from James Pethokoukis:
Could Obama’s re-election plan be to devalue the dollar?
Will President Obama get re-elected in 2012 if his party suffers a crushing midterm defeat? His political team likes to point to the example of Ronald Reagan. Congressional Republicans were crushed in the 1982 midterms, but the Gipper cruised to victory two years later.
Of course, the "Morning in America II" scenario depends on a fast economic recovery. Unemployment fell from 10.8 percent in November 1982 to 7.2 percent in November 1984. GDP growth was 4.5 percent in 1983 and 7.2 percent in 1984.
But most economic forecasts don't anticipate such a boom in America's near future. More likely is trend growth -- about 3 percent or so -- with unemployment still over 8 percent by the end of 2012. At best, those numbers suggest a very close presidential contest. And current polls show the president will have a tough time again winning such electoral-vote rich states as Ohio, Michigan, Florida, Indiana, Pennsylvania, Wisconsin and North Carolina.
Obama could try to emulate Reagan by proposing a massive tax cut, but that seems unlikely given the administration's belief that America is under-taxed right now.
But there is another way, although it is amazingly risky. A Bloomberg story, using a simulation run by Macroeconomic Advisers predicts a 10 percent decline in the dollar in the first six months of next year would do the following:
1. Gross domestic product would rise 1.1 percentage points more than the St. Louis-based firm’s baseline forecast for next year, to 4.8 percent.
2. In 2012, growth of 5.7 percent would exceed the baseline forecast by 1.3 percentage points.
3. Unemployment would fall to 7 percent by the end of 2012, 1.4 points lower than the firm’s baseline forecast.
There you go, Morning in America II, thanks to the weak dollar -- unless of course the dollar starts plunging out of control, boosting inflation and creating a panic.
Washington Extra – Fears of economic stagnation
Fear returned to global financial markets today, with stocks sinking and the dollar rising sharply on renewed worries about an economic slowdown in China and the United States. President Barack Obama met with senior economic adviser Larry Summers and “talked through some scenarios” on what was playing out around the globe, and how to keep the U.S. recovery on track.
Obama, signing a bill meant to boost U.S. manufacturing, said he was determined to do everything possible to hasten the economic recovery. The problem is – how much more can he do?
Legislation to support small businesses and manufacturing and bolster state finances might be saving jobs, but are unlikely to make much of a difference if American consumers remain reluctant to buy, or if the global economy takes another turn for the worse.
The Federal Reserve may have moved back in the direction of easier monetary policy on Tuesday, but with official interest rates already near zero the central bank fired off its big guns long ago. Nor is the country in the mood politically for another fiscal stimulus through more deficit-spending.
Plenty for the president to ponder, then, as he heads for the Florida Gulf Coast for a brief visit at the weekend, meant to show that the region is ”open for business.” The real vacation comes later, though, with 10 days in Martha’s Vineyard.
Which brings us nicely to my vacation, which starts tomorrow and will be mainly spent on the humble English seaside. Washington Extra will remain open for business, though, thanks to my colleagues in the bureau who have offered to take up the reins. I’ll be back on August 24.
Here are our top stories from today:
Another side of Sarah Palin: financial guru
The Financial Times, the salmon-colored authoritative newspaper that is closely read by traders and other financial types around the world, had an eye-opener for readers this morning.
It wasn’t the front-page, four-column wide headline, “Obama’s critics pounce on falling dollar as fears grow over currency.”
It wasn’t the graphic showing a red downward line over a dollar bill.
The jolt comes at the start of the second paragraph in the top story of the day on the dollar, “Sarah Palin….”
The newspaper, whose articles can move markets, quoted the former Republican vice presidential candidate and ex-Alaska governor from her Facebook post on the need for energy independence. Palin links the dependence on foreign oil and large U.S. deficits to declines in the dollar .
“We can see the effect of this in the price of gold, which hit a record high today in response to fears about the weakened dollar,” Palin wrote.
Palin’s power for using her Facebook page to affect public opinion is not to be taken lightly. Remember “death panels” which turned the healthcare debate into rabid townhall meetings this summer — that phrase emerged from Palin’s Facebook page.
This is the same person who left Wasilla millions in debt after ONE TERM as mayor. What a genius.
Oh, well, Dick Cheney says deficits don’t matter, so what’s all the fuss about anyway?
Oh, wait, its REPUBLICAN deficits that don’t matter!
$787 billion can’t buy an ounce of bipartisanship
WASHINGTON – Republicans in the U.S. House of Representatives were unapologetic on Friday after not a single one of them voted for the $787 billion economic stimulus package. The Democratic majority pushed the spending and tax cuts measure through the House 246-183 at the urging of Democratic President Barack Obama, who had courted Republican support. Republican leaders insisted the plan may do more harm than good by expanding government and not doing enough to create private-sector jobs. Representative Virginia Foxx went further. “I think it’s a cruel hoax on the American people that they have been led to believe that by passing this bill that there are suddenly going to be millions of jobs out there, particularly for blue collar workers that have lost their jobs,” she said. Through weeks of debate, the two parties stuck to their ideologies, with Republicans favoring tax cuts and Democrats leaning toward government spending. Republicans may be hoping their lock-step opposition will help vault them back into majority status in the House. They look longingly back to 1993, when every House Republican voted against a balanced-budget plan by then-President Bill Clinton that accomplished its goal. Nonetheless, Republicans took control of the House in 1994 elections. Asked whether Republicans risked looking bad if the U.S. economy does recover in the near term, House Republican Leader John Boehner said: “I think standing on principle and doing the right things for the right reasons on behalf of your constituents will never get you in trouble.”
For more Reuters political news, click here.
Photo credit: Reuters/Larry Downing (Boehner holds a copy of the stimulus bill, following the passage in the House of Representatives of the stimulus package)
I don’t understand why there is an income limit on the First Time Homebuyer Tax Credit for 2009. Isn’t the idea to get any and all eligible and qualified potential homebuyers into this daunting real estate market? Wouldn’t that really take action on the root cause of this economic crisis? To me it seems like Obama and Congress are going out of their way to make sure that certain people who they consider ‘wealthy’ don’t receive any benefit or relief from this plan.
