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Obama Wars Title: Great Depression Ghosts Haunt Dem Prospects Great Depression Ghosts Haunt Dem Prospects By David Paul Kuhn The ghost of the Great Depression has become eerily (more) relevant in recent months. The Depression was the confluence of two catastrophes: an economic bubble burst domestically while Europe faced a debt crisis. The September 2008 market crash brought us the former but not the latter. We now have the latter. Greece's debt crisis has spread to the more-vulnerable European economies. This debt crisis remains still an echo of what overtook Europe following the Great War. But it's a loud echo at that. Markets closed May with their worst monthly declines since early 2009. Amid lax jobs growth, May's decline in retail sales, the American economic recovery is now itself in jeopardy. That's bad for the nation. But it's also bad for a Democratic Party that has invested its electoral prospects in economic recovery. And there is little Democrats can now do about it. Democrats have spent their political capital. That stark reality, while visible last year, was recently captured in a New York Times headline: "Stimulus Talk Yields to Calls to Cut Deficits." Obama had a brief window to use big government to spur recovery. The stimulus and healthcare laws took up that window. The big jobs bill was set aside. Instead, the stimulus focused on tax credits, social safety nets and securing state government jobs. But the blue collar crisis went largely unaddressed. The Democrats had offered medicine for many of the economy's diseases, save the most serious illness. Calls for a second stimulus have concerned a more traditional jobs bill, including those "shovel ready jobs" that never won a major investment. But current legislation, even if passed, is far too small to be that bill. This Senate is currently struggling to merely extend unemployment benefits. The political will for that second stimulus was nonexistent from the outset of the idea. Moderate and conservative Democrats were already asked to make too many unpopular votes, from the stimulus to healthcare to energy reform in the House. Deficit hawks gained resonance as activist government quickly, and predictably, lost resonance. But Democrats took solace. The bull market was underway. Recovery appeared possible. There would not be a jobs recovery in time for the midterm elections. That was a Democratic pipedream removed from actual economic projections. But recovery was expected to be well underway by 2012. Obama could run on his own version of "it's morning again in America." That scenario is still quite possible. But it's also become less possible in recent months. The recovery's leading indicator, the stock market, is now lagging. Financial stocks, key to the market recovery, are particularly hard hit. Many bank investments have lost a third of their value since the outset of the crisis in Greece. And that has evoked fears of a second major crisis. Recent market losses already exceed the expected "correction" after any bull run. Today's fear has indeed scared off the bulls. Instability plagues the stock market. And it's not only the European debt crisis. There are the corporate crises of Goldman Sachs and British Petroleum. And there is also government. Some mistakes have been sophomoric, like announcing the Goldman investigation mid-trading day. Democrats have also not helped matters. Vital financial reform has been as delayed as it has been opaque. "Headline risk" is pervasive. Friday brought news that the BP oil spill is likely double the size of earlier estimates. Financial reform is only becoming stronger in conference committee. Each headline sobers the very optimism that bull markets feed upon. They also inspire regular selloffs. Thus we must consider the pessimistic. The overall economic recovery could be petering out. If that is the case, options are limited. Monetary policy is already running full tilt. The Federal Reserve, like the European Central Bank, has interest rates at historic lows. That monetary reality is coupled with today's toxic political reality. Any second stimulus is precluded by great anxiety over debt. That could mean government paralysis before a second economic storm. The most likely outcome is not calamitous. But it's not good. Financial wise men expect a "sideways market" through at least year's end. That means ups and downs but generally, that stocks remain steadily in this down and unstable market. That scenario should also frighten this White House. No market recovery, no jobs recovery. No significant jobs recovery by 2012, Obama looks like Jimmy Carter. With recovery, Obama looks like Ronald Reagan. There is another potential scenario as well. Obama did not, like Franklin Roosevelt, focus the full-force of his early presidency on the financial crisis. This president's inaction would be contrasted against any double-dip recession. Should the market suffer a second crash, Obama could look like Herbert Hoover.
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