Barack Obama, Hillary Clinton, and John McCain are all running to become a one-term President. On election day in November, the key question for anyone who walks into the polling booth is who will do the least damage and is least likely to most exacerbate our escalating problems. There are two major reasons the next President is likely to serve one-term, the economy and the war. Both areas present implacable problems that will not be solved within the next 5 years and therein lies the tale.
Tony Blankley is only the latest to note that the Presidential campaign thus far is being run by people who have no interest in tackling the present structural difficulties facing our economy.
The presidential campaign currently underway has missed the historically rare opportunity to engage the candidates for president in a serious discussion about how they would respond to a very likely impending recession brought on by twin banking and currency crises.
Usually financial crises -- and the recessions that often follow -- appear without much warning. But today, while of course the future never can be predicted with certainty, the evidence is accumulating to suggest that the United States soon may be facing something similar to Japan's experience in the late 1980s and 1990s.
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Current informed commentaries throughout the financial world are loaded with warnings. Krugan [Paul Krugman-SW] wrote that JPMorgan Chase last week "described what's happening as a 'systematic margin call,' in which the whole financial system is facing demands to come up with cash it doesn't have."
We also are experiencing a historic reduction in the value of the dollar. When a banking crisis and a currency crisis occur at the same time, as they are now, they likely are to be followed by a recession, and the recession is likely to be longer and deeper.
And unlike the Japanese crisis of the 1990s, America's dominant place in the world economy increases the likely worldwide effect of our crisis and recession.
If you are not reading Maxed Out Mama, you are missing an opportunity to understand more about how the economy works (or doesn't work) than you could ever learn from a textbook or course. She has been on top of trends for a very long time, and M_O_M is not happy; a couple of points:
It is fun and sometimes quite comforting for we in the US to pretend that we are the stupidest idiots around and that the rest of the world (which is, btw, an economic line item that shows up in GDP releases) will keep growing while we resolve our financial excesses. Unfortunately this is not so.
European GDP shows the same regrettable trends as ours. ...
What's even more perturbing is that most EU growth has been in the economies with the worst fundamentals, and those are still the ones showing more growth. For example, Germany's GDP increased only 0.3 in Q4 after having grown 0.7 in Q3.
European consumer spending is declining faster than ours, possibly because we are picking up some of it due to currency advantage. Inflation is a dominant concern for consumer spending globally. I touched on Japan's economic situation in the previous post.
The US, Japan and the EU make up the top three global economies no matter how you look at the figures, and they are all slowing. I think China's problems are deeper than conceded in this article. The world is quite economically coupled. Our yoke, if anything, seems to have gotten tighter.
And:
We are in a recession. It's a rather peculiar one, because a lot of the fundamental slumps one sees in the real economy during recessions almost seem to have bottomed out (except for consumer spending).
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The more I look at the data, the more I think that we have managed to split a recession into two halves. We've already done the real economy recession piece. If it weren't for the bad credit, I'd feel sure that this would be a mild recession. However the effects of granting lunatic loans previously will stretch out for years to come and impair consumer spending.
The Untied States is in a recession, in all but name. The credit markets will take years to work out the damage that has accumulated. The housing market, which has held up consumer spending for several years now, will also take years to work itself out. Both areas of weakness can only be made exponentially worse if government intervenes to try to fix them and protect people from the necessary pain and disruption which are already becoming political issues. And worse, as per M_O_M's comments about coupling, the rest of the world is, if anything, in worse shape than America. The Europeans are even more committed to preventing markets, aka reality, from causing pain and the Chinese are terrified of economic disruption leading to political instability. Making everything worse is our addiction, indeed the entire world economy's addiction, to oil for the foreseeable future.
Russia, Venezuela, Nigeria, Sudan, and Iran will continue to be enriched and able to effect whatever mischief they desire because of our thralldom to oil. Our "friends", the Saudis, will smile politely and continue to try to knife us in the back by supporting the most intolerant and hate filled form of Islam and we will remain crippled in our ability to respond and crippled in our ability to actually call a murderous terrorist a murderous terrorist for fear of offending the Muslims who hate us and whose oil we need so much.
The fall campaign will be about Iraq and the economy. Yet it will completely miss the point. Iraq will certainly be more stable in the fall; al Qaeda has admitted they are losing and losing badly in that theater. The economy will actually be much worse on the front page of the newspaper than in reality, but in both cases,the war against radical Islam and the economy, the worst will be yet to come. Poorly managed, both problems will enter a positive feedback loop in which a slowing economy will cause unrest and create fertile ground for demagogues who offer the Utopian panacea of Jihad for the restoration of the caliphate, which will lead to further disruptions of the global interconnected and interdependent economy.
Either Democrat, with their gross appeal to protectionism, will make it far worse, unless they are willing to disappoint their core constituency. Even those of us who barely remember what Smoot-Hawley was have some inkling that protectionism took the late 20s downturn and helped it become a spectacular depression. This is not a prescription for a re-election campaign in 2012. (Barack Obama would be worse than Hillary Clinton on balance because he would also abandon Iraq to chaos if we are to believe his plan to end the war.)
If John McCain wins, with his uncertain grasp of economics and leading a party that has appeared befuddled by fundamental economic principles recently, with no apparent ideas for how to avoid a Japan style stagnation, the outlook is no better; perhaps McCain will remember the value of passivity and do nothing, in which case the problems will eventually be solved by the markets, but that salient outcome would be unlikely to arrive in time to save a second term for John McCain.
The long term trends suggest that until the West, led by America, is able to escape our addiction to foreign oil, our economies will remain in thrall to people who wish to do us harm. Further, the combination of a sputtering global economy and a growing cohort of underemployed young men whose only route to status is through killing innocent infidels, will lead to a very uncertain and painful time ahead. Whoever wins the Presidency in November is thus likely to only have one term. Many of the problems will begin to solve themselves within the next 5 years but the visible signs of progress will be hard to find and easily overwhelmed by negative press. The next President will be in a very unenviable position.
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