To help readers grade President Obama’s performance and the economy’s performance since the beginning of recession, I have included three characteristics that Reinhart and Rogoff (“This Time is Different”) believe that financial crisis share juxtaposed with corresponding U.S. statistics which are bolded.
First, Asset market collapses are deep and prolonged. Declines in real housing prices average 35 percent stretched out over six years, whereas equity price collapses average 56 percent over a downturn of about three and a half years.
Housing prices fell 24.7 percent from the their peak in the third quarter of 2007 and are forecast to fall another 5.5 percent in total (“Fiserv Case-Shiller Home Price Insights: After Five Years of Record Declines, U.S. Home Prices Begin To Stabilize”). The DJIA fell 43% from a high of 14,164.53 on October 9, 2007 to a low of 8,046.42 on November 21, 2008. The index has recovered to 88 percent of its high value and now stands at 12,468.19 at the opening of trading on May 27, 2011.Output and Employment
Second, the aftermath of a banking crisis is associated with profound declines in output and employment. The unemployment rate rise an average of 7 percentage points during the down phase of the cycle, which lasts on average more than four years. Output falls (from peak to trough) more than 9 percent on average, although the duration of the downturn, averaging roughly two years, is considerably shorter than that of unemployment.
The U.S. unemployment rate rose 5.4 percentage points from 4.7 percent in September 2007 to 10.1 percent in October 2009. Nearly four years later, unemployment stands at 8.8 percent. Real GDP (2005 dollars) fell 4.1 percent from $13.363 trillion in December 2007 to $12,810 trillion in June 2009. By first quarter 2011, real GDP had fully recovered to $14,438 trillion.Government Debt
Third, as noted earlier, the value of government debt tends to explode; it rose an average 86 percent (in real terms, relative to precrisis debt) in the major post-World War II episodes.
Nominal debt held by the public has increased from $5,055 trillion on August 29, 2007 and rose 90 percent as of April 2011.A few other facts may be useful in grading the president’s success in managing the economy. The Troubled Asset Relief Program was signed on October 3, 2008 during the Bush administration. Funds were immediately released. Senator Obama voted in favor of the bill and retained the services of Tim Geithner and Ben Bernanke both have played significant roles during the Bush and Obama administrations. These facts will make it difficult to separate the performance of the two presidents.
The American Recovery and Reinvestment Act was signed on February 17, 2009. Very few funds were released prior to the ending of the recession in June 2009.
Rising oil prices may be harming the recovery. There is little a president can do in the short-run to lower energy prices.