Christopher Ruddy
Monday, Aug. 20, 2001

Don’t hold your breath.

I don’t see a turnaround that soon, and I don’t see a boom that big.

Instead of making rosy predictions, the White House should be placing the blame where it belongs. The possibility that we are moving into a "Clinton recession" is strong.

The Clinton recession was caused by excess consumer credit, a huge increase in U.S. government social spending during the 1990s, and phony economic numbers meant to pump up the economy – because Clinton knew that his political aspirations rested on "the Dow Jones, not Paula Jones."

Lindsey is right to say a recovery is coming.

Several factors will help bring that recovery into effect. One is the Bush tax cut. The refunds being sent to taxpayers will help increase disposable income.

Gas prices are also falling. Regular NewsMax readers know that we pointed out early last year that Arab states – led by Saudi Arabia and Kuwait – purposefully cut production to pinch the U.S. economy during the 2000 election – to hurt Gore and help Bush.

It is clearly in the interest of the Arab states to have a robust U.S. economy, hence the oil price cuts.

Cuts in interest rates are also helping. Home sales are spiking and Home Depot has announced record sales. That’s good, but one wonders if home sales will continue at a record pace if the economy doesn’t pick up.

Here’s the downside, and why the economy will most likely enter a recession and the recovery will take much longer than expected:

Consumer Debt. Consumer debt has increased by a factor of three since Clinton entered office in 1992. Now it's payback time. Yes, the tax cut and falling oil prices will help, but a weak economy will make it more difficult for consumers to pay down their credit card bills.

Interest Rate Cuts: Double-edged Sword. Alan Greenspan and the Fed are poised to cut rates for the seventh time this year. Other than spurring home sales and related purchases, the effects of the rates are not clear. We do know that rate cuts are weakening the U.S. dollar. Foreign investors, burned by the U.S. equity markets and seeing smaller interest rates, have been shying away from the U.S. Without fresh capital flowing into the U.S. economy, don't count on any stock market boom soon.

Asia: The Sleeping Disaster. All across Asia the economies are reeling. Back in 1997, the collapse of Asian markets panicked some investors, but the Asian economies rebounded. That was because a strong U.S. economy kept demand high for both low-end consumer products and high-tech items. But that isn't true today. Look at what is happening in several Asian economies:

Japan: Interest rate cuts have had almost no effect in stimulating a long-term recession. Goldman Sachs reports that second quarter GDP will show a 5 percent annualized drop-off. Industrial production has fallen by 15 percent annualized.

China: The Wall Street Journal reported last week that China's government is racing to spend money "to stave off" a recession. The Journal said that China is borrowing heavily and "state spending is soaring ... as trading partners stumble."

Taiwan: The New York Times reports that "Taiwan’s economy shrank for the first time in 26 years" as electronic exports have dropped dramatically. Eight interest rate cuts by Taiwan's central bank have had little effect.

Government Pinched. Clinton economic policies of the 1990s are coming home to roost. Most people are completely unaware that the Clinton-era witnessed the greatest increase in social spending in the country ever – bigger than the New Deal or the Great Society years.

The growth of this social spending was masked by huge defense cuts – almost 50 percent of the defense budget was axed. I wrote about this some time ago and predicted what would happen: An economic slowdown, as we are witnessing now, will only increase demands for social spending. National security matters will also make demands for increased defense spending. This is precisely what we are witnessing today.

Social Security. Another program that will begin to pinch the federal budget is Social Security. Right now, some 70 million baby boomers are nearing retirement age. Since we have a negative savings rate, many Americans will have little cushion other than their monthly Social Security. A declining workforce and birth rate mean the burdens of the baby boomers on the working population will be enormous. This is why President Bush's initiative to reform Social Security is critically important to the U.S. economy.

It's wishful thinking to believe a looming recession will be avoided and the Dow will be heading toward 15,000 anytime soon.

Right now, a severe economic downturn has been avoided thanks to a combination of several factors, including the president's tax cut. But the tax cut will take years to be realized, and the economy may wane a bit longer.

Read more on this subject in related Hot Topics:
Clinton Scandals

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