Economy Is Obama's Achilles Heel

by John M. Curtis
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Copyright June 4, 2011
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            When former Federal Reserve Board Chairman Alan Greenspan called the 2007-08 financial meltdown “a once in a century event” he wasn’t kidding.  Former President George W. Bush’s economic team led by Treasury Secretary Hank Paulson and Fed Chairman Ben S. Bernanke worked in overdrive trying to save the U.S. economy from what looked like the next Great Depression.  Banks had run out of cash, stressing the Federal Deposit Insurance Corporation to the breaking point.  Were it not for Bush’s $670 billion bailout signed into law Oct. 2, 2008, the FDIC could not have insured deposits at the nation’s biggest financial institutions.  Nearly three years later, the nation still suffers from high unemployment and slow economic growth.  Beginning in Dec. 2007, corporate contraction caused the loss of nearly 8 million jobs.  Only recently has the nation begun adding private sector jobs.

            Last month’s boost of 268,000 private sector jobs was welcome relief for an economy trying to dig itself out of a deep hole.  Rising stock market averages since President Barack Obama took office Jan. 20, 2009 have helped publicly traded companies add to payrolls.  Adding only 54,000 jobs in May pulled the rug out from underneath the stock market, painting a bleak picture going forward.  Mirroring the nation’s economic weakness, the Fed’s Open Market Committee left the federal funds rate at 0-.25% unchanged May 28, 2011.  May’s jobs’ report gives Obama’s Republican challengers some red meat heading into what promises to be a brutal election season.  While unemployment is always a lagging indicator in recessions, there’s no guarantee between now and the 2012 election that the economy will fire on all cylinders.  Voters generally vote their pocketbooks.

            Killing Osama bin Laden May 1 provided Obama with a 7%-bounce to his approval rating.  Now that the al-Qaeda leader no longer dominates the headlines, voters are focused on jobs and the economy.  With the election 17 months away, voters expect more progress from Obama on the economy.  Fighting terrorism and Mideast diplomacy take a backseat to most Americans when it compares to the economy.  Whatever happened under Bush, the economy is Obama’s to fix.  If the GOP can’t pin Obama’s health care plan on the nation’s anemic economic growth, it’s going to put Democrats on the defensive.  No matter how sick the economy under Bush, it’s not enough to blame today’s sluggish results on what happened in the past.  After passing his own 787 billion bail out plan Feb. 14, 2009, Obama faces some stiff headwinds as the economy runs out of artificial economic stimulus. 

            Congress, now led by House Speaker John Boehner (R-Ohio), is in a budget- slashing mood, no longer inclined toward government bailouts.  Many on Capitol Hill believe the bailouts did more long-term economic damage to the economy by adding to mushrooming budget deficits, driving down the dollar and now running more than 10% of GDP.   Obama and the Democrats face some tough choices before the 2012 election, if anything can be done to improve the economy.  With politics fully in play, the White House knows that the GOP can run out the clock, letting the economy flounder before the election.  Barack must compromise or go it alone blaming an obstructionist GOP for the lack of progress.  “This economy took a bit of a hit,” said Obama while speaking to supporters in the all-pivotal swing state of Ohio.  As the economy falters, voters start questioning Barack’s economic policies. 

            Barack’s past focus on health care alienated middle class voters more concerned about jobs than national health insurance.  With about 14 million unemployed at a rate of 9.1%, May’s results raise anxieties in prospective voters.  Adding jobs stems from companies anticipating an increase in their bottom lines.  When companies see economic contraction on the horizon, it typically triggers layoffs.  Barack’s only saving grace involves a stock market that, so far, has shown signs of rising.  While markets always go up and down, keeping markets rising represents the best hope for continued job growth.  Between now and the election, the White House must meet closely with the federal reserve and the nation’s biggest investment banks like Goldman Sachs to promote positive stock market growth.  Reminding oil companies to gouge less would also help keep the economy in the right direction.

            Barack faces stiff headwinds on Capitol Hill providing more stimulus to an already sluggish economy.  GOP members in Congress seek whopping budget cuts not more economic stimulus.  Barack must smartly work with Fed Chairman Bernanke and Treasury Secretary Tim Geither to do whatever it takes to keep the stock market rising.  Pushing too hard on Mideast diplomacy does nothing other than rattle Wall Street’s nerves.  Promoting pro-Wall Street economic policies, including maintaining Bush’s lower capital gains rates should help propel markets higher by year’s end.  Despite the recent glitch in jobs growth, more growth on Wall Street should promote favorable conditions for adding more jobs.  More jobs translate into lower budget deficits and more voter optimism.  Barack needs to continue cheerleading for more American manufacturing, especially in the upper Midwest.

John M. Curtis writes politically neutral commentary analyzing spin in national and global news.  He's editor of OnlineColumnist.com.and author of Dodging the Bullet and Operation Charisma.

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