According to the latest Gallup poll three quarters of Americans believe the economy is in a recession. It's no surprise respondents tell pollsters the economy has become the dominant political issue. How will the recession play out in the 2008 Presidential campaigns?
We are in the middle of an economic meltdown spurred by the bursting of the debt credit bubble. Speaking on the PBS New Hour noted financial reporter Jane Bryant Quinn described the situation as "the most significant financial crisis we've had since the 1930s." Financial writer David Leonhardt recently wrote, "The crisis isn't close to ending."
Why has the economy turned sour so rapidly? Most observers fault the mortgage credit bubble that saw financial institutions making questionable loans – sub prime mortgages – that resulted in their being saddled with vast portfolios of failed mortgages. (One in ten homeowners now have no equity in their homes.) As financial institutions began to report disappointing quarterly results, public confidence plummeted and some Wall Street institutions – most notably, the venerable Bear Stearns brokerage firm – began to fail. This led to a domino effect: confidence deteriorated, stock prices fell, and more firms were threatened. Recently, New York Times columnist Paul Krugman wrote that Wall Street is facing "a systemic market call," where "the whole financial system is facing demands to come up with cash it doesn't have."
There are four major players in this economic drama: the Federal Reserve Board, large financial institutions, the White House, and Congress. To its credit, the Federal Reserve Board has acted aggressively to stop the erosion of public confidence. They have lowered the discount rate to 2.25 percent, increased the money supply, and bailed out Bear Stearns. While these actions are laudable, the Fed is running out of options.
The financial markets have responded defensively. While the discount rate has fallen by more than 50 percent, the prime rate (5.25 percent) has not decreased as rapidly. And the rates paid by consumers – mortgage (5.62 percent), automobile loan (7 percent), and credit card (12 percent) – have remained stationary or, in some cases, increased. As a result, there has been a tightening of credit; it is now more difficult for small and medium-sized businesses to get loans. Therefore, consumer confidence has fallen, inflation has risen, and the total number of jobs in the economy has shrunk.
Sinking to new levels of incompetence, the President doesn't understand the gravity of the situation. In his March 14th speech at the New York Economic Club, Bush promised to veto legislation aimed at ameliorating the recession: "I'm deeply concerned about law and regulation that will make it harder for the markets to recover." His solution was for Congress to make his tax cuts permanent.
While there are many creative idea floating in the Democratically-controlled Congress – such a relief for homeowners facing foreclosure – most of these face Bush vetoes.
Given this situation – a market paralyzed by fear, a Federal Reserve board with limited options, and a stalemate created by a witless Republican President blocking Congress – what should we expect from the Presidential candidates?
The Republican candidate, John McCain, plans to run as the new, "improved" version of George Bush: I'll follow the same policies, but do a better job of implementing them. McCain doggedly pursues the failed Bush Iraq policy and plans to "deal" with the recession by cutting taxes and trusting the market to do the right thing.
McCain's intransigence is an opportunity for the Democratic presidential candidate, likely to be Senator Barack Obama. Obama should make three broad points: this recession is tied to the war in Iraq; the American public needs immediate assistance; and the President must represent all of the people.
Senator Obama must link the mind-boggling cost of the Iraq war to our current economic woes. According to Nobel-prize-winning economist Joseph Stiglitz: "The spending on Iraq was a hidden cause of the current credit crunch because the US central bank responded to the massive financial drain of the war by flooding the American economy with cheap credit." On March 20th , Obama made this connection, stating the $12 billion per month being expended on the Iraq campaign might better be spent on domestic programs.
His second point should state the obvious: main street needs help as much as Wall Street. Senator Obama has proposed a common-sense economic plan to buoy the confidence of average Americans: a plan that emphasize tax cuts for the working class, protection of homeowners, and massive investment in America's infrastructure.
The final and most critical component of an Obama alternative to the failed Bush-McCain policies is to instill confidence in the American people. Poll after poll has indicated Americans believe the US in headed in the wrong direction and don't approve of the President's handling of the economy Senator Obama, with his teamwork message, we're all in this together, can both instill confidence in Americans and motivate them to form the new consensus necessary to overcome our nation's daunting problems.
Bob Burnett is a Berkeley writer and Quaker actvist. He is particularly interested in progressive morality and writes frequently on the ethical aspects of political and social issues.
the only reason John Q. Dimwit thinks there's a bad economy is because after he stops and buys a 6-pack and goes home to drunkenly watch the news, that's what the talking heads tell him. He can't think for himself, and the media dictates his reality, so morons all over think the economy is horrible. Anyone with an IQ over room temperature knows that our economy is in no more trouble than it's every been: it's cyclical and historical, and right now it is still the best in the world. Even our "poor" aren't poor: they have refridgerators, they eat more than or at least once a day, they most likely have more than one car (even if one is on blocks), they have a cell phone, they have cable, they don't piss in the same water they drink. Now talk to me about "poor" Americans.
Then you libs tell me how we'll just tax everyone into prosperity, hmmmm?
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shielah jones (0 articles, 0 quicklinks, 0 diaries, 25 comments)
on Tuesday, March 25, 2008 at 1:13:48 PM
...because "poor people" have refrigerators and don't drink piss... the "economy" is fine? "you libs???" Sure... the economy is fine... global warming is a myth... it's all cyclical... everything is the same as it ever was... nothing to worry about... ooops... until hubby gets downsized from the paper-clip counting and sureity division and we can't get our hair done... THEN the "economy" will be horrible... but don't worry about "taxes." Just sell your mcmansion at El Golf Courso del Vista. whoops. no buyers? No more trips to the manacurist.
Can't even pay "John Q. Dimwit" to come in and fix one of the twelve toilets. oh! how did things get in such a state? Peak oil? fiddle-dee-dee. Make a dress out of those drapes and go see Rhett... oh! no electricity! the bonbons are melting!
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waldopaper (9 articles, 2 quicklinks, 7 diaries, 167 comments)
on Tuesday, March 25, 2008 at 10:05:02 PM
Let's take the three key points raised in Bob's essay and do a little exploration. The three points were:
1. "The spending on Iraq was a hidden cause of the current credit crunch because the US central bank responded to the massive financial drain of the war by flooding the American economy with cheap credit." On March 20th , Obama made this connection, stating the $12 billion per month being expended on the Iraq campaign might better be spent on domestic programs.
2. His second point should state the obvious: main street needs help as much as Wall Street. Senator Obama has proposed a common-sense economic plan to buoy the confidence of average Americans: a plan that emphasize tax cuts for the working class, protection of homeowners, and massive investment in America's infrastructure.
3. The final and most critical component of an Obama alternative to the failed Bush-McCain policies is to instill confidence in the American people. Poll after poll has indicated Americans believe the US in headed in the wrong direction and don't approve of the President's handling of the economy Senator Obama, with his teamwork message, we're all in this together, can both instill confidence in Americans and motivate them to form the new consensus necessary to overcome our nation's daunting problems."
On the first point, i.e. linking the costs associated with occupying Iraq to our current financial crisis, Obama gets only partial credit. The argument, while valid, badly misses the essence of the problem. At the stated $12 billion per month rate of expenditure for Iraq, Iraq would represent only about 10 percent of total US military spending. For the details, I would strongly encourage you to read this article. The "real" US military budget is about $1.1 TRILLION per year. The spending problem goes way beyond Iraq; Obama and the Democrats refuse to address the real problem.
And just what kind of financial saving could we expect from Obama? I'm glad you asked. The bad news is probably little or none. Here's why. Obama has said that he would keep some number of US troops in Iraq to fight Al Qaeda and to protect American interests there. The Center for American Progress estimated that 60,000 troops would be required for this mission. So, while that's a much smaller force than Bush is currently abusing, it falls far short of saving the US the $12 billion per month currently being spent.
But that's just part of the problem with Obama's plan. He has also stated that he thinks US efforts in Afghanistan have been significantly understaffed and underfunded due to US efforts in Iraq. It's not clear just how many troops and other resources he plans to "redeploy" from one frying pan into another fire but, clearly, this again significantly reduces any potential savings from ending the occupation in Iraq.
And then, as if the US is not already way overspending on military madness, Obama has stated that he wants to increase the overall size of the US military by 90,000 troops. Why are more troops needed if Obama plans to wind down the occupation of Iraq? Again, you can't focus on savings when you're planning to increase the payroll.
So, for these reasons, giving Obama credit for linking the spending in Iraq to our current fiscal disaster falls far short of the vision we really need. Iraq is but a tip of the iceberg. Democrats want to make the election all about Bush and his incompetence in Iraq. Sadly, Democrats, yet again, are not addressing the larger problem and electing them will not put us on the path to economic recovery. Our country is being bankrupted by military spending and both the Republicans and the Democrats are complicit in continuing the status quo.
Bob's second point emphasized Obama's commitment to America's infrastructure. If one accepts the warnings of scientists about global warming, that infrastructure is going to be severely impacted over the next ten to twenty years and beyond. If you think rebuilding New Orleans was expensive, how much would it cost when the southern half of Florida is underwater? What will be built, and at what cost, to protect coastal cities like New York, Washington, Miami, Seattle, San Francisco and LA? What will happen to America's food supply when drought caused by global warming threatens the nation's "bread basket" and overly-centralized agribusiness zones in California?
What's Obama's answer to global warming? Well, he calls for spending a whopping $15 billion a year over the next ten years on alternative energy research. Given the severity of the problem and the likely consequences global warming can cause in the near-term, this seems tragically inadequate. Obama continues to spend $1.1 TRILLON a year on the military and a paltry $15 billion a year on protecting the country from the ravages of global warming. It's way, way short of what we need. So, before we go giving Obama too much credit for his pretty words about infrastructure, let's understand the risks we face and exactly what he plans to do about them. Further, how exactly does Obama plan to pay for all this infrastructure spending? Clearly, as discussed above, he won't be saving much if anything from military spending.
And, finally, we come to point number three which applauds Obama for calling for teamwork and for stating that "we're all in this together." Well, wouldn't it be nice if we were indeed one big happy family pulling together for the good of the nation? Getting there from the corporate-controlled tyranny we have today is going to take a whole lot more than Obama's pretty words on the subject. Setting the goal and cheerleading for it is all well and good, but, we will make exactly ZERO progress until we "name the enemy" and "wage war" against what they've done to our democracy. If you fail to even talk about the issue, how exactly is anything ever going to change? Corporations are strangling our so called democracy. Until we restore real power to the American people by casting the greedy ones out of the halls of the people's government, nothing is going to change.
Some have accused Obama of being all rhetoric with no substance. The sad reality is that I don't even hear him "talking the talk." Until we have candidates talking about substantial cuts in the wasteful, bloated military budget, there is not going to be money to "fix" the economy, or rebuild America's infrastructure or provide universal health care or make America's public education system competitive or provide real retirement security and a strong social safety net. The problem isn't just Iraq. The problem isn't just Bush. The problem is a system of governance that has been captured by selfish, greedy corporate interests. The problem is an out-of-control military industry that drowns all "people oriented programs" in a bathtub. The problem is a two-party system that refuses to provide real solutions to the problems we have. The problem is John McCain, Hillary Clinton and Barack Obama. The problem is the Republican Party and the Democratic Party. I wish it weren't so but it is.
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welshTerrier2 (7 articles, 3 quicklinks, 3 diaries, 96 comments)
on Tuesday, March 25, 2008 at 1:13:56 PM
