Well, that was fast. Just days after Congress raised the debt ceiling and finalized a deficit reduction deal, reality slapped the nation in the face in the form of a 500-point drop in the Dow Jones industrial average.
Thank you. We needed that.
The economic news isn’t good. Europe’s debt problems have given Wall Street the jitters, and first-quarter 2011 gross domestic product was revised down from 1.9 percent to 0.4 percent. (If you are impressed with July’s increase of 117,000 nonfarm jobs, you are missing the big picture.)
No wonder financial analysts are sounding increasingly pessimistic about the American economy. Slowing growth means unemployment will remain high, and a double-dip recession now looks possible.
Oh, and did I mention that the public seems unenthusiastic about the debt ceiling deal, according to polling conducted shortly after the compromise passed Congress and was signed by President Barack Obama?
While it’s unlikely that most Americans fully understand the compromise that raised the debt ceiling, it’s clear they found the legislative process messy and unseemly. And with even many of the supporters of the compromise complaining about the deal, it probably isn’t surprising that so many Americans are dissatisfied with it.
The media’s obsession with the debt ceiling negotiations and deadline was understandable and even reasonable. A default would have made last week’s New York Stock Exchange sell-off look like child’s play, and forcing the Treasury Department to decide which obligations to pay and which to let slide would have created chaos.
The raising of the debt ceiling was, and deserved to be, a huge news story. But don’t kid yourself into believing that last week’s compromise actually accomplished much.
It didn’t resolve the nation’s long-term budget problems, and it didn’t take spending or debt off the political table for 2012. Even more importantly — because the nation’s fundamental, long-term financial challenges remain — it really didn’t “resolve” anything other than a single potentially disastrous stalemate over raising the debt ceiling.
The country is still saddled with trillions of dollars in debt. Congress is relying on a “super committee” empowered to make recommendations about other spending cuts. Appropriations bills still need to be passed this year and again next. And a sharp decline in the unemployment rate looks unlikely during the next year.
In short, the U.S. economy is likely to remain very weak for months, probably through the presidential election, and many messy legislative fights remain ahead.
All of this is bad news for incumbent officeholders, who will have to explain to constituents why the future looks so dark and why they haven’t done anything to improve the direction of the country.
The biggest incumbent of all, of course, is Obama, who was considered a winner from the Congressional compromise to raise the debt ceiling but who looks very much like a loser just days after Congress adjourned for a month.
The president’s poll numbers remain weak, with his job approval upside-down (a higher disapproval rating than his approval rating) in polls conducted recently.
Obama can’t solve his own political problems through public relations initiatives or photo opportunities. Another speech on the importance of job creation won’t help his poll numbers or his re-election prospects any more than his appeals for bipartisanship and compromise during the debt ceiling standoff did.
And with plenty of uncertainty ahead — uncertainty about the super committee’s ability to arrive at a bipartisan solution, about Europe’s financial health and about the outcome of the 2012 elections — it’s hard to believe many businesses will make major investments during the next few months.
None of this guarantees the president’s defeat next year. But the economic news that develops during the next 15 months will do far more to dictate Obama’s political fate than did last week’s debt ceiling deal.
If the president can’t win re-election by pointing to his successes, he will have no alternative but to run on what he promises will be the Republican presidential nominee’s likely failures. That would mean a sharply negative campaign from the man who campaigned four years ago as someone who could change the tone in Washington, D.C., and bring the country together.
No wonder the White House is praying for an economic upturn or for Republicans to nominate Rep. Michele Bachmann (Minn.) for president.
Stuart Rothenberg is editor of the Rothenberg Political Report.