Topple the dollar, and with it goes American power.

The Barack Obama vision of a more social-democratic country was conceived almost without reference to the greatest economic catastrophe to hit America for 80 years.

Obama's house of prosperity may yet be a castle in the air

He feels like the right man to be President, but has he come at the right time, asks Charles Moore in Washington.

Charles Moore The Telegraph
Last Updated: 7:51PM BST 17 Apr 2009

The best way to arrive in Washington is by rail. You leave the platform and enter the magnificent main hall of Union Station. Then, through the glass doors, you see the Capitol proud on the hill in front of you. When I came that way this week, and saw it all in the blossom-filled spring sunlight, I momentarily felt the slightly insane optimism that grips James Stewart when he first claps eyes on the same view in the classic film Mr Smith Goes to Washington. He is the tall, thin, young senator whose innocence, against all the odds, prevails.

Until January, Barack Obama was a tall, thin, young senator, and one reason he is President of the United States today is because he answered – in modernised form – that American yearning for purity and simplicity. He knows that his appeal is still strong, which explains why, virtually every day, he makes a speech.

On Tuesday, at Georgetown University here in Washington, Mr Obama spoke about the economy. I was told that the White House, hypersensitive to conveying the wrong visual message, insisted that the university's device, which includes the initials IHS, the traditional, particularly Jesuit, abbreviation for Jesus Christ, be obliterated from the backdrop. But the President invoked the Sermon on the Mount all the same.

He reminded his audience of how the well-meaning attempt to spread home-ownership in America had been perverted into forms of debt so ill- or unsecured that they had provoked the world financial crisis. He repeated Jesus's parable of the two houses. One was built on "a pile of sand", and so fell when the rain came. The other was built upon a rock. "We must build our house upon a rock," said the President.

The house that Barack wants to build is architecturally grand. It will have five pillars, he announced. The first is that Wall Street will have new rules to reward "drive and innovation, not reckless risk-taking". The last is that "new savings in the federal budget… will bring down the debt for future generations". Sandwiched between these pillars are the other three. Each of these involves "new investments" – education, renewable energy, and health care. This, said Mr Obama, would be the "new foundation".

How rock-like is that foundation likely to be? Back in Britain, we still await Alistair Darling's Budget, to find out how he proposes to restore financial order to government, but in America, Mr Obama's is already there for all to read. I am grateful to Larry Lindsey, former economic adviser to three Presidents, for drawing my attention to Table S.9. It states that the total "required to be borrowed from the public" (the PSBR, in British-speak) in the fiscal year 2009 is $2.562 trillion. That is 18 per cent of American GDP. Fiscal 2009 ends on September 30. Given what the federal government needs to borrow in the time that remains, the sum works out at between $6 and $10 billion per day. I make that roughly the entire British annual defence budget in one week.

Normally, a country borrowing on that scale faces collapse, and has to call in the IMF. America is not a normal country, of course: it is the axis on which the world turns, with the currency to which people resort for safety. In the past, its huge deficits have never produced the catastrophe predicted for them. Perhaps they will not do so this time, although what the nation faces today is more than twice as big as the largest previous deficits in US history (under Ronald Reagan). But it does make one wonder whether the President's five-pillared house is a castle in the air.

Like New Labour, Mr Obama likes to speak – he used their favourite phrase again in Georgetown – of "tough choices". So when he offers his social reforms to the American people, he argues that they will be financially as well as morally virtuous. He says he is attacking entitlements – what Tony Blair and later David Cameron called "the bills of social failure" – and he rightly castigates the waste and fraud in existing US medical provision. But it is not clear that these choices are actually going to be made. What is clear – it is publicly stated – is that an extra $634 billion has been allocated in the Budget to begin to create his new health-care system. When Aneurin Bevan set up our own dear NHS, one of his beliefs was that better health care, by making people well, would lead to lower health spending. To say that these savings did not materialise is the understatement of the century.

Two thoughts occur.

The first is to ask what markets will think of this as it sinks in. Suppose, for example, that this burden of debt crowds out the economic recovery that Mr Obama is trying to engineer. Suppose that the small stirrings of life showing just now disappear in the third quarter as nervous Americans continue to save, not spend, and more people lose their jobs. The world contemplating buying US government debt will understand why it might be worth spending big to repair the banks. Would it feel the same about money borrowed for a US-style NHS and lots of windmills? If the world really doubted America's dedication to its own fiscal and financial order, that would topple the dollar, and with it American power.

The second thought occurred to me because I had made my train journey to Washington from Princeton University. There I had been lecturing, 30 years on, about how Margaret Thatcher confronted economic crisis when she first came to power in 1979. The point that strikes one is that it was the crisis which, above all, galvanised her, captured her intellect, harnessed her energy. Like Churchill in relation to the Second World War, she felt that all her life had been a preparation for that hour. Her vision of what was wrong with her country, and how to put it right, was seen entirely through the prism of the crisis.

The same cannot be said of Barack Obama. This is not merely because he has no previous experience of governing. It is because his idea of what he wants to do is really something quite different from what is actually happening to his country. In his inauguration address, he spoke of the need to get on with the business of "remaking America". For him, that economic stuff is not really part of the remaking, but a distraction from it. His vision of a more social-democratic country was conceived almost without reference to the greatest economic catastrophe to hit America for 80 years. He barely had to argue, or even think about it before or during the campaign. It shows. He says that his education, energy and health reforms must happen so that "such a crisis [the financial one] never happens again", but he merely asserts the link: he does not prove it.

Through his astonishing personal qualities, allied with his ethnicity, Mr Obama feels like the right man to be President. But perhaps he has come at the wrong time.