This Old McMansion, March 2008

Before we unveil the new issue of This Old McMansion, let's stroll through this site's archives for a moment.

In honor of the "slumburbs" (thanks to U.Doran for this story: Is Suburbia Turning Into Slumburbia?), let's turn to my more polite phrase, degentrification:

The Great Fall: How Suburbs De-gentrify to Ghettos (November 20, 2007)

As the housing bubble bursting drags the economy into recession, let's recall these entries:

As the Real Estate Bubble Pops, so Does the Economy (March 14, 2006)
Can 4% of Homeowners Sink the Entire Market? (February 21, 2007)

And in honor of Bear Stearns falling from $90/share to $2/share almost overnight (drum roll please), let's recall these entries from years past:

Catalyzing the Great Unraveling (September 3, 2005)
The Scandals Yet To Come (October 25, 2005)
Could One Rogue Trader Bring Down Global Financial Markets? (November 30, 2005)
The Coming Conflagration (January 17, 2006)

Over the past few years, whenever I have suggested that many distant slumdivisions would be bulldozed, the startled listener would react as if I'd said something truly insane, such as "we're not in Iraq for the oil." Alas, I still believe we shall see D-8 and D-9 Catepiller bulldozers crunching down rotting, abandoned bubble-era houses as the cheapest way to rid the community of the eyesores/"attractive nuisances."

Of course first they'll try to sell the pathetic, stripped, vandalized dumps for $1; alas, if nobody wants to live there, you won't be able to give them away:



NOTE: contributions are humbly acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.

Thank you, Eric A. ($20), for your ongoing generous support of this humble site. I am greatly honored by your contributions and readership. All contributors are listed below in acknowledgement of my gratitude.

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Is The Market Setting Up for a Huge Rally?

News flash: It appears I am not entirely alone in seeing the potential for a big rally in the stock market. Correspondent Chuck D. notified me that analyst Robin Landry came to a similar conclusion via Elliott Wave analysis (he saw the reference over on urbansurvival.com). Deflationist analyst Rick Ackerman also came to the same conclusion today. So stay tuned!

Ever the contrarian, I look at charts and wonder: is the market setting for a huge rally that will decapitate all the supremely confident Bears?

Yes, we all know the economy is sliding into recession, and very likely a deep, prolonged one; that oil is $109 and heading who knows how high; that the credit bubble has popped; that the dollar continues downward in what looks like a death spiral; that trillions in derivatives are poised to tumble into the abyss--the list of ailments is so long that we wonder why the patient hasn't just expired from exhaustion.

I brought up the possibility of a real rally on January 30--not just a one or two-day short covering blip, but the real deal: We Told Ya So--But So What?

In the face of overwhelming evidence that the stock markets should fall another 30%, or perhaps 50%, why do I persist in looking for the chimera of a rally?

Reason 1: legendary stock trader Jesse Livermore observed that market rallies take along the fewest possible traders. If there was ever a time in the past six years when doom and gloom was triumphing and Bulls were as a scarce as U.S. politicians' offspring in Iraq, this is it. If the market were to rally in the face of such sustained bad news, it would surely be taking along the fewest possible number of Bulls.

For more from Jesse, please read the classic Reminiscences of a Stock Operator.

Reason 2: There is a big divergence between price and MACD. As we can see on this chart of the NASDAQ, the last time such a divergence appeared, and the index was in the "Bear market territory" below the 200-day moving average, the divergence was followed by a sustained monster rally.

Now we all see the prominent "head and shoulders" pattern which generally indicates a top; but there is no technical reason why the index could not rise back up to the shoulder level--about a 20% rise from this week's low. (Levels of support-resistance are noted, as is a nice gap just below 2,600 which is begging to get filled.)

Were such a rise to follow an A-B-C-D pattern, or Elliott Wave pattern, there would be plenty of opportunities for Bears to short the uptrend and then be crushed by the next catapult up.
Regardless of whether it is the Bulls or the Bears, supreme confidence in the trend has often marked the start of a reversal. As I have yet to find anyone brave/dumb enough to announce this is a great time to buy into the coming monster rally, it seems entirely logical that such a rally is increasingly likely.

Then there's my own dictim: if it were easy, we'd all be millionaires. Shorting the market because all the news is horrific is just too easy; the market is set up to take your money, not hand you easy winnings.

Reason 3: If the markets had truly absorbed the full measure of the financial unraveling, the Nasdaq should be at 1,100 and the Dow Jones Industrial Average should be at 6,000. The fact that the markets are this resiliant suggests that there is plenty enough faith/denial/manipulation/greed or whatever other terms you wish to invoke for a major counter rally lasting months.

Remember, the markets do not respond to fundamentals; that has always been an illusion. The markets respond to price, volume and traders' psychology.

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A Technical Look at the U.S. Dollar's Decline

Longtime reader/correspondent Cheryl A. suggested it was an appropriate time for an update on the U.S. dollar, and I concur. To provide you the best available analysis, I asked frequent contributor Harun I. for assistance. His comments--and links to the charts he kindly provided--follow. Just double-click on any link and the chart will open in a new browser window.

Here is Harun's commentary:

When discussing financial or futures/commodity instruments we must determine what it is worth. Looking at price in a vacuum cannot do this. Value must be based on some comparison. Usually this comparison centers on the ability to exchange one commodity for another.
Therefore before I get to a technical analysis of the US dollar I will present charts that will use gold as a proxy for commodities as a constant to establish the purchasing power or relative value of the three largest currency components of the US dollar index, the Euro, Japanese Yen, and the British Pound. These monthly charts will also provide a historical relative performance record.
Dollar-Gold-Ratio
Pound-Gold-Ratio
Euro-Gold-Ratio
Yen-Gold-Ratio
As you can see the largest components of the US dollar index in terms of the ability to purchase gold/commodities, have lost significant value regardless of nominal price readings. It can also be seen that the relative performance is not very different from the US dollar.

From these charts one could arrive at the conclusion that all of these currency’s purchasing power has diminished considerably and show no sign of reversal in the near term.

The first chart of the US dollar index is a long-term view from 1967-present. The centerline of the channel is a linear regression line with the channel line drawn at 2 standard errors from the regression line.
USD Monthly Chart 1
While the top channel line has been touched and even breached in the past. The level of the bottom channel line is currently at about 62. However it must be noted that in its entire history it has never touched the bottom channel line, which is not to say that it is impossible.

The Fibonacci extension lines indicate that price is approaching a move 50% of the length of the last move as measured from the 2001 high to the 2004 low. The numbers that usually matter with this tool are 61.8%, 100%, and the 161.8% extensions. 61.8% is at about 67, 100% about 52, and 161.8% is around 27.

There are no guarantees and anyone who tells you so is not being honest. The 2001 high was a 50 percent retrace of the 1985 top to the 1992 bottom. I will leave it to skeptics of this method to take as many charts in as many different time frames as they choose and they will find that these numbers have a tendency of being hit.

The second monthly chart shows USD with the well-known MACD. MACD is in sell mode but is also indicating an unconfirmed convergence suggesting a change (slowing in this case) in the rate of acceleration of price movement. I emphasize that price has not confirmed this -- convergences/divergences do fail.
USD Monthly Chart 2

Finally for this series the simplest of indicators, the 12-month simple moving average, indicates the trend is down.
USD Monthly Chart 3

The weekly chart has Bollinger Bands and the net percent open interest of commercial traders. Price has penetrated beyond the lower band, which usually is, an indication of continuation. This has to be tempered by the tendency of price to correct or consolidate after closing outside the band. The bands are expanding in opposite directions – this is and indication of good volatility on the breakout.

Commercial traders are net long. Since these traders must be hedging we must conclude that they are protecting short dollar positions from a strengthening dollar. What is interesting is that previous levels of net long positions resulted in normal retracements. The lifting of these net long positions recently produced a mild consolidation.
USD COT (Commitment of Traders)

Finally the daily chart shows a pattern breakdown, which has a downside measuring potential of around 71.95. The red lines and text are Fib retracement numbers that indicate a 50% retracement of this move would end at resistance that once was support. The blue lines and text are Fib projections indicating price has already broken the 61.8 projection but may see consolidation or reaction, as Friday’s bar was a reversal bar. The 100% projection is around 70.

While these numbers may prove accurate, I view them with some skepticism because of a lack of confluence. There are no targets in this time frame that keep repeating (exactly or in approximation). And therein lies the risk.
USD Daily Chart 1

The second daily chart shows a completion of the short-term Fib projection. We’ll have to wait and see if there is a reaction in the days to come.
USD Daily Chart 2

In summary, major global currencies have suffered a significant loss of purchasing power and the primary trend is still down. (emphasis added--CHS) This helps to define the dilemma policy makers are facing. There are apparently no good answers. The US dollars’ primary trend is down, and having broken multi-decade support, we are in uncharted territory. The technical projections are just that – projections, not predictions. MACD is showing a convergence, that if confirmed would shake out weak shorts. Bernanke and company were comfortable with a controlled devaluation of the dollar but intermediate indications (Bollinger bands) are showing an increase in volatility.

Harun's additional comments add a historical context to the dollar's weakness:

First the Founding Fathers wrote into the Constitution of the United States:
Article 1, Section 8: Powers of Congress
To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;
To provide for the Punishment of counterfeiting the Securities and current Coin of the United States;
Then Sir Josiah Stamp had this to say:

"The modern banking system manufactures money out of nothing. The process is perhaps the most astounding piece of sleight of hand that was ever invented. Banking was conceived in inequity and born in sin . Bankers own the earth. Take it away from them but leave them the power to create money, and with a flick of a pen, they will create enough money to buy it back again . Take this great power away from them and all great fortunes like mine will disappear, for then this would be a better and happier world to live in . But if you want to continue to be the slaves of bankers and pay the cost of your own slavery, then let bankers continue to create money and control credit."

--- Sir Josiah Stamp, president of the Bank of England and the second richest man in Britain in the 1920's, speaking at the University of Texas in 1927.

Perhaps the Founding Fathers and Sir Stamp understood the lesson of John Law's and France's misadventures (as summarized on Wikipedia:)
Law exaggerated the wealth of Louisiana with an effective marketing scheme, which led to wild speculation on the shares of the company in 1719. In February 1720 it was valued for a very high future cash flow at 10,000 livres. Shares rose from 500 livres in 1719 to as much as 15,000 livres in the first half of 1720, but by the summer of 1720, there was a sudden decline in confidence, leading to a 97 per cent decline in market capitalization by 1721. Predictably, the 'bubble' burst at the end of 1720, when opponents of the financier attempted en masse to convert their notes into specie. By the end of 1720 Philippe II dismissed Law, who then fled from France."

Just change the language to housing or mortgage derivatives or CDO's, SIV's etc., and we have the nature of what has actually happened -- bankers creating money out of thin air.
But the Constitution forbids this and my fellow Americans have yet to reconcile this. JFK remedied this but as quick as his demise was it swept away. Perhaps that time, once again, is at hand.

Thank you, Cheryl, for the topic suggestion, and Harun for the charts and commentary.

Readers Journal has been updated! As always, readers have shared incisive commentaries on key issues such as pharmaceutical ads and the demise of house flippers/speculators: There's also a new thought-provoking essay by contributor Chuck D. and a new short poem by Verona, My Second Self.

Special bonus update: Recommended Books/Films has been updated with dozens of new books and films. Scroll all the way to the right to see our exciting new film categories, "French Tough-Guy Films" and "Guy Films (no Merchant-Ivory!)". Great fun. If you think all French movies are romantic triangles or cuddly movies like "Amelie," prepare to be blown away.

Thank you, readers, for your generous support of this humble site. I am greatly honored by your contributions and readership. All contributors are listed below in acknowledgement of my gratitude.

Some 50 of you have been kind enough to donate money to the site this year, including several who have been so outrageously generous as to donate twice or even three times; many others donated last year and graciously donated again this year.

These 50 contributors in 2008 are approximately 1% of regular readers. To those in the 99% who have been unable/unmoved to donate: you are bringing something of great value every time you visit: your time and your minds. Thank you for your readership.

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Feedback Loop of Recession: Housing Bust, Debt and Layoffs

Astute reader Trey S. recently posed an important question which is of pressing concern to all of us:

"Not sure if you have an insights, but I've been trying to look at non-bubble markets like Raleigh, North Carolina to see if the housing crash will hit all of America or just bubble markets. In November, home sales in downtown Raleigh - a prime gentrifying neighborhood - just stopped. I mean they hit a wall. I've been waiting for spring to see if it's a seasonal slow down or if the bubble effect is spreading.

My dad owns a construction company in Charlotte, another area that is 'strong,' but he says construction activity has halted. On a typical day, his phone would ring 80-100 times; yesterday it rang twice. This seems counter to what analysts describe happening in North Carolina.

In my mind this is the big question: If housing problems are truly contained to bubble cities, we'll be all right as a nation. But if Austin and Raleigh crash then we really are headed to the Great Depression, part II."

Excellent question, Trey. Thank you for your report. In my view the answer becomes clear if we view the housing crash as simply part of a larger nationwide debt orgy which is skidding to a halt. Simply put: when consumers can't/won't borrow trillions and spend the borrowed funds, then the economy contracts.

This is what was once considered a healthy, normal business cycle: expansion of credit leads to an exhaustion of creditworthiness which leads to a contraction of credit and spending which leads to consumers and businesses saving, which then builds the savings needed to fund the next credit expansion.

Since the Fed stopped the cycle in 2001-2003 by dropping rates to essentially zero, then the U.S. has not had a healthy business-cycle contraction since a brief recession in 1991. Now that credit has been so thoroughly abused, the contraction will feed on itself, as suggested by the following diagram.



The most important driver of easy-to-access and easy-to-spend cash has been the home. As these quotes reveal, home equity extraction has totalled trillions of dollars in the housing bubble: a staggering $863 billion was withdrawn in a mere three months at the top of the mania in 2005.
I have been unable to locate any reliable statistics on whether the vast majority of this was extracted in bubble-mad cities, but it seems the entire nation indulged in massive equity withdrawal.

As recently as the first quarter of 2007, American homeowners pulled out $450 billion from their homes and presumably blew most of it (there really is no way to know, but borrowers' claims to have "invested" 40% of the proceeds are suspect, to say the least.)
In the most recent quarter (Q4 2007), borrowing fell dramatically to $145 billion for the three month period. In other words: the home ATM is running out of cash.

Home-Equity Extraction Eases: (from June 2007)
In the first quarter, "home equity extraction: net of fees fell 8% to $449.6 billion at a seasonally adjusted annual rate from the fourth quarter, the lowest since the fourth quarter of 2003 well below the peak of $863.7 billion in the third quarter of 2005. The data are prepared by Fed economist James Kennedy according to a model he built with Mr. Greenspan; they aren’t from an official Fed publication.

From the Calculated Risk Blog of January 31, 2008:
Based on the Q4 GDP data from the BEA, my advance estimate for Mortgage Equity Withdrawal (MEW) is approximately $145 Billion for Q4 (just under $600 billion on a SAAR- seasonally adjusted annual rate) or 5.6% of Disposable Personal Income (DPI).

Given this massive extraction of equity, it is not surprising that U.S. homeowner equity has fallen to an all-time post-world War II low:
Homeowner equity falls below 50%. What's really sobering is that almost 40% of all residential units in the U.S. are not mortgaged, i.e. are "feee and clear." If we subtract this equity, then the remaining 60% of houses and condos obviously retain far less than 50% equity. (Statistical links can be found in Can 4% of Homeowners Sink the Entire Market? (February 21, 2007)

And as we all know, the debt orgy was not limited to housing. Frequent contributor Harun I. sent in this link on the stunning rise of credit card debt-- over $2 trillion last year alone:

When credit cards put you in jeopardy
Consumers have racked up more than $2.2 trillion in purchases and cash advances on major credit cards in just the last year. And it's become a habit for them to spend more than they have. The overall credit card debt grew by 315 percent from 1989 to 2006, according to public policy research firm Demos.

To compound the problem, fewer people are paying their credit cards bills on time. The percentage of people delinquent on their credit cards is the highest it's been in three years, according to CardTrack.com.

Harun also sent in this link to a Jim Juback video suggesting that the housing bust is by default also a retirement bust:
Jim Juback on The retirement crisis (MSN Money video)
We all know the housing bust has created an economic slowdown, a home-building depression and a credit crunch. But no one is talking about the retirement crisis, says MSN Money’s Jim Jubak -- even though soon-to-retire boomers have just lost a whopping $2 trillion in home equity.

Additionally, as Harun noted in a recent email, the Pareto Principle won't go away:

"According to Paulson only 2% of borrowers are in trouble (therefore everything should be okay). Then why all the turmoil? Why all the bailout talk? Why is Bernanke in a panic?
The only answer that makes sense but everyone is overlooking is, leverage. Mortgages are the underpinning of hundreds of trillions in derivatives. A small percentage of defaults is enough to cause massive de-leveraging.

If 2% is causing all this trouble, I hate to see what happens at 4% (64/4 rule)."

It seems the subprime mortgage default rate is already well in excess of 4%:
Default rate on U.S. subprime mortgages continues to rise:
As of August, default rates on adjustable-rate subprime mortgages written in 2007 had reached 8.05 percent, up from 5.77 percent in July, according to Youngblood's analysis of pools of home loans put together by Wall Street banks and sold to investors. By comparison, only 5.36 percent of adjustable-rate subprime loans made last year had defaulted by August 2006. Default rates on fixed-rate subprime mortgages were lower, but were rising at a similar pace.

The Pareto Principle has been covered a number of times here:

Can 4% of Homeowners Sink the Entire Market? (February 21, 2007)
The Great Fall: How Suburbs De-gentrify to Ghettos (November 20, 2007)

Frequent contributor U. Doran has observed that consumer credit troubles are now glaringly visible in rising auto repossession rates:
Entering the repossession lane: Default rate soars on auto loans in pattern likened to mortgage crisis.

Here is a New York Times story on the decline in consumer spending:
The Buck Has Stopped :
BEN S. BERNANKE, the Federal Reserve chairman, told Congress last week that fighting off a possible recession in the United States was Job 1 for his crew. But a consumer-led recession has already begun, according to a new index that reflects how much money Americans can actually spend right now.

The new indicator comes courtesy of Charles Biderman, the founder and chief executive of TrimTabs Investment Research, a proprietary research firm in Santa Rosa, Calif. “The big picture is: the amount of money people have to spend, which includes money on real estate transactions, is plummeting, and it started to break down in October,” he said."

People know the decade-long debt orgy was not healthy; witness this story, Hard Times Heighten Long-Felt Unease.

And in the "unintended but disasterous consequences" column, chalk up hapless governmental agencies completely unrelated to the housing bubble getting nailed for much higher borrowing costs:
Subprime woes affect toll agency: Toll Authority paying $1 million more a month.

So what happens when people stop eating out as often, stop buying carpeting and furniture in vast quanities, cut back on Starbucks lattes, and on and on? Sales slow, and businesses lay off employees. Those newly unemployed have a lot less money to spend, and so consumer spending erodes further in a feedback loop with no apparent end.

Apologists--even otherwise smart people--suggest that consumer spending might drop $300 billion or so--no big deal in a $14 trillion economy. I beg to differ.

First off, let's not forget the multiplier effect. Your $40 spent in a restaurant goes to the establishment's landlord, who spends some of that money, to food distributors, to employees, and so on, all of whom spend money which ends up in other workers' pockets. So the economy doesn't just "lose" your $40 when you don't spend it--everyone in the food chain down the line also loses a little. Cumulatively, that adds up to 3 times the initial amount spent/not spent.

Second, consider the enormous sums of mortgage equity and credit card debt which is no longer available to be borrowed/spent. We can debate the actual number which was borrowed and spent over the past few years, but let's just guesstimate it was $5 trillion. Considering that $863 billion was borrowed in only three months of 2005 (an annual rate of $3.4 trillion), and $2 trillion was added to revolving credit cards in just 2007, this number seems very conservative.

In other words, the actual amount would seem to approach $10 trillion based on the statistics given above:
MEW $3.4 trillion in 2005
MEW $2 trillion in 2006
MEW $600 billion in 2007
Credit card cash withdrawals and new unpaid balances: $4 trillion
We could also add in auto loans and other debt, but let's keep it rounded to trillions.

Wait a minute--$5 trillion is about 50% of annual consumer spending in the U.S. Take away $5 trillion of borrowing/spending over the next three years and you don't get $300 billion a year; with a modest 1.5 X multiplier, you get $5T X 1.5 = $7.5 T or a decline of $2.5 trillion a year--fully 18% of the entire U.S. economy.

Next thing you know, the same apologists will be hyping the wonderful "fact" that 85% of the populace "still have a job." Uh, isn't that a warm and fuzzy way of saying the unemployment rate is 15%--and climbing?

Readers Journal has been updated! As always, readers have shared incisive commentaries on key issues such as pharmaceutical ads and the demise of house flippers/speculators: There's also a new thought-provoking essay by contributor Chuck D. and a new short poem by Verona, My Second Self.

Special bonus update: Recommended Books/Films has been updated with dozens of new books and films. Scroll all the way to the right to see our exciting new film categories, "French Tough-Guy Films" and "Guy Films (no Merchant-Ivory!)". Great fun. If you think all French movies are romantic triangles or cuddly movies like "Amelie," prepare to be blown away.

NOTE: contributions are humbly acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.

Thank you, William S. ($15), for your sustaining, amazingly generous support of this humble site. I am greatly honored by your contributions and readership.

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This Just In--Democrats Lose in November '08

You read it here first: the Democratic candidate for President will lose the election. Note I did not say "McCain wins;" the Democrats have the numbers and the political momentum to win the election handily, and so it is theirs to lose.

My longtime friend G.F.B., who is often prescient in such matters, just laid out why the Democrats will lose, and I find his analysis persuasive.

1. Fundraising exhaustion. To paraphrase G.F.B.'s comments: political campaign spending is even worse than burning the tens of millions of dollars in a bonfire because you don't even get the feeble warmth generated by the fire.

As anyone who has ever donated money to the candidate of their choice knows, you burn out on giving after the 5th, 10th or 50th desperate plea. The Democrats are using up their most loyal donors' money at a furious, unsustainable rate: $50 million here, $70 million there, and pretty soon you're talking serious money. Who will be left who is willing to give money, when they more or less loathe the "other Democrat" and already gave all they could?

2. The "Big tent reconciliation" is a hoax. The supporters of each Democratic candidate are not lukewarm--thay are rabidly partisan and fervent believers that the "other one" is not a wise choice. They will not "rally round" the winner, no matter how much spin is twirled by party spinmeisters. If Obama is denied the top spot by the Superdelegates (Party hacks and insiders), then his supporters will flock to McCain. Hillary supporters will stay home if their candidate doesn't get the nomination.

Remember: staying home is in essence voting for the other Party. If Obama gets the top spot, and millions of Hillary's supporters are unmotivated to go to the polls to vote Democratic, then McCain has a huge advantage. Republicans, even those conservatives who know in their bones that McCain is simply too independent to be as conservative as they would wish, will grit their teeth and vote for him as the lesser of two evils. After the bitter primary campaign, many disgruntled Democrats (by definition, about half of all primary voters) will be likely to stay home.
3. The big factor in Obama's campaign: the youth vote finally reappeared. If Obama is denied the nomination by the Superdelegates--given his lead in delegates, and the likelihood his lead will continue into the convention, then this is a real possibility--then all the young people who were energized by Obama will withdraw in disgust. They are not interested in supporting either "old school" candidate, Clinton or McCain.

4. The Democrats can't win unless the Party base--unions, African-Americans, Hispanics, and Caucasian blue-collar voters-- is joined by independents. Too bad they dislike each other's candidate. Some polls show that up to 40% of registered Democrats have a negative response to Hillary. Of course her negatives are even higher among Republicans and independents.

Setting aside allegiances and partisanship for a moment, consider the election in terms of pure numbers. If Hillary can only count on the most loyal Party members, and she loses the independents, there is no way she can win the general election. The same is true of McCain--if he gets the loyal Republicans but loses the independents (who collectively are more numerous than either party's registered members), then he can't win, either.

Similarly, if the union/feminist/blue-collar core of the Democratic membership stays home on election day, then Obama can't win.

So who can gather up the Party loyals and the independents? Only John McCain. I know it's hard for her supporters to swallow, but Hillary is a devisive candidate. She polls extremes of support and negatives in her own party, never mind the entire populace. Her supporters are simply not numerous enough to win any general election. Independents respond negatively to her and positively to John McCain for the obvious reason that McCain has a wild-card/independent character, and Hillary does not. She is viewed by many independents as a "by the book" Democrat in a world in which "by the book" Party "solutions" (from both parties) have failed the nation.

And it's not just character issues which divide Democrat's responses to Hillary. Hillary supporters believe she can reinstate the economic good times of the 1990s, while independents chalk up that era's growth to the Internet Boom, globally low inflation (driven by low commodity prices) and benign interest rates--factors largely outside of presidential or congressional control.
They also note that some of President Clinton's accomplishments (welfare reform) were lifted from the Republican Revolution's 1994 playbook. And they recall that the Democrats controlled Congress 1992-1994 and were then steamrolled in 1994 after the abject failure of the Clinton National Healthcare proposal.

Perhaps it comes down to this: if you believe the Clintons were responsible for the 1990s economic "good times" (which didn't end well, and you can't blame Bush-- the stock market collapsed in 2000, long before he entered office)--then you are an ardent supporter of Hillary's campaign. If you think Bill just got lucky, and it was long-term factors like rising productivity, China's joining the global economy, record-low commodity prices, rocketing capital gains and the Internet boom which fueled the 90s, then you are skeptical of the idea that another Clinton in the White House will restore the economic lustre of the 1990s.

In fairness, the Clinton Administration and the 1992-1994 Congress showed far more fiscal discipline than did the tax-cut-and-spend Reagan and Bush I administrations. Dramatically smaller Federal deficits lowered the cost of money, and Bill Clinton cannot be blamed for the disastrous policies of Fed Chairman Alan Greenspan. But it is also fair to note the global winds of good fortune which blessed the nation in the 90s were forces outside the control of either the White House or Congress.

Let's be candid: race matters in America. Many of Hillary's supporters will not vote for Obama because they don't find supporting an African-American an appealing idea. If you disagree, I will have to inquire about your circle of contacts and just how much you get out in "real America." Open your ears, people; subtly racist views don't reside beneath any one skin color, they reside in varying degrees beneath all skin colors. Is this the top consideration in people's minds? Perhaps not; but add in an unhealthy chunk of bitterness over Hillary's loss and you get a lot of people who will decide to stay home on election day.

If the Democratic Party core stays home in any major way, Obama loses.

So line them up: McCain vs. Clinton: McCain gets his Party loyals and the independents; Clinton gets her party loyals and few independents: she loses.

McCain vs. Obama: Embittered by the vitriol of months-long primary war and their candidate's loss, the Democratic supporters of Hillary stay home in droves. Obama splits the independents with McCain but cannot overcome the advantage of the Republican core holding their noses and voting for McCain.

I think the crucial point of debate here is this: will Hillary and Obama supporters give lip service to Party loyalty but stay home/vote for McCain once election day arrives? Based on the Democrats I know personally, I would say few Obama supporters will vote for Hillary because they have little party loyalty and they don't view Hillary favorably. Hillary's supporters will have a hard time joining the Obama bandwagon, and as I have said above, elections are lost not just by who shows up but by who stays home.

G.F.B. offered some striking advice for the Obama campaign: openly declare that if he is ahead in delegates at the convention but the Superdelegates throw the nomination to Hillary, he will declare a third-party candidacy. I believe his supporters would cheer this gutsy call, for they have no loyalty to the Party platform or the Clinton dynasty. Yes, such a move would wipe out any chance of Democratic victory. But should any party which so openly flouts the "one citizen, one vote" rule be allowed to win? Many would say no.

Of course the Democratic Party hacks who are Superdelegates spout an array of absurd justifications for the arcane nonsense, but they never mention the real one: McGovern. After the Democrats chose McGovern, and his candidacy imploded in 1972, party leaders vowed "never again, we'll pick the candiate from now on." It would be ironic indeed if their desire to rig the nomination led to the party's downfall in 2008--and I consider that a very real possibility.

McGovern ran a dismal campaign of snafu after snafu, but he was a combat veteran of World War II (pilot) and an honorable man, and his defeat was honorable as well. The Democrats came to power soon enough, and any Democratic candidate would have lost to Nixon anyway after the 1972 Christmas Bombing of Hanoi led to the Vietnam Peace Accords that spring.

G.F.B. also suggested that Obama should immediately announce that he will refuse the "loyal negro" position of vice-presidency on the Democratic ticket.

If you haven't yet found some reason to give an Obama candidacy a chance, consider that Paul Volker is a supporter: It's the Dollar, Stupid (Wall Street Journal)

"Given that Sen. Obama has garnered the support of Paul Volcker, the highly-respected former chairman of the Federal Reserve under Presidents Carter and Reagan, U.S. voters are apt to get a meaningful and well-considered reply. "I think we are skating on increasingly thin ice," Mr. Volcker noted in the Washington Post in April 2005. He warned that the stagflation of the 1970s was characterized by "a volatile and depressed dollar, inflationary pressures, a sudden increase in interest rates and a couple of big recessions." Mr. Volcker's solution? Act now to comply with "the oldest lesson of economic policy: a strong sense of monetary and fiscal discipline."

Not that fiscal and monentary policy should have anything to do with electing the President....


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