THE NEXT “GENIUS” ECONOMIC PRESIDENT
Ezra Klein has an interesting thought piece in the Washington Post on the “recovery presidency”. He’s referring to the belief that the next President is likely to inherit much better economic times. Those following my work over the years know that I largely agree with this notion that the balance sheet recession will end in the 2013-2014 range (see here) and that the economy is likely to muddle through though slowly improve until then (as the negative effects of the BSR wear off). Klein says this next Presidential win will likely result in the confirmation of broad political beliefs based on the results of the last few years:
“You can see how this will work. If Romney wins the presidency and the economy begins to rebound, Republicans will argue, and America’s experience will seem to show, that they were right all along: The stimulus was useless and the regulatory uncertainty the Obama administration created with its health-care plan and its talk of cap-and-trade and all the rest kept businesses from investing. Of course, if Obama keeps the office, that argument will be largely discredited, and he’ll be able to make the case that he and his party steered the country through incredible choppy waters despite relentless obstructionism from the Republicans — oh, and in 2014, he’ll also give 32 million Americans health-care insurance, just another little side project he got done while saving the economy.”
Sounds about right to me. So flip a coin and let’s see who’s going to be seen as the next genius economic President.
Is Ezra Klein an opinion writer or a reporter?
Perhaps it is just a rhetorical question.
I think Cullen is too optimistic. Even if the BSR (Depression) is over within the next few years (which I doubt), at some point peak oil will hit hard and the supply of exportable oil will fall off a cliff. It will be out of the frying pan and into the fire. At best, 2013-2014 could be better years than 2016-2020.
And there is no way Romney can beat Obama. If the two debate, all Obama has to do is guarantee that he will extend unemployment benefits for 4 more years. Mittens promises to do otherwise. Once the EU falls off a cliff and the EU banks go under, the voters will panic so much that they will have no choice but to vote for Obama. It will be a stark choice between survival under Obama and dying homeless under Mittens.
John Mauldin’s post of the Hoisington Quarterly Review and Outlook says essentially that Cullen is far too optimistic, that without a “vigorous and rapidly expanding private sector and a shrinking public sector” there is no solution for our “massive unfunded liabilities” and “trillion dollar deficit.”
The thing to remember is, deficits only matter when Democrats are in office.
If Romney is elected, you’ll see the deficit go as high as necessary to bring back full employment.
What’s amusing is that the two most clueless groups politics are the Democratic elites and the Republican base. So Romney running up the deficits will drive both groups crazy, but since Bill Clinton proved that a President can literally get away with anything if he can get unemployment down to 4%, nothing will stand in the way of Romney and Mitch McConnell cutting payroll taxes, increasing infrastructure spending or doing anything else necessary to cut the unemployment rate in half.
better blow jobs than no jobs
Politics are fun, huh? Hence why I like to stick to the operational facts and not these endless political debates that I seem to have allowed to infest this website in recent weeks. Time to get back on track….
Yyyep, and the Dems will then be too spineless to say no to increased deficits, when they should actually be moving heaven and earth to increase then now. It’s almost like they don’t want to be voted back into office. I seriously do not not know who advises these guys … They have zero political acumen and courage. The GOP will increase deficits like they always do (once again in sheep’s clothing so the masses can “accept” it), and the Dems will look like completely incompetent and irrelevant. All the while, inequality and hardships will increase for those not at the top of the food chain, who now also have a lot more oppressive laws that they don’t even appear aware of! Win-Win … For some.
As always, “it’s all about the money lebowski!”.
Athough it is partially due to Democratic lack of political acumen and courage, I expect a larger proportion of the cause can be put down to desire for Democrats to adhere to much of the republican policy. As in the vast majority of cases those same policies “happen” to be backed by corporate america, and it’s corporate america who pay polticians’ bills. This way the democrats can play the innocent bipartisan and say; “what could we do?! The republicans forced us”.
It isn’t republican vs democratic anymore, it’s establishment vs anti-establishment, the latter losing so badly that they’re barely visible and the former being completely bought by corporate america.
I completely agree and I wonder how itrepublicans are going to deal with it when they get to the next debt ceiling. I don’t think tea party base is going away and they are going to hold their feet to the fire.
Two ways to blow past debt ceiling; Buy back existing debt with platinum coins or issuing new debt in the form of perpetual consol bonds. Since Tsy would not guarantee repayment of principal, Consols would have no “face amount of obligation” subject to debt limit.
The best part would be the collective face palm of every Democrat in America. Thanks for playing rubes.
OK OK, sorry, no more politics.
)
beowolf describes one of the more annoying potential outcomes of a Romney victory – those deficit concerns will evaporate as quickly as they materialized
Ezra Klein is talking a theoretical outcome, not a factual one.
Cullen: “Time to get back on track….”
Agreed!
Party-think is mindless.
Cullen,
I would interested to know why you think the BSR will end by 2013-2014, even though household debt/GDP levels won’t return to pre-bubble norms until mor like 2015-2016 or even later if we have another recession or major shock before then. Do you think that other sectors besides households will make up for the growth underperformance?
Here’s my logic. http://pragcap.com/when-will-the-balance-sheet-recession-end
Cullen,
I read that peice from you, which is what lead to my question. It seems like you are predicting recovery before household debt/imcome ratios get back to the level you would like to see. Do you think incomes will have risen enough by then to support both trend growth and continued deleveraging? Or that going forward debt/income ratios will simply be higher than historical norms?
The end of the BSR isn’t going to be an event. It’s a process. So I think we have to account for the fact that as the recovery continues then we’ll see debt demand pick-up slowly. I think it’s already happening to some degree….
I agree with Mr. Roche analysis. But I think debt-demand will pick up if the housing stablizes by 2013-14. Most of household debt is due to mortgage-debt. FED/Govt is making sure housing stablizes or at least will try to provide an impression of stablization.