James Pethokoukis Aug 8, 2011 20:29 EDT

  

A crisis of confidence in economy — and Obama

 

James Pethokoukis

Aug 8, 2011 20:29 EDT

 

Barack Obama’s presidency was birthed by economic collapse and financial crisis. Opportunity for a second term is now in growing danger of termination by the very same forces. After its Monday plunge, the U.S. stock market has fallen 18 percent since late April. (During his January State of the Union address, the president pointed to a “roaring” market as one sign his Keynesian policies were working.)

And the economy is advancing at such a slow pace that it risks sliding back into recession. Goldman Sachs thinks the nation’s GDP will expand just 1.7 percent this year and 2.1 percent in 2012, leaving the unemployment rate stuck at well over 9 percent. The firm sees a one-in-three risk of a downturn over the next six to nine months. Other financial firms think the odds are closer to 40 percent or even 50-50.

James Pethokoukis

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A crisis of confidence in economy — and Obama

James Pethokoukis

Aug 8, 2011 20:29 

 

Barack Obama’s presidency was birthed by economic collapse and financial crisis. Opportunity for a second term is now in growing danger of termination by the very same forces. After its Monday plunge, the U.S. stock market has fallen 18 percent since late April. (During his January State of the Union address, the president pointed to a “roaring” market as one sign his Keynesian policies were working.)
And the economy is advancing at such a slow pace that it risks sliding back into recession. Goldman Sachs thinks the nation’s GDP will expand just 1.7 percent this year and 2.1 percent in 2012, leaving the unemployment rate stuck at well over 9 percent. The firm sees a one-in-three risk of a downturn over the next six to nine months. Other financial firms think the odds are closer to 40 percent or even 50-50.
Then, once again, there’s Wall Street. Not only were bank stocks hammered in the sell-off, the cost to insure their bonds against default soared. Standard & Poor’s downgrade of U.S. government debt may have been a factor since Uncle Sam is backstopping the sector. (More evidence “too big to fail” is alive and well.) But there are also concerns about U.S. bank exposure to European banks and, in turn, their exposure to European government debt. (Sovereign defaults and a EU banking crisis would also slow economic growth in a key market for U.S. exports.) And, coming full circle, banks here still face billion in potential mortgage losses, a problem that another recession would only worsen.

In short, there is again a crisis of confidence in the U.S. economy – but in Washington, too. During his brief speech yesterday at the White House, Obama did nothing to calm jittery markets, perhaps achieving just the opposite. He blamed Tea Party Republicans for the debt downgrade. He said government discretionary spending couldn’t be cut much further. He called for raising taxes. And he repeated his demand for a mini-version of the 2009 stimulus – temporary tax cuts, infrastructure spending, more unemployment benefits.

Obama stayed firmly planted in the anti-growth policies of the past two-and-a-half years. He’s even keeping Tim Geithner as Treasury secretary, practically begging the poor guy to stay. (Indeed, it was almost exactly a year ago that Geithner penned his “Welcome to the Recovery” op-ed.)