto the landscape. Remember what Friederich Nietzsche said: ‘That which does not kill you makes you stronger.’ It’s getting past the ‘not killed’ part that’s the hard part.”

*** But let’s get back to Obama. Seems like a decent fellow, as near as we can tell. But he has a great temptation to become a jackass. And early indications are worrying; we think we see his ears are growing (more below).

Obama is beginning to realize what he’s up against. This is no ordinary cyclical downturn. Typically, a slump brings interest rates down. (Usually accompanied by central bank rate cuts.) Cheaper borrowing arouses business and speculative activity...which, in turn, tends to get the economy moving again.

This time, that’s not happening. The authorities are handing out money below the inflation rate and practically begging banks to lend... But who wants to lend when there’s a danger you might not get your money back? And who wants to borrow when everyone is desperate to get out of debt?

Today’s Financial Times announces that another 70,000 jobs could be lost on Wall Street. Who needs so many employees when no one’s doing any deals? No one’s borrowing...no one’s lending...investors are running scared...and private equity is curled up in a cave somewhere...

Why? Because it’s a ‘balance sheet recession,’ not a regular, cyclical downturn. People have lost a lot of money...and they’re afraid of losing more. So businesses are cutting back as fast as they can. The job losses aren’t limited to Wall Street. Today’s news from Associated Press tells us that there are 10 million people out of work – the most in 25 years. The New York Times says unemployment is at a 14-year high. (We didn’t study the figures to see how they differ; but we predict that the figures in the last quarter of this year will be even more alarming...)

Everywhere, investment portfolios are being trimmed... cash is more than king; it has become a demi-god. This despite the fact that there are some great investment bargains around.

After “Black October,” says the FT , it’s the “buying opportunity of a lifetime.”

Stocks were overpriced for the last 20 years. Now, they’re not so overpriced. In fact, by almost any measure you use, they’re fairly reasonable. Compared to the yield, you get from Treasury bonds, for example – a popular method of gauging the stock market – stocks look like a good deal. P/E ratios, too, are in the ‘normal’ range. Or, you can look at James Tobin’s q ratio – comparing stock prices to business net worth. Here again, stock prices don’t look out-of-the-ordinary.

But a ‘balance sheet recession’ is an unforgiving, mean, and tenacious rascal. After such big losses, businesses, consumers, investors, and banks need to rebuild their balance sheets – by paying off, defaulting on, or working out their debt. And then they need to rebuild their confidence...with rising asset prices and a growing economy. All that takes years...many years.

Worse, a balance sheet recession is like a straightjacket; the harder you fight against it, the tighter it gets. When government tries to prevent assets from being marked to market, for example, it delays and obstructs the process of adjustment. Rather than let the debts and mistakes be flushed out, they remain on balance sheets...blocking progress, frustrating change.

“Change is Nature’s delight,” said Marcus Aurelius. Trying to stop change – at least in a balance sheet recession – is Nature’s horror. Balance sheets need to be corrected. Until they are corrected future growth can’t happen. So, the whole system is stymied, clogged, stopped up, constipated...like the U.S. economy in the ’30s...or like Japan’s economy in the ’90s...

That’s all we’ve got for today. Until tomorrow,

Bill Bonner is the President of Agora Publishing. For more on Bill Bonner, visit The Daily Reckoning.