Bill Jamieson says calls for a Rooseveltian New Deal to stave off US recession are misinformed; it was FDR’s much-maligned predecessor who set the course for recovery
A year into the credit crunch and the world’s leading economies seem locked in a macabre race to be first over the recession line. America, a few months ago firm favourite, has lost the lead to Germany. Or is it France? Or Spain? Is Japan already over the line? In truth, who ‘wins’ is secondary to the direction in which the global economy is heading and the sense of apprehension over further shocks to come in the banking system. Little wonder that in France, Spain and Britain there is growing talk of emergency action, and that across America, many have been urging a ‘New Deal’ Obama presidency.
Indeed, a head of steam is building up for New Deal politics: policy actions in Europe and America that will cushion if not reverse the downturn. In America, interest rates have already been slashed to 2 per cent and the administration has given a $600-a-head tax rebate to help boost consumer confidence and spending. While these have helped the economy skirt recession so far, it is still likely to enter one.
Domestic consumption barely grew in June and retail sales fell in July. The financial sector has been devastated by huge write-downs against subprime loans and related paper. Bank shares have plummeted. The financial health of the two mortgage giants Fannie Mae and Freddie Mac, together accounting for some $5 trillion of American mortgages, is on a knife-edge. Home foreclosures are 55 per cent up on last year. Across the US the number of jobs lost in the first seven months of the year has hit 463,000. And the prognosis? Worse to come.
Little wonder voters look for a new presidency that will deliver them from this Herbert Hoover misery.
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