Here's the conventional wisdom: President Obama's reelection is vulnerable to the weak economy and high joblessness. Here's what might happen: The economy gradually improves, and although unemployment stays high (exceeding 8 percent), what counts politically is the palpable sense that things are moving in the right direction. This allows Obama to argue, as he already does, that his policies are slowly repairing the economic calamity he inherited from Republicans.
To which they respond: Obama's anti-business rhetoric and policies have impeded recovery; the Affordable Care Act ("Obamacare") and new regulations create uncertainties that deter hiring; and Obama hasn't dealt with the explosion of federal debt.
Dealt with? He just added jet fuel to a raging fire of debt. He still just wants to raise taxes so the spending can keep climbing.
Though the debate matters, the economy's actual performance -- for better or worse -- will decide how many Americans feel. And this will depend on forces and events over which the candidates have little or no control.
But Axelrod has control...
For Obama, the economy holds two large potential pluses.
First, there's huge pent-up demand for homes and vehicles, because both sectors collapsed in the recession.
| Who is going to buy homes and vehicles? People lack money. People who do have money aren't spending it, because they can't tell what's going to happen next. Uncertainty about the future, about the government, and about simple things like the rule of law are undermining the economy in ways that Obama simply doesn't understand. |
Second, the consumer debt burden is dropping rapidly. Households have repaid some debts. Others have been written off; interest rates on many remaining loans have declined.
| That doesn't mean people are going to take on new debt -- as I said, people are uncertain. People are paying down debt because they realize that they were over-extended. They had borrowed too much in the oughts to buy that MacMansion or that Lexus SUV. If they managed to avoid foreclosure and bankruptcy then they focused on paying down enough debts so as to feel as though they avoided the tsunami that took a fair number of their friends, co-workers and neighbors. The Post thinks that people will take on new debts, just because they paid off old debts. I don't believe that's true. No one is going to take on new debt unless they're very sure of their financial situation, and there aren't enough people in that group to re-start the economy. |
The upshot: More Americans may be in a position to borrow to buy a home or vehicle, relieving some pent-up demand.
| 'May be in a position' does not mean, 'will do so.' |
By contrast, Europe and China pose big risks.
| Which is why a lot of people in this country are waiting -- they may not know the details, and their understanding may not be as finely-grained as Zero Hedge, but they understand the basics: Europe is going down and China is in the beginning stages of popping their real estate bubble. |
In Europe, Italy and Spain have nearly 500 billion euros worth of maturing debt in 2012. If they can't refinance at acceptable interest rates they would default or need to be rescued. Either way, Europe would face greater austerity and a deep recession. This would hurt U.S. exports and the profits of American multinational firms.
| And who does the rescue if not Uncle Sugar? Assuming that we could even entertain such an idea, the very thought causes people of any means at all in this country to hold onto their dollars and not spend them. |
The danger from China is a collapsing real estate "bubble" that, if it occurred, would result in bankruptcies of developers, loan losses to banks and slower economic growth. The effects would spread beyond China, because construction fuels its demand for cement, steel, copper and other raw materials traded on world markets. Again, U.S. exports could suffer.
Given all the possibilities, handicapping the election based on the economy is nearly futile. It's 2012's political wild card that -- when played -- may prove decisive, if accidental. |