Will Europe cost Obama the election?

[Beet]

It's starting to look like a possibility. Spain right now is a thermonuclear weapon and the length of the fuse is such that it's going to blow up just between now and November.

[Comrade Funk]

Maybe. They've managed to kick the can down the road this far. Who knows?

[Nagas]

It's a big maybe. Six months ago, people were talking about Greece and how it would implode and throw the US into recession by Summer. Well, that's past and all of the pessimists crying "Recession! Recession!" seem to have gone very quiet.

Spain is a different beast than Greece but nobody wants to see them implode. Even if its inevitable, I feel that European leaders will bandage it enough that by the time it does, election season will be over here. In the event of a default/severe recession, the effects on America are unknown as well, as is the time it will take to affect us.

[Beet]

Here's the problem:



I feel the one step that hasn't really been done yet is for Merkel to step out and form a grand coalition with the SPD. But this isn't the place to talk about that.

The euro crisis has already cost Obama massively (I think job growth in 2010, 2011 and 2012 would have been much stronger, even though gas prices would be higher, it's jobs that matter more).

[You kip if you want to...]

I feel the one step that hasn't really been done yet is for Merkel to step out and form a grand coalition with the SPD. But this isn't the place to talk about that.

Would the SDP do that a year away from an election though? That'd sign their death warrant.

[Beet]

I feel the one step that hasn't really been done yet is for Merkel to step out and form a grand coalition with the SPD. But this isn't the place to talk about that.

Would the SDP do that a year away from an election though? That'd sign their death warrant.

Let's keep this focused on the US election.

I seriously feel that the Obama campaign needs a Plan B going into September and October, if things are in full meltdown mode. It's going to be brutal. If they're going to go down, might as well do it kicking and screaming. It has to be less about 'things are improving / we're moving in the right direction' and more about 'Romney's ideas would only make it worse.' It's going to take a miracle.

[Senator Sbane]

In a weird way it might not hurt him as much if Spain implodes and it's obvious to everyone why the economy is tanking. A gradual decline with say -50k job losses before the election would be more devastating. Both scenarios he loses so it doesn't really matter, but Romney gets a bigger margin in the latter case.

[asexual trans victimologist]

I doubt Spain will be allowed to get to such point as it will cost Obama the election.

[State Comptroller Atkins]

For that to happen, Europe would have to suffer a major economic crash, and that major economic crash would have to reach the USA by November. I'm not an economist so I'm not sure exactly how likely that is.

[WhyteRain]

One thing for certain:  Whatever happens, Obama's fans will never think it's his doing.  He's just a spectator.  Sort of "following from in front".

[True Federalist]

Most likely it won't.  A European implosion at this point won't cause the US economic pain soon enough to hurt Obama significantly in November.  Not only that, the first shockwaves from such an implosion that will hit these shores will be a collapse of commodity prices.  If gas goes down another 50¢ a gallon between now and Election Day that helps Obama even if it is because we're headed for an economic downturn thanks to Europe.

It also matters why Europe is perceived to implode.  If the perception is that austerity doesn't work, that helps Obama.  If the perception is that deficit spending doesn't work, that helps Romney.  Most likely Democrats will perceive the former and Republicans the latter, so that perception will have little effect.

[Speaker Dereich]

I think everyone is underestimating how long it'll take for it to affect the election. Even if the resulting deeper European recession didn't hit us that soon, the stock market would tank in anticipation. Just look at how markets are wildly fluctuating at European news already, and it only takes one or two really bad weeks before the only thing in the news is how nest eggs are devastated and how people have lost all of their savings. That could easily cost the President the election, although I doubt it'll happen.

[shua]

One thing for certain:  Whatever happens, Obama's fans will never think it's his doing.  He's just a spectator.  Sort of "following from in front".

No one connected to reality will consider the state of the European economy to be Obama's doing.

[Secretary Polnut]

One thing for certain:  Whatever happens, Obama's fans will never think it's his doing.  He's just a spectator.  Sort of "following from in front".

No one connected to reality will consider the state of the European economy to be Obama's doing.

Considering who made the original statement, I would say that's very true.

[WhyteRain]

One thing for certain:  Whatever happens, Obama's fans will never think it's his doing.  He's just a spectator.  Sort of "following from in front".

No one connected to reality will consider the state of the European economy to be Obama's doing.

Let's assume, arguendo, that what you say is true.  So what?

I've looked at our past deep recessions -- 1958-59, 1969-70, 1973-75, 1980-82 -- and you know what?  The end of every one of them was followed by 10 quarters of annualized U.S. economic growth of between 5.0% and 7.0%.  The 2008-09 recession ended in early 2009.  The next 10 quarters of growth has been about 2.0%.  Most Americans don't think we've had any recovery.

Now, did the Europeans pull us out of those other four deep recessions?  Were there tsunamis or oil price increases or bank failures or whatever else Obama keeps talking about during those recessions and recoveries?  If so, then how much blame can we give "the European economy" for the most miserable U.S. economic performance in 80 years?

[Beet]

The slowness of the recovery is on account of deleveraging.

Here are the Total Debt to GDP ratios at the end of each recession since 1955, and the ratio 10 quarters later:

1957-58 [142.8%] [149.0%] [+6.8%]
1960-61 [148.0%] [148.8%] [+0.8%]
1969-70 [151.9%] [149.0%] [-2.9%]
1973-75 [155.1%] [153.3%] [-1.8%]
1980-81 [164.4%] [174.0%] [+9.6%]
1981-82 [174.1%] [189.3%] [+15.2%]
1990-91 [235.7%] [238.3%] [+2.6%]
2001 [283.3%] [313.3%] [+30.0%]
2007-09 [385.4%] [354.1%] [-31.3%]

The recovery from the 2001 recession was entirely based on debt expansion, and the recovery from the 2007-09 recession (the first postwar recession due to debt exhaustion) is slow because while the economy is recovering it must deleverage at the same time. As you can see the magnitude of the debt changes in the 2000s and 2010s is quite dramatic, compared to other postwar recessions. When the economy deleverages, recoveries will necessarily be slower, because consumers are paying off debt rather than borrowing more money to create demand. Lower demand means less jobs and less production, and so on. But in the long run it is necessary.

[pbrower2a]

The slowness of the recovery is on account of deleveraging.

Here are the Total Debt to GDP ratios at the end of each recession since 1955, and the ratio 10 quarters later:

1957-58 [142.8%] [149.0%] [+6.8%]
1960-61 [148.0%] [148.8%] [+0.8%]
1969-70 [151.9%] [149.0%] [-2.9%]
1973-75 [155.1%] [153.3%] [-1.8%]
1980-81 [164.4%] [174.0%] [+9.6%]
1981-82 [174.1%] [189.3%] [+15.2%]
1990-91 [235.7%] [238.3%] [+2.6%]
2001 [283.3%] [313.3%] [+30.0%]
2007-09 [385.4%] [354.1%] [-31.3%]

The recovery from the 2001 recession was entirely based on debt expansion, and the recovery from the 2007-09 recession (the first postwar recession due to debt exhaustion) is slow because while the economy is recovering it must deleverage at the same time. As you can see the magnitude of the debt changes in the 2000s and 2010s is quite dramatic, compared to other postwar recessions. When the economy deleverages, recoveries will necessarily be slower, because consumers are paying off debt rather than borrowing more money to create demand. Lower demand means less jobs and less production, and so on. But in the long run it is necessary.

Debt, largely personal, created the 2007-2009 meltdown. Just look at the gigantic 385.4% ratio of debt to personal income. A business might get away with such a ratio of debt to income, but one presumes that the debt creates income opportunities. This time such a ratio is grossly unwise.

Much of it is real estate, but as a rule such is at most 350% under the classical norm for underwriting real-estate loans. Through most of the post-WWII era the common knowledge was that people do not borrow more than 3.5 times their income for real estate and that those buying housing have cut back drastically on personal and installment loans. In short a new borrower on a mortgage loan isn't going to go out to Applebee's for a steak dinner when there is leftover spaghetti in the refrigerator and isn't buying a 62" plasma screen TV with a pricey home-theater sound system and every new-generation piece of recorder when a 25" CRT TV and the VHS tape player still work.

People were under-earning because they were being underpaid, to be sure, so they couldn't pay off such debt as they had quickly. Such includes college loans which escalated  in burden with no improvement in income potential for the student who eventually graduated.

As in the 1930s we are not going to see any time of milk and honey for several years.   

[True Federalist]

I think everyone is underestimating how long it'll take for it to affect the election. Even if the resulting deeper European recession didn't hit us that soon, the stock market would tank in anticipation. Just look at how markets are wildly fluctuating at European news already, and it only takes one or two really bad weeks before the only thing in the news is how nest eggs are devastated and how people have lost all of their savings. That could easily cost the President the election, although I doubt it'll happen.

The voters who will be directly impacted by the markets tend to be Republican voters in the first place.  Granted, a lot of people will be indirectly impacted by the effects on their pensions, but those will take time to be felt, or will even be ignored by those few who still have defined benefit plans.  Employment and prices are the most important economic statistics for most people.

Incidentally, it appears the Obama is likely to benefit from another bit of long-term bad news that is short-term good news.  The drought is leading farmers to downsize their herds which will temporarily boost the supply of meat and hence cause its price to fall.  Of course 2013 will see meat prices rise steeply because our domestic herds will be at their smallest size in decades, but that will be after the election.