SCHAEFFER: Who Owns This Economy Obama Or Trump?
So  the 20 trillion-dollar question is this:  Which president  owns this booming economy? Obama or Trump?
The argument in favor of former-president Obama  often heard among the Democrat Party cocktail set as they scramble to somehow put a left-wing veneer on the good times  goes something like this:
 President Obama  inherited an absolute mess. At the time of  his  election in November 2008  the stock market was in a free-fall  having tumbled from a high of roughly 14 000 to 6 500  a -53% decline that took some of Wall Streetâs oldest and most venerated institutions like Lehman Brothers down with it. The shock to the credit system created a deep freeze. The 2008 crash was not just in equities but in a speculative real estate bubble fueled by criminally easy-to-obtain mortgages that placed millions of unqualified borrowers in peril as their home values collapsed and the equity upon which their predatory loans were based disintegrated right at the same moment teaser rates kicked in; this cocktail of disaster made it easier for them to just leave the keys in the mailbox for the bank than try to service their loans. Consumer confidence plummeted  unemployment began its unrelenting march from 5% at the beginning of 2008 to the October 2009 high of 10%.
This all happened on Obamaâs watch  and if the rooster crows as the sun rises  it must be the roosterâs doing. But was it really?
First  letâs take a look at how the economy outside of Wall Street  big government  and the college campus fared in the so-called â Obama  recovery.â Here are some general observations. Home ownership: down. Labor force participation: down. Student loans: up. National Debt: up. Health care costs: up. Median family income: flat. People on food stamps: up. Workersâ share of economy: down. These trends do not paint a rosy picture for the working middle class. Is it any wonder that the fabled Democrat âblue wallâ crumbled in 2016?
So what gives? How could the overall economy improve and yet not benefit the average American? One would think if Americans were truly happy with the  Obama  years  they wouldnât have turned over the levers of power from the statehouse to the governorsâ mansions  to the Congress and the White House to the Republicans during Obamaâs tenure.
Letâs look at the overall economy in 2008-2009 when  Obama  took over  which first and foremost needed a shot of credit confidence to get moving again . . . after all  if Lehman collapsed and AIG was on the brink of insolvency  were any firms safe? Thus  did investment capital  the grease in the countryâs economic machine  dry up and move to cash. So  what did  Obama  do to unfreeze credit? Actually  the most important government intervention in those critical times was the Bush administrationâs Troubled Asset Relief Program (TARP). In a move right out of Hamiltonâs playbook  Hank Paulson at the Treasury Department assumed the bad debts of private institutions onto the only balance sheet large enough to hold them while all got sorted out: the federal governmentâs. Among any government actions  it was TARP (one this disciple of Adam Smith grudgingly supported under the âdesperate times call for desperate measuresâ category) that stopped the collapse and stabilized the economy. Once capital felt like it was safe to get back into the water  the foundation for a recovery was in place. ARP was also something  President Obama  inherited.
So why the steady stock market rally during Obamaâs term? Surely  Obama  should be credited with that. Well  unlike the weeks after Trumpâs election  those following Obamaâs saw the DJIA shed an additional 3 000 points  or another 30%. What set the equities markets on a tear was not so much White House fiscal policies such as the wasted $800 billion on a stimulus package with a face that only a die-hard neo-Keynesian could love  but rather monetary policy courtesy of the independent Federal Reserve. The Fed Funds rate fell from 5.25% in October 2008 to as low as 0.05% in December 2009 and remained below 1.0% until July 2017  in effect making it nearly costless to borrow money. The subsequent miniscule proceeds of debt instruments prompted a chase for yield. And where could one earn more than the nominal rate of inflation? Equities of course. And which countryâs markets are the safest and most secure? The United Statesâ. Hence the bull market. ( Obama  could  in fact  be called one of the greatest presidents Wall Street ever had . . . which doesnât help a trucker  or machinist  or oil rig worker . . . something the Democrats failed to understand as their power in middle America slipped away.)
Very often a presidentâs mantra when acting as de facto steward of the worldâs largest economy is  "first do no harm." Did  Obama  adhere to this tenet? No. In his brief window of opportunity when Democrats controlled Congress  he pushed through a slew of punishing  anti-business âreformsâ and regulations. The ill-conceived Dodd-Frank law (brought to us by the two legislators whose dirty fingerprints were on the real estate debacle more than any othersâ)  the assumption of control of one-sixth of the economy in the already-imploding Affordable Care Act  which spawned no fewer than 20 separate tax hikes  the war on coal and even Keystone XL in favor of as-yet unprofitable green start-ups  poor trade deals  a climate accord that punished us while giving our chief economic competitors a free pass for a decade  etc.  did nothing to spur economic growth. It did create an entirely new layer of costly public and private sector bureaucracy dedicated to navigating the new world of compliance with government activism.
So why did the economy improve? Because no one man can stop it. He can only impede its progress. Economic cycles are part of the ebb and flow of business  and  as a rule  the more precipitous the fall  the quicker and steeper the recovery. But not so in the case of the Obama years  where the U.S. economy never achieved an annualized GDP of above 3%. By contrast  not only has the first year of the Trump administration produced an annualized GDP of above 3%  the Atlanta Fed projects a GDP in the first quarter of 2018 to be as high as 5.4%.
The U.S. economy is resilient. It can endure the stifling effects of neo-Keynesian folly and tap into the animal spirits (ironically a term coined by Keynes himself) to propel the engine of growth forward. It is not that  Obama  deserves no credit for where we are. Indeed  many of the charts went from the lower left to upper right under his watch. But one can certainly argue that his stubborn adherence to failed left-wing statist dogma acted as a sea anchor on what should have been a far more robust recovery given the steep recession he inherited. When investors woke up on November 9  2016  they saw before them a more business-friendly government. One they did not expect. The proof is in what those charts look like since that day. Trumpâs policies since have merely removed the sea anchors  allowing the USA to reach its previously untapped potential.
So  the 20 trillion-dollar question is this:  Which president  owns this booming economy? Obama or Trump?
The argument in favor of former-president Obama  often heard among the Democrat Party cocktail set as they scramble to somehow put a left-wing veneer on the good times  goes something like this:
  [TGT] inherited an absolute mess. At the time of   [TGT]   election in November 2008  the stock market was in a free-fall  having tumbled from a high of roughly 14 000 to 6 500  a -53% decline that took some of Wall Streetâs oldest and most venerated institutions like Lehman Brothers down with it. The shock to the credit system created a deep freeze. The 2008 crash was not just in equities but in a speculative real estate bubble fueled by criminally easy-to-obtain mortgages that placed millions of unqualified borrowers in peril as their home values collapsed and the equity upon which their predatory loans were based disintegrated right at the same moment teaser rates kicked in; this cocktail of disaster made it easier for them to just leave the keys in the mailbox for the bank than try to service their loans. Consumer confidence plummeted  unemployment began its unrelenting march from 5% at the beginning of 2008 to the October 2009 high of 10%.
This all happened on Obamaâs watch  and if the rooster crows as the sun rises  it must be the roosterâs doing. But was it really?
First  letâs take a look at how the economy outside of Wall Street  big government  and the college campus fared in the so-called â Obama  recovery.â Here are some general observations. Home ownership: down. Labor force participation: down. Student loans: up. National Debt: up. Health care costs: up. Median family income: flat. People on food stamps: up. Workersâ share of economy: down. These trends do not paint a rosy picture for the working middle class. Is it any wonder that the fabled Democrat âblue wallâ crumbled in 2016?
So what gives? How could the overall economy improve and yet not benefit the average American? One would think if Americans were truly happy with the   [TGT]  [TGT]   [TGT]  have turned over the levers of power from the statehouse to the governorsâ mansions  to the Congress and the White House to the Republicans during Obamaâs tenure.
Letâs look at the overall economy in 2008-2009 when   [TGT] took over  which first and foremost needed a shot of credit confidence to get moving again . . . after all  if Lehman collapsed and AIG was on the brink of insolvency  were any firms safe? Thus  did investment capital  the grease in the countryâs economic machine  dry up and move to cash. So  what did   [TGT] do to unfreeze credit? Actually  the most important government intervention in those critical times was the Bush administrationâs Troubled Asset Relief Program (TARP). In a move right out of Hamiltonâs playbook  Hank Paulson at the Treasury Department assumed the bad debts of private institutions onto the only balance sheet large enough to hold them while all got sorted out: the federal governmentâs. Among any government actions  it was TARP (one this disciple of Adam Smith grudgingly supported under the âdesperate times call for desperate measuresâ category) that stopped the collapse and stabilized the economy. Once capital felt like it was safe to get back into the water  the foundation for a recovery was in place. ARP was also something   [TGT] inherited.
So why the steady stock market rally during Obamaâs term? Surely   [TGT] should be credited with that. Well  unlike the weeks after Trumpâs election  those following Obamaâs saw the DJIA shed an additional 3 000 points  or another 30%. What set the equities markets on a tear was not so much White House fiscal policies such as the wasted $800 billion on a stimulus package with a face that only a die-hard neo-Keynesian could love  but rather monetary policy courtesy of the independent Federal Reserve. The Fed Funds rate fell from 5.25% in October 2008 to as low as 0.05% in December 2009 and remained below 1.0% until July 2017  in effect making it nearly costless to borrow money. The subsequent miniscule proceeds of debt instruments prompted a chase for yield. And where could one earn more than the nominal rate of inflation? Equities of course. And which countryâs markets are the safest and most secure? The United Statesâ. Hence the bull market. (  [TGT] could  in fact  be called one of the greatest presidents Wall Street ever had . . . which doesnât help a trucker  or machinist  or oil rig worker . . . something the Democrats failed to understand as their power in middle America slipped away.)
Very often a presidentâs mantra when acting as de facto steward of the worldâs largest economy is  "first do no harm." Did   [TGT] adhere to this tenet? No. In his brief window of opportunity when Democrats controlled Congress  he pushed through a slew of punishing  anti-business âreformsâ and regulations. The ill-conceived Dodd-Frank law (brought to us by the two legislators whose dirty fingerprints were on the real estate debacle more than any othersâ)  the assumption of control of one-sixth of the economy in the already-imploding Affordable Care Act  which spawned no fewer than 20 separate tax hikes  the war on coal and even Keystone XL in favor of as-yet unprofitable green start-ups  poor trade deals  a climate accord that punished us while giving our chief economic competitors a free pass for a decade  etc.  did nothing to spur economic growth. It did create an entirely new layer of costly public and private sector bureaucracy dedicated to navigating the new world of compliance with government activism.
So why did the economy improve? Because no one man can stop it. He can only impede its progress. Economic cycles are part of the ebb and flow of business  and  as a rule  the more precipitous the fall  the quicker and steeper the recovery. But not so in the case of the Obama years  where the U.S. economy never achieved an annualized GDP of above 3%. By contrast  not only has the first year of the Trump administration produced an annualized GDP of above 3%  the Atlanta Fed projects a GDP in the first quarter of 2018 to be as high as 5.4%.
The U.S. economy is resilient. It can endure the stifling effects of neo-Keynesian folly and tap into the animal spirits (ironically a term coined by Keynes himself) to propel the engine of growth forward. It is not that   [TGT] deserves no credit for where we are. Indeed  many of the charts went from the lower left to upper right under  [TGT]  watch. But one can certainly argue that  [TGT]  stubborn adherence to failed left-wing statist dogma acted as a sea anchor on what should have been a far more robust recovery given the steep recession  [TGT]  inherited. When investors woke up on November 9  2016  they saw before them a more business-friendly government. One they did not expect. The proof is in what those charts look like since that day. Trumpâs policies since have merely removed the sea anchors  allowing the USA to reach its previously untapped potential.