Bush did the right thing for the economy during the last recession. He lowered
taxes again and again. Luckily, the Fed had plenty of ammunition to fight the
recession, aggressively lowering interest rates and avoiding deflation. The
consumers helped by refinancing against their home values, resulting in the very
positive twin combination of lower mortgage payments and cash-out borrowing,
allowing them to spend more than they made. Even in the face of 9-11 and massive
debt and trade imbalances, the combination of such massive stimulus helped
engineer a very shallow recession. The problem is that we will not have these
recession fighting tools when we enter the next recession. Interest rates will
likely be no more than 3%. Even cutting rates to zero will not be much stimulus,
as the last 1% is mostly psychological. If a deal can't get done with interest
rates at 1%, it is unlikely to get done at 0%. As much as I would like, there
are no more tax cuts available which would provide any significant stimulus.
Mortgage rates would have to drop to 4.5% or lower to allow home owners to
re-finance and lower their costs. However, such low rates would indicate that we
would already be in a much worse recession than last time.
He's quite bearish on the short term economic future (next two or three years) and pushes for some serious reform during the next term. Social Security, tax reform (he's a proponent of a national sales tax), tort reform, and serious free trade zone increases. Amen.
He also, interestingly, thinks that Hillary might be the least of Republican's
problems in 2008.Bill King, the bond god over at Pimco, says we will have to
deal with Hillary in 2008. We should be so lucky. My bet is the Dems find
another Clinton clone without the blue dress and negative history. Someone who
can feel their pain and articulate their angst. Even though demographics and the
conservative tide are on our side, from time to time that tide goes out. While
we have a better and deeper bench for potential presidential candidates than the
Dems (Giuliani, McCain, Frist, Ridge, Condie Rice (!), among others), they only
need one person. Couple him (or her) with Barack Obama as VP, and their ticket
is formidable coming off a recession.
I don't know if I'm more disheartened by his warning of another Bill Clinton or by his list of the Republican bench warmers (please don't make me listen to Tom *$%!$#! Ridge campaign for two years!), but I would be more fearful of a non-New England Democratic governor (Bill Richardson, my own Mike Easley) with Obama (think he'll tell everyone in Boston he's Irish, but his granfather misplaced the apostrophe?) to play the left-wing heavyweight. The best strategy Republicans have is to take the next two years, cancel all Killington and Aspen ski trips, and play serious hardball. It's time to get to work.
Incidentally, I get Mauldin's newsletter every week, and while his writing style tends to annoy, his analysis is usually exceptional. He's been right on about the current recovery, it's timing as well as its depth and breadth, for a couple years and has been warning of a 2005/2006 recession for at least a few months.