The Fiscal Nightmare Of 2009

I wrote an Atlantic Current today on the state of affairs facing the nation's next chief executive. Short answer: the Dem will face pressure to raise taxes in a recession (bad!) and the Republican will face pressure to raise spending (bad politics!).

Both Democratic candidates released long statements on today's market meltdown.

Clinton, saying the economy was "in the soup":

“This is a moment of great unique uncertainty in our financial markets. The crisis that began in the subprime mortgage market has spilled over and now poses a broader threat. I am following the developments in our markets closely. This morning I spoke with Secretary Paulson and New York Federal Reserve President Tim Geithner. They both outlined the actions that were taken yesterday to ensure liquidity and restore confidence in the market. I relayed to them my thoughts and concerns. I will continue to monitor the situation closely throughout the day and will seek advice and counsel from a broad range of economic advisors.

Obama:

"Many other steps will be required to reverse this downturn in the weeks to come. It will require the efforts of those in the financial community; of the Federal Reserve; of Congress, and the White House. And it will also require a renewed confidence that we can meet this challenge. We are the United States of America, and each time we have faced moments of adversity in the past – some much greater than this – we have summoned a spirit of cooperation and innovation to emerge stronger and more prosperous than we were before. But it will take work, it will take time, and it will take leadership that recognizes that we are all part of the same economy, and that economy must work for every American in order for America to prosper in the 21st century."

Doug Holtz-Eakin, speaking for Sen. John McCain, who is in Iraq:

“Senator McCain has complete confidence in Chairman Bernanke and the actions of the Federal Reserve, and is committed to ensuring the economy continues to grow – because no government program or policy is a substitute for a good job. John McCain understands the federal government’s responsibility to ensure the stability of the US financial system, and is equally committed to protecting the pocketbooks of hardworking American families.”

Like a million men are going... I don't have no pocketbook...

Comments

the difference between the candidates remarks are quite indicative of their leadership style. my preference? obama. i know nothing about economics, just how much it costs me to live...my hope is that he can inspire those who can do something to do it sooner rather than later and for the good of everyone's "pocketbooks".

Posted by grandma vicki | March 17, 2008 4:17 PM

Interesting:

Clinton takes action. She gets on the phone talks to the players, listens and offers some advice.

Obama crosses his fingers and hopes that things will work out because they always have in the past.

McCain basically just says that he has confidence in the guys in charge.

Of these three I want Clinton in the White House not only when there is an international crisis but when there is a domestic one as well. What a difference between them their responses demonstrate!

Posted by ken | March 17, 2008 4:22 PM

It is very nice that Hillbilly is able to reach for the phone after the fact (the biggest crunch was the weekend before 8pm Sunday) and have a conversation with the Treasury Secretary and the President of the NY Federal Reserve.

As Senator for NY, she might have had a lot of impact if she were around talking to the principals the past weekend as the crisis unfolded instead of sleeping off her last 3am ad.

The remarkable thing is for such an experienced politician she claims to be, there is no commentary on the policies of the Bush administration that got the US into this financial mess, nor any sign that Hillbilly will do any better.

In case Hillbilly didn't notice, the problem have gone way beyond sub-primes, but are not affecting lending of mundane things like auto loans, credit card loans, home equity lines of credit, on top of commercial lending.

If she is really in touch with voters in places like Pennsylvania, she would hear how people are slashing spending as their lines of credit evaporated. Maybe she can meet someone with a big, gas guzzling SUV with an upside down loan and learn the real meaning of being trapped.

Or, if Hillbilly really cares, she might want to ask a Pennsylvania family what it means to see heating oil bills double this winter --- many of them are still paying off that bill. Or the meaning of $4 a gallon gas.

How about some real action, real proposals on these... bread and butter issues?

They might be a tad more important to Democrat voters than what some Pastor mouthed off about OBammBamm or some fluffy claim about all the years Hillbilly spent in the White House that have little to show except a failed Health Care Plan.

Where is Hillbilly's team of so called experienced advisers?

Are they all deployed in Pennsylvania looking for four leaf clovers?

Posted by D | March 17, 2008 4:34 PM

It's not a pocketbook.....it's european!!!!!

Posted by Jerry Seinfeld | March 17, 2008 4:37 PM

To Ken:
Obama did the same and major called the players as well. Just because he did not trumpet that talking point does not mean he is a man of no action. If he has demonstrated anything in this campaign it is that in the past year this man of No-Action has beated the inevitable democratic nominee on all counts. He out-actioned her and delivered. Not bad for someone who is all talk and no action.

Posted by Harry | March 17, 2008 4:41 PM

I must admit, McCain's surrogate's comment rather takes me aback--Bernanke is hardly the only player here.

Clinton sounds like she is up on the policy background, but I'm not sure I see any suggestion of what to do. What good is phoning these people? Obama at least admits this will take a lot more steps and work from everyone (I confess, something I like about him).

If there were a single plan that could take us out of this, I'm sure everyone would be trumpeting it and congress et al would be enacting it.

Posted by Deborah | March 17, 2008 4:47 PM

Marc, good job of cherry picking. Obama's full release included some very specific proposals which are indicated by the first line of what you printed. It would have been nice if you had included those so people who don't want to actually check things out (like several of the previous posters) would be able to comment based upon reality.

Posted by john | March 17, 2008 4:54 PM

I really appreciate the Current post.

The Democrats are so goo-goo-eyed over their chances that they aren't thinking about what their candidate will DO once in office. Like many liberals in the '20s, I think many of my fellow Dems are half-hoping for a meltdown, so that a New New Deal (TM) can be put together.

Presidents don't just crank out policies and then attempt to implement them. They have to respond to unpredictable, often uncontrollable events and hope to God that their spin will match up with what the voters see.

Which means that a Dem president might be blamed for a meltdown, too. Bush the Bogeyman has an expiration date somewhere in 2009. Not that the Republicans will have much to add at first--they'll just become even more irresponsibly "pro-free market," which is the fatal illusion that got us in this mess!

Posted by some guy | March 17, 2008 4:59 PM

When has it ever been bad politics to raise spending?

Posted by Rice | March 17, 2008 5:29 PM

Rice:

When it is time to pay the bills.

Once upon a time, I know of a government who was somewhat left wing, and took power in the midst of a recession.

Powerful bureaucrats knew that it was quite impossible to raise spending given the size of the deficits they are already running. But they also realized that this politician and their minions would never listen. So this group of technocrats collectively shut up, and let the politicians raise spending massively.

A year later, instead of just a large deficit, the place turned in the largest deficit in its history, resulting in a sizable credit downgrade, and murmurs of financial institutions of intention to curb lending.

The spendthrift politician, ashened faced, appeared on TV calling for massive spending cuts that would have made Milton Friedman blush.

Is this what is going to happen here?

Posted by D | March 17, 2008 5:47 PM

Which country are you talking about, Argentina?

Posted by Greg | March 17, 2008 6:25 PM

Or Carter?

Posted by Greg | March 17, 2008 6:26 PM

D-

If you're arguing that there are consequences to spending levels that far outstrip a realistic assessment of expected revenues, then I certainly concede the point.

But most of the electorate will only care about irresponsible spending increases after the poop hits the fan. Until there's some disaster that is felt by the middle class and which it can link to spending in congress, there is unlikely to be much in the way of accountability.

I'm willing to bet that most Americans would preference increased gov't spending to provide affordable health-care in the near-term over an increased risk that there will be a run on the dollar in the long term.

Posted by Rice | March 17, 2008 6:29 PM

Greg:

No, it is in North America.

Say it has a population of over 10 million.

I am sorry I cannot be more specific in order to protect the guilty.

Posted by D | March 17, 2008 6:32 PM

Rice:

I completely agree with you. You just told the story of the GW Bush administration.

Public and private spending have both ran out of control in the past 8 years.

I honestly do not envy the job of the next President and am so grim that I would rather if OBammBamm do not win and don't have to deal with it. Sad to say.

Having said that, I believe that the US is pretty close to the limits of a sharp cut back in the willingness of lenders (read Japanese, Chinese, Europeans etc.) to lend in order to finance the deficit. If they curb lending, interest rates here will skyrocket and / or the dollar will plunge.

I can see the USD at 50 yen in 3 years at the rate things are going.

Hmmmmmm maybe we should elect McCain so he get stuck with this pig. Too bad we can't re-elect GW.

Posted by D | March 17, 2008 6:40 PM

Kind of like D just said, I honestly don't quite understand why anybody would WANT the job of cleaning up the humongous pile of crap the Chimperor is leaving behind. Maybe the losers will wind up feeling grateful this time.

Posted by Steve LaBonne | March 17, 2008 7:38 PM