The Looong Bubble Bath - How Bush's Debt-Recession topped Clinton's Equity Recession

[Dover]

This article is just over a year old, but explains how we've floated two bubbles (dot-com/housing)and wound up taking such a 'soaking'.


Why the Bush debt-recession will topple Clinton's equity-recession

Jan 18th 2008 10:22AM by Peter Cohan


If you can't pay back the bank, the bank takes your house or your car. If a stock you own loses its value, there's no collateral you can go after to cushion your loss. This is why Bush's debt recession will be far far worse than Clinton's equity one.

The stock market in the last year of George Bush's term is following a pattern that reminds me of the last year of Bill Clinton's. The Clinton market tumble -- where the NASDAQ fell in March 2000, rose through September 2000, and then began a straight down plunge through January 2001 -- preceded a brief recession in 2001. But I think that the Bush recession -- following Dow and broader market quakes in March 2007, August 2007, and the 14% decline since the October peak -- will be much much worse.

The reason? Clinton's recession was driven largely by a collapse in equity prices, while Bush's will be driven by an implosion in the value of debt. Before focusing on what Bush's recession might look like, it's worth remembering that Clinton's was driven by the collapse of the NASDAQ as the dot-com bubble burst. It also involved debt -- $1 trillion worth of borrowing by fiber optic network builders like Global Crossing that went bankrupt when they couldn't pay their debts as their customers, the dot-coms, went belly up.

For all those individual investors who got burned by the dot-com bust, after the dust had settled they had lost lots of money in their stock market accounts, but most people still had jobs, houses, and cars. And Clinton left the Federal budget in surplus with the national debt declining to $5 trillion. Bush used that recession to sell $1.3 trillion in tax cuts and to lower interest rates to 1%. With the $2.4 trillion worth of wars in Afghanistan and Iraq, the Federal budget went into deficit and the national debt ballooned to $9.2 trillion.

One effect of Bush's lower interest rates was to temporarily revive the economy by making it cheap for consumers to buy houses. Thanks to securitization, mortgages could be originated, packaged and sold as securities such as Collateralized Debt Obligations (CDOs) to investors around the world...cont'd

http://www.bloggingstocks.com/2008/01/18/why-the-bush-debt-recession-will-topple-clintons-equity-recessi/

[GoesTo11]

1. Finally number one at something.

Poppy must be so proud.