Justin Ohms’s Weblog

Lately I’ve been having a lot of those moments when multiple events coincide with each other thereby causing new analogies, thoughts and ideas to form.   Mostly this occurs because I have a habit of reading 4 or 5 books at a time.   Inevitably these books tend to overlap in content even if they do not at first appear to.  There always seems to be a connection, a common thread or an augmentation and compliment to each other.  Today I had another such moment but with today’s news and one of the books I’m currently reading, Alan Greenspan’s autobiography “The Age of Turbulence”.  If you haven’t read it I highly recommend it.   Greenspan’s life spans most of a century and he provides his perspective on the economy and the famous people he has met throughout his life.  To top it off his personal style of writing makes for an entertaining read.

Today I just happen to get to chapter 7 “A Democrat’s Agenda” in which Greenspan talks about when he first met Bill Clinton while Clinton was president elect.  Greenspan makes note of how Clinton, like Kennedy appointed a fiscally conservative centrist economic team.   Lloyd Bentsen,  Roger Altman, Alice Rivlin,  Robert Rubin  etc.  I cannot help but draw parallels between Clinton’s choices and Obama’s.   In a lot of respects the economic situation that Clinton inherited from GHW Bush is similar to the situation that Obama is inheriting from GW Bush, differing mainly in the fact that by the time of the election that pushed GW’s father out of office, we were already well on our way out of the recession that had dogged the nation for two years.  This time we are still in it.

That recession and this one are very similar in many ways.   Both recessions can be partially attributed to the increasing size of the federal deficit brought on by the increased military spending.  The first Iraq war then and the on going wars in Afghanistan and Iraq now.  In both situations these ongoing military actions dramatically ballooned the national debt.  The primary difference between now and then is that while GHW was forced to raise taxes (breaking his famous “no new taxes” pledge)  his son has been able to keep his tax cuts intact and even expand them over the last 8 years.

When you factor in the effects that an increased national debt has on the money supply and the effect that increasing oil and energy costs have on growth you have a recipe then as now for a recession.

Both recessions were triggered or made worse by a meltdown in the banking system.  The Savings and Loan crisis of the early 90’s and the sub prime mortgage mess of today are exactly the same, both were caused in large part by bad real estate lending, and asset-liability mismatch.   The result then was the same as today a frozen credit and and overall decline in liquidity.

The great test of all this will be the next four years.  Perhaps this situation can more closely be likened to the state of the economy when GHW took office not when Clinton took office.  If GHW was able to see an economic turn around on his watch (which he was never given credit for) then there should be no reason why the same cannot happen under Obama’s administration.

What’s the point of all this?  Well it gives me great comfort to think that we’ve been here before, we survived and after we entered into one of the greatest periods of economic expansion in history.  Obama’s choice of advisors shows perhaps he will steer clear of aligning his administrations policies with the far left of his party (at least for the first few years) and the econnomy will recover in the next 12 – 20 months as many are predicting.  To quote Mr. Greenspan, “I don’t know that I’d have changed my vote, but I’m reassured.”