Following the trail blazed by Stephen Skowronek, I've long argued on this blog that in realignment terms Bush is the new Carter. Reagan set the standard, but the further away we get from him in political time, the more difficult it is for people to live up to his legacy. Although 9/11 seemed for a moment to offer the opportunity for a new Republican realignment, because of the president's political mismanagement of its aftermath, it actually ended up accelerating the trend towards a full-scale political realignment.
When I've made the Carter comparison in the past, it was almost always meant to be taken more symbolically than literally. Until now, that is.
Consumer confidence is now at its lowest level since the Carter administration. It hasn't yet surpassed Carter's late-1980 low, but the trend lines suggest it is likely to do so sometime between now and the fall election. And that's a parallel I would never have predicted.
Back in the 1970s, the combined impacts of the Vietnam War, the Iran hostage crisis, stagflation, and the ineptness of the Carter administration combined to discredit liberalism for a generation. In the 2000s, it looks like the Iraq War, Hurricane Katrina, the credit crisis, and the ineptness of the Bush administration just might do the same thing for conservatism.
UPDATE: Erm... scratch that. We're at levels not seen since 1982, which also happen to be the lowest levels since Carter. I initially read this as saying that we had sunk beneath 1982 levels, but in the version by Bloomberg that doesn't seem to be the case. Either way, however, I would argue the larger point of the post still holds.
UPDATE II: And I meant to include this earlier. Once upon a time Roubini was alone in his pessimism. No longer:
The weakening U.S. economy has further to fall, according to the majority of economists in the latest Wall Street Journal forecasting survey.
By a 3-to-1 ratio, respondents said the economy is in a recession, and almost three-quarters said the economy hasn't yet hit bottom. "It's hard to say," said Lou Crandall of Wrightson ICAP, because "it doesn't feel like anything we've experienced in decades."The survey was the first since the Federal Reserve's intervention to prevent the collapse of investment bank Bear Stearns Cos. The vast majority of economists -- 80% of the 46 who answered the question -- approved of the Fed's handling of the Bear Stearns situation.
That didn't translate, into high marks for Fed Chairman Ben Bernanke or Treasury Secretary Henry Paulson, who also was closely involved in the deal. The Fed chairman's grade rose slightly to 78 out of 100 from 75 in February, the last time the survey asked about his performance, but it is still far below the 92 he scored in September. Mr. Paulson's grade dropped slightly -- to 73 from 74 in February. "Bernanke has been too slow," said David Resler of Nomura Securities....
Three interrelated issues weighed on the economists' minds. When asked what the biggest downside risk to their forecast was, 35% said further deterioration in the credit markets, while 25% said it was a sharp drop in consumer spending and 13% said continued housing weakness....
Unemployment forecasts supported the point on consumption. After three consecutive drops in nonfarm payrolls, the economists said they now expect the economy to shed an average 1,625 jobs a month over the next year. They expect the unemployment rate, now 5.1%, to rise to 5.6% by December. Meanwhile, just 21% of the economists expect home prices to hit bottom this year, while 67% see the bottom next year and 12% say it won't be until 2010....
The respondents on average expect U.S. gross domestic product, which grew at a slim 0.6% annual rate in the fourth quarter, to expand by an anemic 0.2% in the first quarter and 0.1% in the second, followed by a 2.1% increase in the third quarter. Most of the economists said they expect a contraction in the first half, but those expecting growth pushed the average into positive territory.
Consistent with their view that the economy will hit bottom soon, the economists said they expect the Fed to trim its benchmark federal-funds rate by another half percentage point from the current 2.25% by June -- and then to keep rates unchanged for the rest of the year.
Mr. Wyss, of Standard & Poor's, offered some hope for U.S. investors. "I do think the stock market has hit bottom," he said. "It usually bottoms out three to four months before the economy."
As painful as it might be to do so, you really should ignore this sort of optimism. This isn't the bottom. It's not even close:
...the last two recessions - in 1990-91 and 2001 - lasted 8 months each and today the macro and financial conditions are worse - relative to those two previous recessions - in at least three dimensions:
We are experiencing the worst US housing recession since the Great Depression and this housing recession is nowhere near bottoming out. Housing starts have fallen 50% but new home sales have fallen more than 60% thus creating a glut of new -and existing homes- that is pushing home prices sharply down, already 10% so far and another 10% in 2008. With home prices down 10% $2 trillion of home wealth is already wiped out and 6 million households have negative equity and may walk away from their homes; with home prices falling by year end 20% $4 trillion of housing wealth will be destroyed and 16 million households will be in negative wealth territory. And by 2010 the cumulative fall in home prices will be close to 30% with $6 trillion of home equity destroyed and 21 million households (40% of the 51 million having a mortgage being underwater). Potential credit losses from households walking away from their homes ("jingle mail") could be $1 trillion or more, thus wiping out most of the capital of the US financial system.In 2001 it was the corporate sector (10% of GDP or real investment) to be in trouble. Today it is the household sector (70% of GDP in private consumption) to be in trouble. The US consumer is shopped out, saving-less, debt burdened (debt being 136% of income) and buffeted by many negative shocks: falling home prices, falling home equity withdrawal, falling stock prices, rising debt servicing ratios, credit crunch in mortgages and - increasingly - consumer credit, rising oil and gasoline prices, falling employment (now for three months in a row), rising inflation eroding real incomes, sluggish real income growth.
The US is experiencing its most severe financial crisis since the Great Depression. This is not just a subprime meltdown. Losses are spreading to near prime and prime mortgages; they are spreading to commercial real estate mortgages. They will spread to unsecured consumer credit in a recession (credit cards, auto loans, student loans). The losses are now increasing in the leveraged loans that financed reckless and excessively debt-burdened LBOs; they are spreading to muni bonds as default rates among municipalities will rise in a housing-led recession; they are spreading to industrial and commercial loans. And they will soon spread to corporate bonds - and thus to the CDS market - as default rates - close to 0% in 2006-2007 will spike above 10% during a recession. I estimate that financial losses outside residential mortgages (and related RMBS and CDOs) will be at least $700 billion (an estimate close to a similar one presented by Goldman Sachs). Thus, total financial losses - including possibly a $1 trillion in mortgages and related securitized products - could be as high as $1.7 trillion.
Thus, given the worst US housing recession since the Great Depression, a US consumer who is on the ropes and at its tipping point and a most severe financial crisis and credit crunch it is delusional to argue that the current recession will be milder (6 months) than the mild and shallow recessions (lasting 8 months) that the US experienced in the last two times.
Fortunately, even Roubini doesn't believe we're headed into a Japanese-styled period of protracted economic stagnation. Some maybe there's some reason for hope. Ahem.
People may not realize it quite yet, but by this fall even the business boosters on FoxNews won't be able to deny it any longer. Fun times coming...
UPDATE: Also worth noting in this context: Bush's approval rating is now lower than Carter's was at any point in his presidency.
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