It's the Economy (Again), Stupid

[dogday]

This week we were reminded of exactly how far away November 2008 really is, and how radically different the political landscape could look by the time we get there. On Monday former Federal Reserve chairman Alan Greenspan, in a satellite hook-up to Hong Kong, said that the U.S. economy could be headed for a recession later this year.

He was much more cryptic than that, but what happened next couldn't have been more obvious; on Tuesday, world markets went into a swoon, driven by plunging Chinese equity prices and a report of weakened durable goods orders in the United States. The Dow Jones Industrial average fell 416 points.

This forced the current Fed Chair, Ben Bernanke, into action. He reassured us that the markets were working well and that there was no single cause for the big sell-off on Tuesday. And he stepped on Greenspan's "recession" speculation, reiterating the central bank's expectation that the economy will grow by 2.5 percent to 3 percent this year -- less than the 3.3 percent growth we had in 2006, but still no recession. "There is really no material change in our expectations for the U.S. economy," Bernanke told the House Budget Committee, the day after the sell-off. "...There is a reasonable possibility that we'll see strengthening of the economy sometime during the middle of the year."

The Dow rose 52 points on Wednesday, and by Thursday Greenspan was backpedaling in Tokyo. He told a business seminar there that while a recession was possible, it was not probable. Soon the markets seemed to have righted themselves, but for a minute Iraq was not all we could talk about.

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As hard as it is to imagine, it is impossible to dismiss that in 2008, Iraq as an election issue may be eclipsed by economic instability, both at home and abroad.

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http://www.prospect.org/web/page.ww?section=root&name=ViewWeb&articleId=12530