Ran into this out on the Web the other day. The Democrats have been in power for a year now in both houses at the Federal level and and at the state level here in MN. Here in MN they are in the process of raising taxes on gas, cars and sales in the face of an economy that has already started to sour. Are they responsible? I don't know, when Bush took over in 2001 he was considered instantly responsible for the economy that was in a slowdown.
The fact that we have both congress and an executive branch at both the federal and state levels makes it more complicated. Both share some of the blame/success when it is split, but I think it is relatively easy to figure out "who is in charge". In the late '70s, it was really easy - Democrats had it all, and we had predictable disastrous results. In the 80's, Democrats had the house all the way, but Reagan had a lot of sway due to big wins in '80 and '84 and the economy boomed as he got his way.
By '86 he was losing on the interim, got into Iran Contra, and the Democrats mostly took over-the economy cooled. Bush Sr took over in a time of Republican control sinking and his economy sank -- which he helped by giving in to tax increases. Clinton took over with all Dems in '92 and an economy that was already growing and into which the federal reserve dropped interest rates to some of the lowest levels ever (for reasons that I still don't completely follow) -- the country sputtered along and the Republicans took over both houses and held the upper hand with a growing economy and dropping government spending until '98 when their attempt to impeach Clinton failed and he received the complete support of the MSM. (one could argue that '94-'98 or '99 were the best combination times of economic growth and reduced RATE OF GROWTH in government spending that we have seen since prior to '29).
Enter Bush, during the first year he had no capability and inherited a recession. After 9-11 he gained power and so did the economy until '06 when he and the Republicans lost big -- by 2008, it appears the economy is losing as well, we can hope that loss isn't big, but it might be. It seems certain that we are going to have some level of recession and the Democrats will continue to raise taxes on those most capable to get us out of it (giving a re-bate to people who pay less taxes is a form of a tax increase).
Beck thinks that we will get to somewhere between "defconomy" 2-3. I'd like to hope that we don't even sink that low, but the country looks like it really thinks that it is time to teach "the rich" a lesson. Actually, "the rich" are usually those that already understand "the lessons" pretty well which is why they are "rich". Economic slowdowns always hurt the folks at the bottom of the ladder the worst, but on the bright side they DO cut income inequality.
The top of the ladder loses the most percentage and real dollars of wealth as the markets drop, but of course all that really means to them is that they reduce DISCRETIONARY spending until some the nation finally decides that "the lesson is over" and we worry more about making progress at all rather than who makes the most progress. After awhile, the "success" of the rich guy keeping the Lear in the hanger a few weeks out of the year while you stand in an unemployment line and turn down the heat seems a bit hollow. Envy can be fun, but paradoxically, reducing it often isn't.
I'd argue that Obama may be enough of a demagogue to even go beyond FDR though and get us to "Defconomy 0", where we follow the road to the gulag and kill as many of the "wealthy" as possible, or at least "re-educate them", while the borders completely break down, speech becomes controlled well beyond "hate speech" and the destruction of family and religion is carried out. I just finished his book. Only a totalitarian state has any prospect of getting close to the "shared values" that he thinks we all "share".
DEFCONOMY FIVE
How you'll know we're here: The housing downturn turns into a free fall, making it the worst collapse in our country's history. That not only triggers massive numbers of foreclosures and lost household wealth, but it also sets off another large wave of bank write-downs.
Odds we get here: Roubini told me that it's "extremely likely, even unavoidable" that we hit this stage because "the excess supply of new homes in the market is like we've never seen before." Prices, he believes, "need to fall another 10 to 20 percent before that clears."
• DEFCONOMY FOUR
How you'll know we're here: Americans upside-down on their mortgages and unable to pay their home equity loans begin defaulting on other debt, like credit cards, car loans and student loans. In addition, bond insurance companies lose their perfect credit ratings, forcing already troubled banks to write down another $150 billion.
Odds we get here: High. Roubini says that 8 million households are already upside-down on their mortgages and he thinks we could see that number go to between 16 million and 24 million by the end of 2009. A lot of those people, he believes, will simply walk away from their homes and send their keys back to the bank.
• DEFCONOMY THREE
How you'll know we're here: Some banks begin to crack under the pressure of continuing write-downs and mounting defaults by consumers. A national or large regional bank finally collapses, triggering hedge fund failures and general chaos on Wall Street, potentially leading to a 1987-style market crash.
Odds we get here: Very good. Roubini says that we'll likely socialize the losses, "effectively nationalizing the mortgages or the banks." It would be, he told me, "like Northern Rock (the large bank in England that was recently taken over by the British government) times three." He thinks the stock market will head south throughout the year as fears about a severe recession are confirmed.
• DEFCONOMY TWO
How you'll know we're here: Most forms of credit (both to consumers and businesses) become virtually nonexistent. That results in a "vicious circle" of additional write-downs, stock market losses, and bank collapses, which leads to even less credit being available.
Odds we get here: Good. Roubini says that credit conditions are becoming worse everyday across a variety of markets and won't be getting better anytime soon. Without extra credit available, people might have to actually (gasp!) live within their means.
• DEFCONOMY ONE
How you'll know we're here: Welcome back to 1929. A full economic meltdown results in a complete failure of the underlying financial system. What will be known to future generations as "The Greater Depression" has arrived.
Odds we get here: Not likely. Roubini believes that this will be a "very painful and severe recession" that could last for 18 months or more, but it will be more like 1981 than 1929. Families may be eating soup again, but at least it'll be in their own kitchens.
Now, do I think any of what you just read will happen?
I have no idea, and that's exactly the problem. I'm not an economist or a stockbroker; I'm just a guy trying to make the best decisions I can, and picking the brains of real experts helps me do that.
But I do know one thing for sure: Depressions aren't advertised in advance. Last time around we went from the Roaring '20s to bread lines in a matter of just a few years.
Anyone who says that can't happen again either doesn't know history, doesn't understand how interconnected the world's economies have become, or is lying to you. While that doesn't mean you should panic, it does mean you should prepare -- something my grandfather would've done a long time ago.
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