May 17, 2004

Alan Murray Says George W. Bush Needs Help

Alan Murray writes about George W. Bush, Prince Bandar, and Alan Greenspan: - Political Capital: With his poll numbers plummeting, President Bush could use a little help from his friends -- and two friends in particular: Federal Reserve Chairman Alan Greenspan and Saudi Ambassador Prince Bandar bin Sultan. The White House has been counting on the two Bush buddies to keep interest rates and gasoline prices low for the election. Mr. Greenspan was expected to show gratitude for being reappointed to a fifth term; Prince Bandar was supposed to follow through on promises he made at the outset of the Iraq war.

Now, neither seems likely to deliver.

The Bush crowd has had its problems with Mr. Greenspan in the past. Although a lifelong Republican, the Fed chief has a stubborn tendency to set policy without regard to politics. In the book "Maestro," Washington's semiofficial historian, Bob Woodward, tells how former Treasury Secretary Nicholas Brady went batty over Mr. Greenspan's refusal to cut rates during the 1992 reelection campaign. Mr. Brady tried to pressure Mr. Greenspan by exploiting his supposed "social anxiety" and cutting off regular social contact. No parties, no dinners -- "Whoosh! Boom! Stop!" Mr. Brady told Mr. Woodward. Those who have dined with Mr. Brady may wonder why anyone thought this tactic would work. In any event, it didn't. Some Bush confidantes still blame the Fed chief for the father's failure to get re-elected.

Can't you tell us which Bush confidantes blame the Fed for making policy on the basis of what's good for the American economy rather than what's good for reelecting Republicans?

The younger President Bush -- a compassionate conservative -- started with a different approach: smothering the chairman with love. He told financial reporters in April of last year that he thought Mr. Greenspan deserved another term. Now, however, the White House seems to have reverted to earlier form, withholding formal renomination of the chairman, even though his term expires June 20. Is this a pressure tactic? Doesn't matter. Once again, Mr. Greenspan is blazing his own trail. He's already signaled to financial markets that he will raise interest rates this summer. If he fails to follow through -- or if the White House even hints at replacing him -- markets will respond with an even more punishing reaction.

Is there anybody who thinks that the failure to renominate Greenspan is not a pressure tactic?

Meanwhile, Prince Bandar's ability to keep oil prices below $30 a barrel is shot.... Conceivably, the president could pressure the prince by cutting off his easy access to the White House -- which appears to be on a par with that of the Bush twins.... The good news for President Bush is that both rising interest rates and high oil prices are signs of renewed prosperity. Interest rates are going up because businesses are returning to the market for capital. Oil prices are on the rise because of surging demand here, as well as in China and Japan....

The problem for the president, however, is that while the economy is clearly on the rebound, many Americans aren't feeling the effects.... Approval of the president's handling of the economy fell to its lowest level on record: 41%...

If truth be told, the moment when either Greenspan or Bandar could have helped Bush in any but a TV news headlines sense is long past. Last September was the last time for interest rate changes to be made to affect the economy in time for it to be felt before the election. Last December was the similar drop-dead date for oil price declines.

Posted by DeLong at May 17, 2004 09:04 PM | TrackBack | | Other weblogs commenting on this post

It doesn't have to have a positive impact on the economy - -
it simply needs to have an impact on voter perceptions.

If gas goes to $3 by Labor Day and then 'declines' to $2.50 by Election Day, two things are obvious:

1) yes, that'll be too late to help the American economy;
2) consumers might see it as 'relief' and show
their appreciation at the polls.

Now, which effect do you think this White House cares about more?

Posted by: Bob O on May 17, 2004 09:14 PM


Who cares more about how Greenspan helps Bush than the American economy? Well one needs only to look at Novak columns to see there is a huge push to remove Greenspan and it flows back to Greenspan costing GHWB the election. My favorite is this hit from way back in 2000:

Nope, no implicit threat of Bush undermining Greenspan in that column.

Posted by: Rob on May 17, 2004 09:41 PM


If the March job increase was mostly part-time jobs w/out benefits and the Aprilincrease was mostly the Department of Labor's playing with seasonal adjustments, how is Bush helped by the economy?

Posted by: Brian Boru on May 17, 2004 11:16 PM


“The problem for the president, however, is that while the economy is clearly on the rebound, many Americans aren't feeling the effects...”

Indeed, one need look no further than the recent Indian election where the ruling BJP coalition got thrown out despite improving macroeconomic variables. I doubt whether the Congress party is really going to improve the lot of rural India, but that’s what happens in a democracy. This same Indian Congress party once had a “wealth tax” on the market value of your stock portfolio. So if the market went up, your taxes went up even if you didn’t sell and realize a gain. Will the Congress party finally get smart, and do everything it can to sustain India’s economy (or at least not ruin it), or will the politics of envy win out? On the other hand, this very same election showed how wrong polls can be. Pollsters could be also be wrong about the American election as well. My conjecture is the following. Many independent voters refuse to respond to pollsters. Unless they use very good imputation methods, they will suffer a response bias. But who would benefit from this bias? I have no idea.

Posted by: A. Zarkov on May 17, 2004 11:47 PM


So the Blame Game begins in earnest:

The election is still 6 months away, and certain apparatchiks are already looking to blame Greenspan for W.'s re-election loss.

No one is willing to admit that they have made missteps by the dozen, both tactical and strategic. Its Alan's fault.

All my Conservative friends are big believers in personal responsibility. No wonder the GOP right wing base is restless -- this White House does not exactly "practice what it preaches . . ."

Posted by: Barry Ritholtz on May 18, 2004 03:58 AM


Brad, you sure that "September" notion is current? There has been a substantial response from interest rates and stocks (that is to say, from investors) ahead of the Fed's anticipated June rate hike. Refis are running at half their 12-month average in the latest week. ARM use is up to roughly 35% of all new mortgages (historically, as high as it gets). Lags may be variable, but don't I recall that you, yourself, have suggested they may be shortening. The Fed's transparency crusade seems, at least in some regards, to have shortened the lag in the impact of monetary policy to a lead, rather than a lag.

But Greenspan isn't going to help out.

On the Bandar (oil price) front, today's WSJ suggests finding new oil is becoming problematic for the majors. Hip, Hip Hoor... oh, sorry... My God, what will we do?!!

Posted by: K Harris on May 18, 2004 04:18 AM


If truth be told, the moment when either Greenspan or Bandar could have helped Bush in any but a TV news headlines sense is long past. Last September was the last time for interest rate changes to be made to affect the economy in time for it to be felt before the election. Last December was the similar drop-dead date for oil price declines.

I think that may miss the point a little because perception means more that actual economic outcomes. But in the case of rates, Greenspan did help out by keeping rates low when it mattered. However increasing rates now could create perception issues for voters, particularly if there are market adjustments, as well as increased credit card financing for average Americans and could put a stake in this so-called "housing bubble". I think if there are enough homebuyers who experience difficulty during this coming season qualifying for a mortage, they will blame Bush. So the macro economic effect is there, but the perception effect may hurt.

As for gas prices, I still firmly hold onto the Woodward report that Bandar has an October surprise in store. Why else has Bush not gotten more exercised about prices? I think that Bandar looked at what he could do to impact prices and in face of current demand, he reasoned that he could not lower prices at ordinary production levels. Simply not enough excess capacity to do so in the face rising demand from Asia. Therefore, he reasoned that he could make do on his promise through increasing prices through decreased production and then turning around and either increasing production to normal levels after labor day or leaving them steady, at a time when demand falls off anyway, this would create downward price pressure in the fall leading to "relief". I believe three key dates for gas prices are Memorial Day, Fourth of July and Labor Day. It will be interesting to watch the trends at each one of these points, however I think the Labor Day date is the most important, because it is closer to the election.

Posted by: Bubb Rubb on May 18, 2004 04:29 AM


"Truth be told." HAH!

As Jack Benny used to say, "Now THAT'S funny."

Somebody correct me if I'm wrong, but wasn't the Fed selling money at ONE PER CENT last September?

(What's the rate on YOUR credit card, sucker?)

What was Greenspan supposed to do to "help elect Republicans" this November--PAY his hot monied, money centered, hedgefunding "clients" to take OUR money off HIS hands?

And as for oil--Well, unlike the supply of hot (political) air, which of course is, for all practical purposes, infinite--it takes MILLIONS OF YEARS to "make" the stuff. And there only ever was just so much of it too.

And guess what else (theoretically) wise guys.

You can hem and haw and hedge and harumph all day long, if that's your cup of (rhetorical) tea. It won't change the geophysical facts above, on and in the ground: Chief among them being the fact that, even IF we could go on pretending not to notice that burning oil like there's no tomorrow is wrecking the ecosphere, there's even LESS of it today than there was yesterday.

Posted by: Mike on May 18, 2004 04:40 AM


As Mike says above, what could Greenspan possibly do more in order to help Bush? Interest rates are as low as they possibly could be (contrast that with Clinton's tenure), and he's sold his soul on the issue of taxes, social security and deficit spending - all to coincide with Bush policies.

We truly live in Orwellian times.

Posted by: 3pointshooter on May 18, 2004 05:29 AM


Looks like a brilliant exit strategy on Greenspan's part. Rather than be reappointed and still in the hot seat when Bubble II collapses, he can be riding off into the sunset, a heroic figure who's taken a bullet for courageous actions, with all of Washington and Wall Street calling, "Shane, come back!" -- and clucking that it wouldn't have happened if only he'd been reappointed. It will be Dubya who winds up holding the bag.

Posted by: jm on May 18, 2004 06:03 AM


The Bush administration's delay in renominating Chairman Greenspan--if intended to put pressure on the Fed to delay a rate hike--is evidence of monumental stupidity. Not to reappoint the Chairman would, as the article suggests, cause a vicious market reaction, and be politically self-defeating. In the end, the adminsitration has no choice--no choice politically--but to reappoint him.

Only the monumental studpidity this administration has displayed on other matters makes me take the notion of pressure seriously.

Posted by: Matthew on May 18, 2004 06:20 AM


The Greenspan dustup seems to be a case of too many journalists and not enough to write about. The vindictiveness of Mr. Bush is legendary but aren't they too busy doing other things? At least they should be.

Gasoline price just before the election is the most important. Many of the swing voters live paycheck to paycheck and a lower gas price in October will put more money in their pockets.

Posted by: bakho on May 18, 2004 06:35 AM


According to a WSJ excerpt that Brad posted here last Thursday, "If still unconfirmed by June 20, Greenspan would remain chairman unless someone else is picked."

This means Greenspan will likely remain Fed chair through the election no matter what: Bush would be insane to open up yet one more front to put his failures on display, and confirmation hearings for a potential successor would be exactly that.

Not to mention, Congress doesn't get a whole lot done anyway after midsummer in an election year. Stallball time!

Posted by: RT on May 18, 2004 06:45 AM


Everybody I know is sitting around licking their chops over the houses and condos they're going to buy "after the crash," once interest rates start heading up and all the people holding condos as investments panic and head for the exits.

Now then, has there ever been an interest-rate based crash that has been so widely anticipated? And if not, what ever happened to rational expectations and the market's ability to discount the future?

Posted by: David Lloyd-Jones on May 18, 2004 07:05 AM


"If gas goes to $3 by Labor Day and then 'declines' to $2.50 by Election Day, two things are obvious:..."

If they tried this (which I don't believe they will) it'd be too clever by half. For one thing, I don't think it'd work; you couldn't be sure the decreases would propagate down to the pump in time. Further, the $3 per gallon gas would be savaging Bush's numbers all summer, making him look feckless a la Carter. Price declines to $2.75 wouldn't overcome the bandwagon effect that could build for Kerry.

Plus if Bush is weakened by this during the summer it gives his enemies (not to mention the Tim Russerts of the world) a green light to attack him for other things. Plame, Abu Ghraib, Iraq, the blown deficit, the economy (which would also be hit hard by a steep rise in oil prices), not to mention whatever new scandal(s) may surface. Bush can't afford anything that'd weaken him right now.

Posted by: jimBOB on May 18, 2004 07:13 AM


"Many of the swing voters live paycheck to paycheck and a lower gas price in October will put more money in their pockets."
Is this true? The poor and working poor are fickle? As long as there is gas in the tank they can be persuaded to vote for an administration that has not been good to them over the past 4 years? I'd hope that they have more brains than this.
One way to achieve the lower price at the tank is to reduce/shift the gas tax. That doesn't require Prince Bandaid or anyone to lower the price of crude.
On the other hand, if China is effective in cooling its economy, then we have a significant player removed from the demand pool. That won't get us back to $25/bl or by Nov, but it will help. Before that correction occurs, those cheap imports won't be so cheap anymore. That'll make our goods more attractive ( to us atleast) but who will be able to afford our goods? Not the working poor.

Posted by: calmo on May 18, 2004 07:23 AM


Shouldn't it be confidants? A confidante must be female.

Posted by: James on May 18, 2004 07:24 AM


I think that the effects or raising interest rates will be more immediate than Prof. DeLong supposes.

There is an enormous amount of spending that comes from tapping equity through loans, and if interest rates go up, this will slow for a while.

With a higher interest rate, and a slowing of appreciation, the home equity loan driven spending will likely be significantly diminished.

Posted by: Matthew Saroff on May 18, 2004 08:08 AM


Gasoline prices always go up in the summer and come down after labor day. It has to do with demand and refinery capacity.

Posted by: bakho on May 18, 2004 08:34 AM


Most people don't budget. They spend until their pockets are nearly empty, then they get careful. Many people generally don't make up their mind on politics until after labor day. This year that percentage is less than in the past. "The economy" influences voters, but it is not the published numbers, it is how well things are going personally or for the extended family or neighborhood. Now if high gas prices over the summer have put people in holes and they are still trying to recover after prices drop in the fall, that is another matter.

Posted by: bakho on May 18, 2004 08:39 AM


If the March job increase was mostly part-time jobs w/out benefits and the Aprilincrease was mostly the Department of Labor's playing with seasonal adjustments, how is Bush helped by the economy?

Right. Look at the optimism of the CEOs from the Boston Globe:

By contrast, this year's survey of chief executives whose companies made the list of overall best performers found that the group has a decidedly bright outlook, with 82 percent saying they believe the economy is ''in better shape" than a year ago. They also expect their companies' profits and revenues to rise. And two-thirds said economic improvements will translate into increased hiring over the next year.

''We're not seeing a big pickup among the Fortune 500 quite yet but I think that may be coming."

So hiring over the next year. Isn't that a little too late to make people feel good about the economy?

Two years ago my job went to India and in the next year or two my wife's job will probably go to Brazil. Yeah we feel real good.

Posted by: me on May 18, 2004 09:56 AM


Perhaps freezing the Chairman out of his social scene is worth another shot. It's well known in DC financial and upper echelon administration circles that nothing pleases Alan more than a ending a Saturday night bash by stripping down to a crimson speedo and Ray Ban shades and drunkenly dancing on top of his host's Steinway while belting out "Werewolves of London" as a chain-smoking Andrea Mitchell pounds accompaniment on the ivory. Happens every weekend from October to March, one Georgetown townhouse after another.

Posted by: Brian C.B. on May 18, 2004 10:16 AM


Here you have it. Bush backers with oil futures contracts want to make killing, Bush to do nothing:

"Our policy . . . has been clear for a long time," Treasury Secretary John W. Snow said yesterday. Oil will be released only for "genuine emergencies," not price fluctuation, he said.

The national average price of a gallon of unleaded gasoline jumped yesterday to a record $1.97, up nearly two cents over the weekend. Maryland gas prices hit $1.94, up three cents in a day. Oil prices, already in record territory, surged close to $42 a barrel in trading after the assassination of the head of the Iraqi Governing Council heightened fears of disruptions to the Middle Eastern oil supply.

Democrats have begun hammering Bush daily on gas prices, but criticism is coming from some surprising quarters as well. Executives at refiner Valero Energy Corp. have repeatedly urged a stop to the transfer of oil into the petroleum reserve. That may not drive down prices on its own, they say. But it would signal to commodity traders that the White House is serious about oil prices, and that would persuade them to dump overpriced oil futures. Prices would fall fast, said William E. Greehey, Valero's chairman and chief executive.

Instead, he said, "they didn't do anything. They tell Saudi Arabia to produce more oil. Then they put it into the Strategic Petroleum Reserve. It just doesn't make any sense at all."

Posted by: bakho on May 18, 2004 11:18 AM


Bush nominates Greenspan for a 5th term.

Posted by: rex on May 18, 2004 11:21 AM


The continued filling of the Strategic Oil Reserve implies another war in a MidEast country. Don't you just feel it in the air? If Bush is re-elected, I predict war in Syria, or maybe even Saudi Arabia.

Bush is a war president. What is that saying, if the only tool in the toolbox is a hammer, everything looks like a nail? How do we adapt that saying for a war president - if the only tool in the toolbox is a bomb, every country looks like a target list.

Posted by: tjallen on May 18, 2004 12:06 PM


I don't see how the fed or the president have a choice. US rates are artifically low. The dollar is weak, I believe, primarily because the US interest rates are too low. Raise rates, value of the dollar will rise and gas prices will go down. The Fed can have this either way it is just that higher interest rates have less impact on the average family budget in the near term (most have already refinanced two or three or four times) than high gas prices do.

Posted by: Gray on May 18, 2004 12:58 PM


Saudi Arabia may not have helped the President out much, and it's too late to do it now ... but Greenspan has admittedly gone out of his way extraordinarily to protect GDP growth in this country. When can we last recall such loose monetary policy? And even now in raising rates, the Economist describes Greenspan and the other central banks as being 'deliberately behind the curve' or slow to raise interest rates to protect GDP growth over inflation.

It makes no sense to pressure Greenspan, the man's done all that can be done humanly without endangering the economy unreasonably.

Of course that may not help him in the eyes of the Bushies who seemingly have no grasp on reality. Who wins this game of Chicken? Greenspan or no one.

Posted by: Oldman on May 18, 2004 06:36 PM


Bush also needs some help from his old business partner Osama. A plane flying into a building around September or October, followed by martial law lite and those nice young men in the army "helping" to count ballots, might be the only way he can win.

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