Warning: longer than usual (a lot of data to cover that is ignored or lied about in Romney’s campaign):
Lets take this last three and a half years – just from a financial perspective – and compare it to what the Republicans did LAST time we left the country in their hands. Let’s look at recent history in more than just the cherry-picked snippets so beloved of the professional ad-meisters and liars (is that a tautology?).
After Clinton took office, inheriting a national debt that had been quadrupled in the Reagan/Bush I years, record deficits, and an unemployment rate approaching 8.0%, he proposed a new tax bill that, leaving the taxes on most Americans unchanged, raised the taxes on the rich (though still not nearly as high as the 50% they had been after Reagan’s first 6 years). Republicans all denounced this and predicted immediate inflation, soaring deficits (they had already set the record the year before under Bush I), and rising unemployment.
Clinton’s tax policies and general economic strategies did exactly the opposite of the Republican economic prognostications (as always). Slowly, at first, the annual deficit came down (decreasing in each of Clinton’s 8 years), leaving us with several years of actual surplus (not seen since LBJ – just before Nixon put us back into deficit spending). Clinton actually became the only modern President to pay down some of the national debt.
Job creation also started slow. He stopped the job loss cycle of Reagan/Bush, and cut the jobless rate to 3.9% by the end of his 8 years. Note that 16 million of Clinton’s 22 million new job creation happened in his second term, the fruits of seeds planted in the first term.
When Clinton handed off to Bush, we were in an absolute boom (the dot.com bubble bursting notwithstanding). We had just had the first president in history who saw rising GDP in every one of his 96 months in office. He had turned a record annual deficit into a record annual surplus. He had brought joblessness down to a modern record low. The stock market had more than tripled in value. The CBO was predicting that, statistically, if the Clinton policies were extended through the next presidency, by 2010 we would be running trillion dollar surpluses and would have paid down the ENTIRE national debt. Good times were here and it would take almost unimaginable mis-management to thwart them.
But, nobody counted on the effect of Bush’s return to Reaganomics, or “voodoo economics,” as Bush’s father had dubbed it in 1980.
A president’s first year’s budget is actually, in large part, the final budget of his predecessor, since fiscal 2001 began on October 1, 2000 and was formulated and signed into law by the summer of the previous President’s last year. The new president can have some significant effect, for better or worse, but the original cards are dealt him by his predecessor for that first year. So, Bush started off with a budget that continued Clinton’s surpluses (thought that only lasted until the first Bush tax cuts). Two months after Bush took office (March of 2001), we had our first negative GDP, breaking a 10-year string of rising GDP. This continued until November of 2001, when the first Bush recession was declared over, though, as in the second Bush recession that started November, 2007, recovery was weak due to the burden of too much government spending, too much job loss, and too little revenue due to the massive tax cutting.
The last quarter of Bush’s administration saw a loss in annualized GDP of about 9%. The first quarter of Obama’s administration (first two months, actually, since Bush was president most of January) saw a loss in GDP of about 6.5%. The second quarter showed a loss of less than 1%, and every quarter since has showed a gain, some as high as 4%.
Nonetheless, Bush saw the stock market, which had lost a third of its equity value in his first term, gradually return to the same high-10,000, low-11,000 range that it was when Bush entered office. Adjusted for inflation, break-even during the Bush years would have had to have a DJIA of $13,252, so Bush presided over a drop in market equity of a bit over 20% of its total value.
Bush was also the President who signed and submitted the 2009 budget with the largest single-year deficit in our history of over $1.4 trillion dollars (and Bush’s deficits, doubling the entire national debt in a mere 8 years, didn’t even take into account that both the Iraq and Afghanistan wars were off-budget, and funded entirely with “supplementary appropriations” bills – funded basically by extra borrowing from China).
Then, the Bush recovery from his first recession, fueled by a massive housing bubble, ran into two critical flaws in Republican economic strategy. First was the belief that housing and real estate would continue to rise for many decades (a belief that contributed to the unrealistic rises in housing value), and, more important, the de-regulation fever that flooded the White House. There was a massive cut in regulations and defunding of the regulatory agencies. Bush apparatchiks were put in to head up regulatory agencies, basically to insure they didn’t regulate. The results were manifest, but two areas in particular were to lead to tragedy. Bush’s administration was already into its second recession (beginning November 2007), when the wheels of the economy came off.
First, his deregulation of banks and other mortgage lenders created the “No-Doc” (no-documentation) or “Ninja” (no income, no job, no assets) sub-prime mortgage industry, where banks happily defrauded poorer and less sophisticated people (and not a few rich and supposedly sophisticated people) into signing mortgages that seemed much smaller than they were to prove later. In many cases, bankers were not only advising customers to overstate their income, but actually changing the income figures upward themselves to “justify” the mortgage. The banks didn’t care how likely the mortgages were to default (even without the housing collapse), because, by the time the mortgagee had gotten home, the banks had sold the mortgages to companies that aggregated and consolidated tens of thousands of mortgages at a time into collateralized mortgage backed securities (CMBSs or MBSs). The banks made their profit and had rid themselves of risk within hours of the mortgage signatures. The MBSs were ‘derivatives,’ in that they gave the investor no ‘ownership’ like a stock share of a company, but only the right to share in the mortgage payments of the thousands of mortgagees making up the derivative (as long as mortgagees continued to make those payments. The derivatives market was a wild-west shadow market that had NO regulation, NO oversight and was highly opaque to investors (you could research a company before buying shares in it, but who could investigate the tens of thousands of individual mortgages that were intended to secure the derivatives?).
When the housing bubble burst and housing values plummeted, tens of millions of Americans found themselves paying mortgages that were significantly higher than their houses were now worth. Most people in this position realized that the only smart thing to do was to cut their losses and simply walk away.
The derivatives depending on these mortgage payments promptly failed. AIG had been issuing massive “insurance” or “hedge” against the derivative failures using an instrument called a Credit Default Swap (CDS) and suddenly found themselves owing orders of magnitude of hedge payments than they had cash and assets to cover.
Meanwhile, high-risk cowboys in the financial speculation departments of large banks here and abroad were making the most risky (and therefore potentially most rewarding) investments they could come up with, even raiding the commercial, consumer side of the banks to use ordinary depositors’ money to place the bets.
In addition, companies like Goldman Sachs and Citigroup were teaming up in secret with hedge fund managers to create sub-prime derivatives DESIGNED to fail (google the 2007 Abacus series from GS and hedge-fund manager John Paulson). They would sell these for a profit and then bet against them (and the American economy) by loading up on AIG’s CDSs. They knew they couldn’t rig the market to succeed, but they COULD rig it to fail, so betting that way while sabotaging the market was a guaranteed win for them.
And so, the economy literally fell of a cliff in 2008, worse than anything the country had seen with the exception of Hoover’s Great Depression (Ironically before former CEO Bush and former CEO Cheney), the last former CEO to be President was Herbert Hoover, hmmmm…).
Bush and his Treasury Secretary, Henry Paulson, seeing the entire banking industry sinking into the Atlantic, immediately provided the TARP bailout of over $700 billion to the banks, with no strings attached to insure the banks used the money to restart loans to small businesses and individuals. TARP was signed into law by Bush on October 3, 2008. The Dodd-Frank act and Obama administration managed to hold down the actual payouts to something like $432 billion, and, after paybacks, would only cost the taxpayers $32 billion (far less than Reagan’s S&L scandal and bailout).
Also, during 2008, the Fed organized the “Maiden Lane Transactions,” consisting of three Limited Liability Companies that were then lent tens of billions each. One was to cover risky Bear Stearns assets that J.P. Morgan Chase refused to assume when they bought out BS. The second was to help bail out the AIG Credit Default Swap division, and the third was to bail out the AIG Investment division. Nobody knows with any certainty how many more billions (or possibly trillions) the Fed passed around to the banking community under Bush’s tenure.
Bush’s economy was hemorrhaging between 700,000 and 800,000 jobs a MONTH when he left office and handed the reins of this disaster over to Obama. It reminds me of the old software consultant joke. A new consultant shows up for his first day and is met by the project manager. The PM hands him a dead rat and say’s “Here’s the project. It’s almost finished.”
So, where Bushonomics started off with the healthiest economy in our history, Obamanomics had to start off with the second worst crash in our history. To his credit, though Republican filibusters forced him to compromise away at least half of the contents of every reform he has tried to implement in his first term, Obama stopped the slide and the economy, already bottomed out, began a slow, but steady recovery. The second Bush recession that plagued the last 14 months of the Bush administration was ended several months after Obama took office. Although the economy continued to lose jobs, the losses grew less each month until, over the past three years we’ve seen an unbroken string of modest job gains (one wonders how much job gain he would have had if not for the Republicans’ savaging of the first stimulus, refusal to consider additional stimulus, and the enthusiasm Republican governors have shown laying off hundreds of thousands of teachers, police, firefighters, and other public workers – each of which is counted against the monthly job creation number).
So, what of Obama’s stewardship? The Republicans fault Obama primarily for basically not cleaning up their mess fast enough (ignoring their own continuing roadblocks designed to see that he did not succeed and the American people would still be suffering this year, blaming it on the incumbent).
But, what has the economy actually done during the past 3 and a half years?, and how does it compare to his predecessors?
Annualized Growth in Federal Spending by Term:
- Reagan I: 8.7%
- Reagan II: 4.9%
- GHWBush: 5.4%
- Clinton I: 3.2%,
- Clinton II:3.9%,
- GWBush I:7.3%,
- GWBush II:8.1%,
- Obama:1.4% (and this takes into account Obama’s share of TARP).
GDP bottomed in the fourth quarter of 2008 at about $12.6 Trillion (in 2005 dollars) and has risen steadily under Obama to about $13.4 Trillion by the third quarter of 2011 (2005 dollars).
Unemployment, which was just over 4% in 2007, but which began a steep rise through 2008, was above 8% when Bush left office, topped out in 2009 at 10% and is now back down almost to 8%, at or lower than the percentage it was in Bush’s last month.
Deficits have declined steadily after slight declines in Obama’s first two years. They are projected by the CBO to remain around or under $1 Trillion during the next several years, then rising to about $1.2 billion in 2019 (but, note that the Bush tax cuts represent over half the annual deficit by then). In fact, if you factor out the Bush tax cuts, Bush war costs, bank bailouts, and the economic downturn, the CBO deficit prediction shows virtually NO deficit until a slight bump to about $50 billion in 2016, before returning to flatline.
Since Obama entered office, real income, real retail sales, industrial production, and even employment have all risen steadily since Bush’s drop into the abyss.
So, the real question is: Do we want to continue with Obama and a slow, but steady rise in the economy, or do we want to hand the reins back to people who are advocating the very same policies that drove us off the cliff in the first place.
The GOP left the White House with a gigantic steaming mound of horse puckey piled high on the Oval Office’s rug. The Dems have been working at shoveling it out, though the GOP keeps trying its best to break their shovels while denouncing Obama for not cleaning up Bush’s pile of puckey fast enough. And, now, the GOP’s answer is to bring ANOTHER elephant into the Oval Office to pile even higher the remaining mound of pucky?
I’m not wild for either party, truth be told. Though they are both criminals, there is still a vast distance between a pickpocket and a serial sex murderer. So, in the battle of the lesser of two evils, Obama has the edge by far. So much so that I am going to break a long-time pledge and vote for a major party candidate – Obama. The lesser of two evils in this case is a vastly preferable choice than the true evil of rule by the GOP’s oligarchical masters and an explosive, deregulated and unaccountable financial system.
[All figures and percentages used here are from the CBO and various Federal Agencies]