Posted on 12/11/2004 8:36:00 PM PST by NormsRevenge
WASHINGTON - In early January 2001, President-elect George W. Bush got a sobering warning from a railroad executive he invited to an economic conference in Austin, Texas. "Mr. President, you're inheriting a recession," CSX Inc. chairman John Snow remembers saying. For sure, Bush is hearing much more upbeat counsel these days from Snow, whose lease as treasury secretary was just extended by the president after weeks of suspense.
Nobody is forecasting a recession ahead of Bush's second term. But the prognosis for the economy is mixed as the president begins his campaign to sell an ambitious and costly domestic agenda.
He will lay out his strategy at an economic meeting at the White House on Wednesday and Thursday. It is similar to the round-table discussion in Austin and one in Waco, Texas, in 2002.
This week's session with business leaders is intended as more of an opportunity for Bush to promote his plan rather than to gather fresh ideas.
His proposals include a politically risky plan to allow younger workers to invest part of their Social Security (news - web sites) taxes in stocks and bonds in exchange for a reduction in guaranteed retirement benefits. Bush also wants the incoming Congress to rewrite the tax laws and to make his first-term tax cuts permanent.
What could make it harder for Bush to sell his program? A financial crisis touched off by further slides in the dollar, a widening of the deficit from unexpected costs in Iraq (news - web sites), or a terrorist attack against the United States.
A plunge in financial markets could make skeptical lawmakers even more leery of creating individual Social Security investment accounts.
"It's going to be a tough sell any way. But it will be a lot easier to sell if the stock market is up 10 percent rather than down 10 percent," said Mark Zandi, chief economist for Economy.com, an economic research service in West Chester, Pa.
Snow was able to give Bush an advance recession forecast in early 2001 because, as a railroad executive, he had noticed in the summer of 2000 an alarming decline in freight car, container and barge loads and changes in warehousing activities. The recession was later dated as beginning in March 2001 and ending in November of that year.
Inflation today seems relatively tame. The economy appears to be gaining steam, bolstered by home building, shipping, and even signs of a turnaround in the long-battered manufacturing sector. Oil prices are down from their recent highs of $50 or more a barrel.
"We are in the middle of a business cycle expansion," said Allen Sinai, president and chief economist of Decision Economics, a New York-based consulting firm.
Yet the pace of job creation, an important issue in the presidential campaign, has slumped again. The trade and budget deficits are near record levels. Consumer debt is staggering. Personal savings recently fell to the second lowest rate on record, a meager 0.2 percent.
The president has pledged to cut the deficit in half by 2008, but has not said how he would do it — and has run into widespread skepticism in Congress.
Bush began his first term with projections for $5.6 trillion in budget surpluses over 10 years. Because of the 2001 recession and the burden of higher spending and first-term tax cuts, Bush will start his second term facing at least $2.3 trillion in deficits, according to the nonpartisan Congressional Budget Office (news - web sites).
That excludes the costs of continuing military operations in Iraq and Afghanistan (news - web sites). Congress appropriated a separate $416 billion for these in this budget year and the White House is preparing a new request for $70 billion, probably in January.
Meanwhile, the administration is pursuing a high-risk strategy on the dollar, saying it supports a "strong dollar" while seeming content to let it keep sliding. Over three years, the dollar has fallen by about 30 percent against a basket of other leading world currencies.
That decline may help U.S. manufacturers and the trade balance by making American goods less expensive abroad. For consumers, however, it means higher prices on many imported goods. If the dollar keeps dropping, it could drive up interest rates and lead to a global recession.
Setting the stage for the upcoming White House economic conference, Bush promoted his Social Security proposal late in the week, renewing his call for private investment accounts but without providing any new details. "This country must deal with this now," Bush said.
The administration is considering borrowing to cover transition costs that independent analysts put at $1 trillion to $2 trillion over 10 years.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.