The magnitude of the Federal Reserve's
emergency move yesterday – the largest reduction
in the benchmark federal funds rate since 1982 –
testifies to the official alarm in Washington
at the deteriorating US economy
It's good news for the Democrats
Yesterday's Dow Jones Rollercoaster [Click to Enlarge]
With markets in freefall worldwide, economic perils consumed White House contenders Tuesday as Democrats vied to wrest the political initiative by clamoring for relief for voters.
"This is a global economic crisis," Democratic hopeful Hillary Clinton warned shortly after the Federal Reserve sprung a surprise rate cut that failed to calm market jitters sparked by fears of a US recession.
She argued the US economy could "very well thrust us into a deep, long recession," and repeated her calls for action on a US mortgage crisis that has rippled worldwide.Recession Blues for Republicans
The magnitude of the Federal Reserve's emergency move yesterday – the largest reduction in the benchmark federal funds rate since 1982 – testifies to the official alarm in Washington at the deteriorating US economy.
But the recession which may already be under way will also have an impact on the current battle for the presidency, with Republicans the most likely losers.
Each economic downturn is different, but whether deep or shallow, they have one common political thread. They usually presage a change of party in the White House.
It happened most famously in 1932, when the onset of the Great Depression propelled the Democrat Franklin Roosevelt to power, replacing the indolent Herbert Hoover.
In retrospect, that election ushered in 36 years of Democratic dominance that ended only in the tumult of 1968, when Richard Nixon defeated Hubert Humphrey to launch a new Republican era.
In 1980, the story was similar. Economic crisis, and the perceived inability of the Democrat Jimmy Carter to cope was a major factor in the victory of Ronald Reagan.
Like 1932, that year has gone down as a "transformational" election, setting the country – as even Barack Obama rashly noted the other day – on "a new trajectory".
A recession, albeit a very shallow one, is also credited with sealing the defeat of the incumbent Republican George H W Bush in 1992.
"It's the economy, stupid," was the now-famous slogan of the Bill Clinton campaign war room in Little Rock, Arkansas.
The elder Bush still blames the Fed – under its previous chairman Alan Greenspan – for not cutting rates quickly enough in the year before the election.
And now 2008, which, even before the sub-prime implosion, was being hailed as a potentially "transformational" year.
After yesterday, Ben Bernanke, Greenspan's successor, can hardly be accused of dragging his heels with rate cuts. But the peril for Republicans remains.
No one can blame George Bush Jr for this downturn (though many doubtless will) – presidents have far less influence on the economy, in both good times and bad, than they like to claim when things are booming.
But Republicans stand for superfree markets and deregulation, and if one factor is responsible for today's troubles, it is overlax regulation of the financial markets.
If anything, this crisis stems from an excess, not a lack, of free enterprise. Government is traditionally reviled by Republicans as part of the problem, but it is to government that Americans now largely look for a way out of the mess.
The three Democrats still in the race – Hillary Clinton, John Edwards and Mr Obama – have all set out detailed economic stimulus packages.
Republicans, however, have mostly been silent, preferring to rely on the old nostrum of tax cuts.
The populist Mike Huckabee even wants to abolish income tax and replace it with a sales tax.
Mitt Romney, a former successful business executive, speaks vaguely of hi-tech riding to the rescue, while Rudolph Giuliani until recently was mocking any federal economic stimulus as "nanny government".
Democrats Pounce on Economy in Peril
With markets in freefall worldwide, economic perils consumed White House contenders Tuesday as Democrats vied to wrest the political initiative by clamoring for relief for voters.
"This is a global economic crisis," Democratic hopeful Hillary Clinton warned shortly after the Federal Reserve sprung a surprise rate cut that failed to calm market jitters sparked by fears of a US recession.
She argued the US economy could "very well thrust us into a deep, long recession," and repeated her calls for action on a US mortgage crisis that has rippled worldwide.
At a feisty Democratic debate late Monday, the New York senator and her main rival Barack Obama took time out from sniping at each other to roast President George W. Bush on the economy.
Both portrayed a Bush stimulus plan worth up to 150 billion dollars as too little, too late, and of no benefit to millions of Americans on the bottom rung of the economic ladder.
The White House said it was not predicting a recession in the world's biggest economy but said it was open to a larger stimulus package, with Wall Street already giving its thumbs-down to Bush's plan announced Friday.
The former first lady -- whose husband Bill Clinton campaigned in 1992 on the famous mantra "it's the economy, stupid" -- unveiled Friday her own 70 billion dollar plan aimed at injecting new life into the US economy.
Her proposal includes 30 billion dollars to help states mitigate the impact of foreclosures linked to the mortgage crisis, 25 billion for households struggling to pay heating bills and 10 billion for unemployment assistance.
Obama followed up with a 75 billion dollar plan that includes tax cuts for low-income Americans, as well as help for the unemployed and relief from the housing crisis.
In a speech Tuesday in South Carolina devoted to the economy, Obama kept up his offensive on Bush -- and on Hillary Clinton, whose policies he implied "change with the politics of the moment."
The Illinois senator expressed hope that the Fed's 75-point rate cut would stem the bleeding, but said "the fear remains."
"It's a fear that hasn't just confined itself to those who nervously watch the tickers or scan the headlines of the financial section, but one that I have seen on the faces of working Americans in every corner of this country long before anxiety ever hit Wall Street," Obama said.
Candidates from Bush's Republican party, meanwhile, are preaching the classic conservative themes of low taxes and limited government spending.
"One of the major reasons why we are where we are today is (failure to) restrain the spending," Republican front-runner John McCain said after winning the South Carolina primary on Saturday.
McCain's own stimulus plan is more modest than the Democrats', or than Bush's call for tax rebates for individuals and families. He is calling notably for a cut in the US corporate tax rate from 35 to 25 percent.
The Arizona senator fretted that any stimulus package would get larded with "pork-barrel projects when it goes through Congress."
Former Massachusetts governor Mitt Romney, who made millions in venture capitalism, pointed to his business experience as leaving him best positioned to heal a wounded economy.
"I know how America works because I've spent my life in the real economy," he argued in a new campaign spot, touting tax cuts across the board.
But Christian Weller, associate professor for public affairs at the University of Massachusetts, said voters were hungry for immediate measures to cope with the housing crisis, rising prices and job insecurity.
"The Republicans are probably behind the curve on this," said Weller, who is also a senior fellow at the left-leaning Center for American Progress.
"But the one audience that they're all leaving behind are the fiscal conservatives," he told AFP, noting concerns that stimulus spending now will only add to the mammoth deficit bill faced by generations to come.