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http://www.washingtonpost.com/wp-dyn/content/article/2010/10/22/AR2010102202786.html


Editorial


"We're barely two years past the banking crisis, still weathering the mortgage crisis and nervously watching Europe struggle with its sovereign debt crisis. Yet every economic seer has a favorite prediction about what part of the economy the next crisis will come from: Municipal bonds? Hedge funds? Derivatives? The federal debt?

I, for one, have no idea what will cause the next economic disaster. But I do have an idea of when it will begin: 2012.

Yes, an election year. Economic crises have a habit of erupting just when politicians face the voters. The reason is simple: They are born of long-festering problems such as lax lending, excessive deficits or an overvalued currency, and these are precisely the sort of problems that politicians try to ignore, hide or even double down on during campaign season, hoping to delay the reckoning until after the polls close or a new government takes office. Perversely, this only worsens the underlying imbalances, making the mess worse and the cost to the economy -- in lost income and jobs -- much higher.

Election-year prevarication has a storied history in the United States. In the summer of 1971, President Richard Nixon imposed wage and price controls in hopes of suppressing inflation pressure until after the 1972 election. He succeeded, but the result was even worse inflation in 1973 and a deep recession starting that fall.


During the 1988 presidential campaign, Vice President George H.W. Bush and Democratic nominee Michael Dukakis largely ignored the mounting losses in the nation's insolvent thrifts for fear of admitting to taxpayers the price of cleaning them up. The delay allowed the losses and the price tag to grow, and the burden of bad loans hamstrung the economy into the early 1990s.

Go back to 1932 for an even more dramatic example: After defeating Herbert Hoover that year, Franklin D. Roosevelt refused during the four-month transition to say whether he'd support the lame-duck administration's policy for fixing the banks and keeping the dollar linked to gold. Depositors fled banks and investors dumped the dollar, resulting in another wave of bank failures that vastly worsened the Depression.

But perhaps the most poignant example of election-year myopia came in 2008. After agreeing to an ad hoc bailout of Bear Stearns that March, then-Treasury Secretary Henry Paulson knew he needed authority and money to deal with such situations. But he didn't ask Congress for either, reasoning that lawmakers would never approve something so contentious just months from a presidential election. (He was probably right.) So when Lehman Brothers foundered that fall, Paulson, with no orderly way to wind the company down, let it fail.

He then proposed the Troubled Assets Relief Program to deal with the resulting chaos, but the House, gripped by an election-year aversion to bailouts, voted it down. The defeat sent markets into a tailspin. Lawmakers changed their minds and passed the TARP, but the intervening panic worsened the economic pain.

Elections are even more of a trigger for crises in other countries. When Greece's national election campaign began in September 2009, the government claimed that the budget deficit was more than 6 percent of gross domestic product, high but manageable. Yet shortly after the socialist government took power, it revealed that the deficit was in fact closer to 12.5 percent. The previous government, it turned out, had been issuing optimistic forecasts and hiding some of its spending. As foreign investors' confidence in Greece evaporated, interest rates on its debt soared. To avoid default, it was forced to seek a bailout from the International Monetary Fund and the European Union. The Greek economy will probably shrink at least 3 percent both this year and next.

Mexico's financial crises regularly coincide with presidential elections. In early 1982, the government knew that its deficit was too large and that its currency was overvalued. Investors were pulling their money out, draining the nation's foreign currency reserves. Government officials hoped to postpone action until after the July election, and the Federal Reserve helped by making short-term dollar loans to Mexico designed solely to make its reserves appear larger.

"We were trying to buy time until the election and new government. We failed," recalls Ted Truman, a Fed official at the time. Money continued to flee, and a month after the election, Mexico announced it couldn't repay its bank loans, triggering the Latin American debt crisis, a severe recession and what many called the region's "lost decade."

A similar dynamic brought on Mexico's election-year "tequila crisis" of 1994, which forced a massive and sudden devaluation of the peso and required tens of billions of dollars in international assistance.


Continued....."
 

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Grey Squirrel
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That's the clincher for me, I'm voting Obama in 2012....he's the only one who can save us now. At least I don't have to worry about paying my mortgage or putting gas in my car anymore.
 

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That's the clincher for me, I'm voting Obama in 2012....he's the only one who can save us now. At least I don't have to worry about paying my mortgage or putting gas in my car anymore.


That's not really a partisan article.
It's about unsolved, economic issues.
 

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Other then the "when" date... how's that any different then what I've been saying ?

Although the "tequila crisis" has been ongoing for the last 18 years... :laughing:
 

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Grey Squirrel
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I didn't say it was partisan, I think he's the only who can rescue us..... he said so himself.
 

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I don't want my car driven into the ditch again.
You've been driving the car for four fooking years !!! Now you want to blame us for your shitty driving... because it was registered to us... up until two years ago ?
 
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