Quote:
Originally Posted by Mike F
A huge part of what is going to turn things around is restoring confidence, .
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A noonish comment . . . .
For much of the Bush presidency, the issue regarding economic fortunes was about overconfidence, not a lack of confidence.
As the decade progressed, corporate and household balance sheets took on more leverage, suggesting comfort across the broad swath of the public in the prevailing economic climate.
In spite of an unpopular war in 2003, Bush was re-elected with a larger mandate, likely because the USA was emerging from recession with sunnier days ahead.
The lesson there is that it's always about what is impacting the life of the average voter. The economy generally ALWAYS impacts the life of the average voter whereas the unpopular war was something the average American never had to make a personal sacrifice towards given it's been the cheapest significant conflict relative to GDP in the history of the republic. Conversely, his party was swept from power across all stages as just as the outcome of the conflict looked markedly better but the economy went into the toilet big time.
Jimmy Carter rode his way into the deep downturn of 1979-80 and was replaced by Ronald Reagan, who rode a steep upturn into a two-term mandate.
In the early 1990's, George Bush 1, after a successful Gulf War, was at 73% in approval ratings . . . . but out of office a year-and-a-half later on a recession-bound economy. Ditto Brian Mulroney.
Bill Clinton rode out of the recession early and benefited from a large bubble through the rest of the 1990's, exiting only three months before the market caved in.
GW Bush II, in spite of an unpopular war, was riding an economy emerging from recession and was re-elected handily.
Obama will have the benefit of similar timing.
Three and a half years from now, the stock market will likely be higher than it is today.
Three and a half years from now, house prices will likely be trending higher, rather than lower.
Three and a half years from now, the economy will likely be gushing along, not just struggling along.
All of the above is likely to occur because of Obama or, more likely, in spite of him.
Economic cycles come and go, with governments largely irrelevant to their passage, at least, in my opinion. Some politicians benefit by timing, others suffer from timing.
Obama is taking office at a perfect, Reagan-esque moment and will likely see two terms in spite of what he might be up to.
The Bush administration was right to attack the huge problems facing financial services firms and belatedly, Obama is doing the same thing . . . . and that's the right call.
Whether or not we need to save GM or build bridges is really where the debate should lie. We probably don't need to do either and these huge spending plans are probably a waste of money.
I don't know if I should credit Obama with more brains than he has because I suspect he's going to be just plain lucky in backloading a lot of this spending he's talking about.
As a result, most likely, a lot of it may never happen because 1) financial services is the only thing needing saving to end this global downturn and 2) as such, because the financial services industry is all about confidence in institutions, this downturn is going to be over a lot sooner than people think.
We only need to witness the astonishing effect on markets and confidence as a whole a few weeks ago when Citigroup said it was cash flow positive for the previous two months . . . . that shows how important confidence in financial institutions really is.
Financial institutions, even when everything is rosy, are impressively levered. The traditional relationship, established through hundreds of years, is that you and nine friends bring $1 each to the bank and they turn around and lend out $100. The premise is that no two or three of you, let alone 10, are going to show up on the same day asking for your $1 back.
Banking is and always has been a game of confidence. But that is essentially what happened in September/October - all ten of you were showing up looking for your money. The blood flowing through the global economic body stopped abruptly. No one financial institution trusted the other to meet its obligations.
Confidence is essential to financial institutions and financials are essential to the economy as they represent the blood flowing through the system. No blood flow, you die. Pretty simple.
The rest of it - economic cycles - come and go on their own.
The lesson repeated before this all started but always good to remember at the end is that confidence is far cheaper to maintain than it is to restore. Big time.
Also, for Obama, timing will be everything.
My two cents.
Cowperson