Obama Re-Election Dangles on Economic Downturn
“There is a serious concern that you are going to get recession sooner or later. It is a phenomenal period in history.”
-- Jim Reid, credit strategist at Deutsche Bank, talking to the Financial Times.
There are lots of ways to define a recession – three quarters of negative economic growth, three quarters in which growth is below the rate needed to meet an expanding population, or, as Ronald Reagan said, “when your neighbor loses his job.” A depression, Reagan said, was when “you lose your job.”
For political purposes, recession is when most voters believe the economy is getting worse. So regardless of what the academics say, for Power Play’s uses, recession is already a reality. Its length and severity will likely determine the next chapter of American history.
If the trauma is brief and even modest recovery follows, President Obama may yet be re-elected and cement gains that American Democrats have sought for 70 years. If the hardship deepens or extends to the end of the year, the president will come to yearn for the days of 39 percent job approval ratings.
A months-long downturn now will all but guarantee Obama’s one-term status.
Obama Democrats are more frequently accusing Republicans of intentionally damaging the economy so that Obama can’t be re-elected. But that certainly overstates the power that House members have over the world. The economy stinks for many reasons – a debt hangover in the West from decades of abuse by self-interested politicians, a collapse of the old order in the Middle East and the looming exhaustion of rapid growth via desperate, cheap labor in Asia. But the biggest reason it stinks right now, it that people believe it does. Fear of recession begets real recession in a service and consumer-based economy such as ours.
And the forecast is looking very grim indeed.
On Thursday, the cost to the federal government to borrow money hit the lowest point since 1950 as panicked traders, seeking havens from collapsing global markets, dove into Treasuries in a big way, driving the interest rate on 10-year bonds down below 2 percent. So much for the credit downgrade.
Meanwhile, the volume of dollars hasn’t been so high since immediately after 9/11. Capitalists and investors of all sizes have yanked their money out and stuffed it in a savings account, bonds or maybe a coffee can in the back yard.
These moves may greatly benefit the individuals currently hoarding their cash. They will have a field day snatching up cheap stocks, buying cheap real estate and being ready to expand operations when the next upswing comes… whenever that is. But their flight also deepens the current trough. When the bears start running, things can get very bad, very quickly.
Peggy Noonan, who has been hotter than a $2 pistol of late, writes in today’s Wall Street Journal that maybe the Obama vacation to a wealthy, liberal island enclave off the Massachusetts coast is a sign that he’s given up and that “maybe he'll be as wilted next year as he was this week.” She envisions an Obama who sometime next year starts musing on the new ungovernability of America and suggesting that a successful presidency is now beyond even his considerable gifts.
Power Play humbly holds that rather than more wilting, the president will draw strength from his lowered status. It may not do him any good now, but Obama has shown in his short political career that he can ably don the cloak of martyrdom or dignified victimhood. When he brushed that dirt off his shoulder following one Clinton attack or another in 2008, he grew in stature and drove his core supporters into new ecstasies. Obama will almost certainly say that the situation is impossible for anyone, even The One, but his shoulders will straighten, not slump, in his suffering.
But here’s the president’s problem: What seemed cool in 2008 now plays as aloof to those beyond the Obama core of well-educated, upper-middle class voters. He may believe it shows FDR-like sangfroid to vacation anyway when the markets tank, unemployment rises and Washington shows no capacity for addressing the debt, but it makes him look like a man of deep entitlement.
The president and his campaign keep holding on to the idea that economic recovery is inevitable and that political recovery will inevitably follow suit. But then, they’ve always believed that recovery was in the bag and that Obama would be the beneficiary. That’s why Obama didn’t push for a bigger stimulus to start with or return for a second one when the tepid recovery sputtered last spring. It’s also why he distracted his party at a crucial moment with a politically unsatisfying national health care law. And if he and like-minded Democrats now sincerely believe that scheming Republicans are behind the current downturn, they may not yet understand the ways of the economic world.
If you go back to what the president and his team were saying a year ago, it’s clear that they would have seen the current situation – unemployment over 9 percent, the Dow in the dumps, inflation still rising, and gridlock in Washington – as a political calamity. They now explain that they can inculpate Republicans and lessen the public disappointment with the president, but what would you expect them to say? “We’re cooked?”
They know, just like everyone else in Washington, that if a turnaround doesn’t take hold in the next four months, no billion-dollar campaign war chest and no level of community organizing can spare the president from the wrath of the electorate. Democrats will start running left or right to get away from the president and the odor of impending doom will permeate the air. Republicans smelled it in 2006 and 2008. Once it sets in, it’s nearly impossible to cut through.
In Washington, just like on Wall Street, the fear of a downturn quickly becomes the real thing.
And Now, A Word From Charles
“I think his problem about this is not the choice of time, the length of vacation. It's the choice of the place. Everyone understands the president, like any chief executive, has to have time off. They wouldn't begrudge him… But choosing an exclusive enclave like the Vineyard, after spending three days on the road railing against the rich and the wealthy and the millionaires and the billionaires and the corporate jet owners who vacation exactly the same place and then spending 10 days in their company, speaks of a kind of dissonance or hypocrisy. You know, the vineyard doesn’t have any bridges into it. You either get there on a ferry in your Maserati or on a jet or helicopter. It’s not exactly where ordinary folks will take a vacation."