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Crisis moves from Wall Street to Main Street
President Bush said he was open to taking additional steps to stimulate the flagging economy, amid new indications that the U.S. is sliding into a deep recession.
President Bush said this week he was open to taking additional steps to stimulate the flagging economy, amid new indications that the U.S. is sliding into a deep recession. A slew of downbeat earnings reports and a steep jump in unemployment claims convinced policymakers and investors alike that the financial crisis had extended beyond Wall Street and was battering the “real economy.” The Bush administration reversed itself and voiced support for a new economic stimulus package, as did Federal Reserve Chairman Ben Bernanke. Congressional Democrats quickly got to work producing a $300 billion package with new infrastructure spending, unemployment benefits, and Medicaid assistance to states. Congress plans to hold a special session after the election to take up the legislation.
Following a stock market rally that reflected widespread relief that the credit crisis was easing, stock indexes plunged as corporations reported dramatically lower sales and earnings. Construction equipment giant Caterpillar called the economic contraction “the worst we’ve seen in years.” Internet portal Yahoo! announced it would lay off 1,500 workers, and thousands of other layoffs were announced by Merck, PepsiCo, and other companies. “This is an equal-opportunity recession,” said Cathy Paige of temporary-staffing supplier Manpower. “Everyone is feeling it.”
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The Fed chairman knows which way the wind is blowing, said The Wall Street Journal. With a Barack Obama presidency looking increasingly likely, “Bernanke all but submitted his job application” to Obama by endorsing the interventionist, Democratic approach to fiscal “stimulus.” A “tougher” Fed chairman would refrain from “meddling in campaign tax-and-spending debates” right before an election, but Bernanke has opted for self-interest over principle.
Washington’s inclination to intervene is admirable, said USA Today, but the public would be better served if policymakers let the recession play out. It may sound “harsh,” but “recessions are as necessary to prosperity as are recoveries.” Growth can resume only after the economy is purged of its excesses. There’s room for limited steps to ease the downturn’s impact on the most at-risk Americans, but expensive new programs that add to the soaring deficit “could do more harm than good.”
What the columnists said
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Welcome to “the Great Incomprehensible Recession of 2008,” said Steven Weisman in The New Republic. “The only thing easy to understand” about the mess we’re in is that panic is everywhere, from the stock exchange to the halls of Congress. Nearly everything else is comprehensible only to “a priesthood of experts.” As Washington moves beyond short-term fixes to consider long-term reforms, the first priority “must be to make the entire global financial system more transparent, comprehensible, and accountable.”
Too bad that’s not the Democrats’ main concern, said James Capretta in National Review Online. The stimulus measures that the Democrat-led Congress will take up in November represent the first step backward toward “the failed liberal policies of the 1960s.” Those policies, with their “large expansions of federal entitlements and explicit efforts to redistribute income,” will foster dependence on government and stifle initiative and innovation.
Washington has its priorities, I have mine, said Warren Buffett in TheNew York Times. And that’s to “buy a slice of America’s future at a marked-down price.” One rule has guided all my investment decisions: “Be fearful when others are greedy, and be greedy when others are fearful.” Right now, fear is coursing through the markets, knocking down the prices of some of the world’s soundest companies to levels not seen in decades. Those companies “will be setting new profit records five, 10, and 20 years from now.” I’m positioning myself now to share in those profits, and so should you.
What next?
President Bush said this week that he’ll host an economic summit, beginning on Nov. 15, at which leaders of the world’s biggest economies will consider coordinated efforts to combat the global slowdown. The announcement cheered European leaders, “who’ve already forced the U.S. hand on key design elements of the financial rescue effort that’s currently underway around the world,” said John D. McKinnon in The Wall Street Journal. European leaders are “hoping that a politically weakened Bush administration will be more likely to accept their ideas at the summit.”
