Politics and Public Opinion

Europe a dagger pointed at Obama’s reelection

Even if nothing else goes wrong, President Obama will almost surely face the most challenging reelection environment for any American president since the Great Depression. Here’s Douglas Elmendorf, director of the Congressional Budget Office, yesterday to Congress: “CBO expects real GDP to grow in the vicinity of 1½ percent this calendar year … and around 2½ percent next year. With modest growth in output, CBO expects employment to expand very slowly during the rest of this year and next year, leaving the unemployment rate close to 9 percent through the end of 2012.”

Elmendorf’s “This is as good as it gets” baseline forecast used to be Team Obama’s DEFCON 1 scenario. Even worse, it assumes nothing else goes particularly wrong (or right). Not that CBO doesn’t acknowledge some downside risk. Among “uncertainties” Elmendorf highlighted was “resolution of concerns that some European governments may default on their debts.”

But how uncertain really? The eurozone is falling into recession, with the region’s economy probably shrinking both this quarter and next. IHS Global Insight sees no growth at all for 2012 as a whole. This stagnation dramatically raises the odds of a messy default by Greece with financial contagion spreading to the rest of the eurozone and then America. The San Francisco Fed puts the odds of a U.S. recession at more likely than not, concluding “the fragile state of the U.S. economy would not easily withstand turbulence coming across the Atlantic. A European sovereign debt default may well sink the United States back into recession. … The odds are greater than 50 percent that we will experience a recession sometime early in 2012.”

How bad a recession? Bad enough that Barclays Capital thinks unemployment could hit 12 percent and home prices could fall another 7 percent. But whatever the impact of recession on jobs and housing, the reality that the economy would again be “back in the ditch” might be enough to guarantee Obama’s first term would be his last. While Europe’s problems aren’t Obama’s fault, voters would hold him accountable for an economy too weak to withstand overseas shocks. Perhaps, they might justifiably reason, the president should have been focusing on economic growth rather than healthcare reform in 2010, especially if the Supreme Court rules against ObamaCare smack in the middle of a new contraction.

Recall how an election-year recession affected Jimmy Carter in 1980. Forecasting models suggest Obama might not do much better than Carter if a downturn occurs in 2012. The Obama political team surely has thought about this and must shudder at the possibility.

27 thoughts on “Europe a dagger pointed at Obama’s reelection

  1. Mr. Pethokoukis, you’ve forgotten your Obama circa 2009.
    Should the economy sink enough in 2012 to doom his re-election, the Obama crew won’t let that crisis go to waste. He’ll figure out astonishing new election frauds, perpetrated by his very own DOJ and many other federal agencies, to tip the scales even in GOP friendly states.

  2. Mr. Pethokoukis, you’re the first one to say what many of us have been thinking for the last few months.

    The Administration’s acknowledgement that this is going to be a hard election cycle makes it clear that they don’t think things are going to get significantly better for them by election time. What it doesn’t say is that things can get worse… much worse.

    If Democrats honestly believe Obama is a shoe-in for re-election because if the Republican field or his alleged skills as a politician, they are kidding themselves. As the saying goes, “if you can keep your cool while all those around you are losing their heads, you obviously don’t understand what is going on.”

    • http://en.wikipedia.org/wiki/DEFCON

      Defense condition Exercise term Description Readiness Color
      DEFCON 5 FADE OUT[3] Lowest state of readiness Normal readiness Blue
      DEFCON 4 DOUBLE TAKE[3] Increased intelligence watch and strengthened security measures Above normal readiness Green
      DEFCON 3 ROUND HOUSE[3] Increase in force readiness above that required for normal readiness Medium readiness Yellow
      DEFCON 2 FAST PACE[3] Next step to nuclear war War readiness Red
      DEFCON 1 COCKED PISTOL[3] Nuclear war is imminent Maximum readiness White

  3. Obama wants it this way and has directed his policy and tsars to make it this way.

    The more people must depend on the bankrupt federal government, the better, in his eyes.

  4. Note that Ben Bernake has been stating recently that European debt crisis could bring the US into a recession. I would expect that this will be the narrative adopted by the media to try ti mitigate the impact of the coming double-dip caused by Obama’s policies. The GOP should note that Europe followed his recipe, with Obama rallying for a one trillion dollar bailout plan, sponsored by the Germans, which has thus far failed miserably at preventing the crisis.

  5. Comparing Obama to Carter ignores the factor of Obama having the bulk of the mainstream media covering for him, spinning his failures and hiding his indescretions. Although it is beginning to look like the EU tidal wave is going to sweep over us and the agenda driving Gun Runner may actually revealed. Those two alone could negate the media-manufactured sex scandals and such.

  6. This, actually, is Obama’s best chance at being re-elected.

    The Japan quake/tsunami caused a slow first and second quart GDP (quake in March, I know) and the Q3 uptick showed the economy picking up steam. Then the Euro crises hit (though earlier, they will claim it started in 2012) and what could Obama do? Bailout Europe? Obama stood firm and said no. If we Americans must battle the storm, so should the Europeans. And Obama will go on, and on and on.

    Repubs need to start right now saying that then entire last half of 2009 and most of 2010 was spent on Obamacare when the admin should have been focused on jobs. the more time that passes, the more time people will forget exactly how much time was wasted on Obamacare and not job.

    But IMHO, the euro taking a dump with several countries IS Obama’s best chance at re-election. “See, it was world wide. What could the little ol’ US do?”

  7. “Perhaps, they might justifiably reason, the president should have been focusing on economic growth rather than healthcare reform in 2010 …”

    Tah-dah! Barry’s gonna have to explain this AND why he tried to spin Obamacare as a way to reduce the deficit instead of the ticking tax timebomb that it is. Good luck, Barry. Can’t wait for the debates.

  8. What amazes me is how James Pethokoukis is basically the only commentator that is able to get away with showing sheer joy that the economy is going to get worse. Tweet after tweet and post after post, it is clear that he just can’t contain his excitement after every new forecast comes out.

    This is not to say he is the only one that feels this way. It is just that most other commentators that think in these terms know how to hide it.

    So far, only Kevin Drum has called him out on it. (http://motherjones.com/kevin-drum/2011/07/goldman-forecast-economy-sucking-ever-worse) But even he is sort of indifferent to the implications of this, since it is basically expected of Mr. Pethokoukis (and some others like him). That is a sad state of affairs though — one should not be able to clearly hope the economy tanks for political gain without being scorned every time they do it.

    • Jimmie P is not rooting for recession but recognizes that it is a clear possibility based on likely events and that it will have political consequences for the president. Jimmie P did not coin the old phrase, “Every cloud has a silver lining.”, but it is the basis of his article.

      Nobody will ever accuse him of turning a blind eye to the facts for political gain. As an econometricians and predictive analyst, I would make the case that Jimmie is following the facts and that the politics will take care of themselves.

    • Not to disparage Mr. Drum’s Obama support too much, but I’ve seen colonoscopes that don’t go that far up. Citing MotherJones is almost like…..I dunno, a really hack issue of Newsweek. Probably you should stick to newspapers or periodicals that focus on financial issues.

    • I used to think the same way about people that would write with glee about how terrible the war in Iraq was going. I would think, “Surely, people can’t be happy that things are going badly in Iraq purely for political gain.”

      I guess we’re just that polarized now.

    • Rest assured, if there were a Republican in office, every member of the media would be shouting any and all bad economic news from the rooftops, and spinning what good news they could find into bad.

      In short, where have you been?

    • to quote bobby knight…
      “I think that if rape is inevitable, relax and enjoy it.”

      i think you confuse Pethokoukis’ gloating over the failure of obamanomics, with the country at large.

      have you seen the public opinion polling on obama and the economy?

      it isn’t like Pethokoukis is johnny come lately-he’s been out in front, and correct, on almost every criticism of obama’s economic policy.

      “sheer joy”?

      i missed it in the above column. who is kevin drum?

      • See above reply: you have to use a colonoscope to find Kevin Drum, given his unwillingness to critique Obama.

        The difference between Kevin Drum and your garden variety Kos Diarist is one of degree, not of kind.

    • Please show us where James Pethokoukis clearly hopes the economy will “tank.” As long as we are trying to read his mind, I propose that he reasonably foresees the economy will do badly at some time in the near future, as debt increases and new regulations come to be enforced. As long as it must do badly, according to his lights, it seems just as well that it do badly in a timely way, that is, in time to ruin the political careers of the men he holds responsible. Whether we are right or wrong, is this conjecture not much more plausible than yours, according to which he very simply hopes his country’s economy will do badly?

      • This is a charge liberals like Davis make when Pethokoukis and others point out the obvious: that Obama’s policies are toxic for the economy.

        Their ONLY interest is in what’s good for the Democrats. Stating the obvious about the economic direction of the country, as Pethokoukis does, is not in the interests of the Democratic Party.

        Remember this: Obama brought an entire legion of people like this to power with him in 2009.

        You get the picture.

  9. Just a thought … one factor slowing down the European economies is the sluggish American economy. If the USA wasn’t so over-regulated et cetera it might be buying more products from Europe. At the very least, high unemployment and low demand in America certainly isn’t helping the situation elsewhere.

  10. “He’ll figure out astonishing new election frauds, perpetrated by his very own DOJ and many other federal agencies, to tip the scales even in GOP friendly states.”

    Now that’d be interesting. That’d be when we find out what stuff the people of this country are made of.

    Just as Obama brought out the best in America, by personalizing the worst.

    Who, with the vantage of hindsight, would have preferred McCain? We’d have socialized health care, cap and trade, the exact same huge debt. We’d have no Tea Party. The voice of basic American principles would be very faint indeed.

    Spendulus

  11. One can hope he is right. We need to get Obama out of the Whitehouse.

    Never in the history of the US have we needed to get rid of a President this badly.

    Even Hillary — who is actually more liberal, would be better. Anyone, except *possibly* Ron Paul would be better.

    • Even Ron Paul would be better. I definitely disagree with his foreign policy, but Paul’s domestic policy is pretty good. On cutting government he is actually one of the best. I also agree that even Hillary would be better, because while she is equally leftist and dishonest, at least she is competant.

      Obamas combination of cronyism and corruption with gross incompetance is the worste of any US president I have ever seen. Nixon may have been slightly worse on corruption, but was fairly competant. Carter was incompetant, but fairly honest. Obama uniquely combines the corruption of Nixon with the incompetance of Carter.

      Obama only has one advantage, the ability to make any kind of unrealistic promise to win, and the ability to lie convincingly. But those qualities only work before he has an actual record to compare his rosy promisses and soaring rhetoric to. Obama also has the MSM to lie for him, but again, their past lies have badly discredited them. That old saying abut fooling all of the people some of the time definitely applies to Obama, but it only works so many times before some people actually start remembering the past.

    • At least Paul is not liberal or Neocon (not much difference there). We’d probably be far better off domestically if Paul were actually elected. In foreign relations he’s wrong, but for the rest he’s spot on.

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