November 8, 2011 — Speaking to a roaring crowd of nearly 2,000 supporters, Sen. Hillary Clinton launched her campaign earlier today to deny President Barack Obama the Democratic nomination for next fall’s presidential election. Promising a “restoration of the Clinton prosperity of the 1990s,” Senator Clinton lashed out against the president, calling his embattled administration “hopeless.”
The president’s supporters, who only three years ago swept then-Senator Obama to a close victory over Sen. John McCain, are at a loss to explain why the once hugely popular president now finds himself in this precarious political situation. But to President Obama’s detractors, the explanation is simple: “It’s the economy, stupid.”
Dogged by a deepening recession and rising unemployment, President Obama now faces what many pundits say will be the most serious primary threat to an incumbent president since Sen. Ted Kennedy unsuccessfully sought to wrest the nomination from Jimmy Carter in 1980.
The seeds of Obama’s political troubles were inadvertently planted in late 2005, when the housing sector began its inevitable retrenchment following the boom of 2002-05. That retrenchment spawned a vicious cycle of falling home sales and starts, falling home prices, and rising rates of mortgage delinquency and default. When the subprime crisis erupted in August 2007, the financial shockwave reverberated throughout the economy. For a time, it seemed the country’s financial markets were on the verge of unraveling.
The final year of the Bush presidency was marked by economic sluggishness verging on recession. Although the overall economy muddled along, and even showed signs of recovery, public sentiment at the time held that it was in dire straits and worsening daily. Hesitant consumers and nervous investors unconsciously threatened to send the economy into a tailspin at any moment.
Anxious to “do something,” Congress and President Bush enacted a bipartisan economic-stimulus measure in February 2008 that largely consisted of handing checks to anxious consumers. The Congressional Budget Office predicted the stimulus would boost the economic growth rate 0.7 percentage points in 2008 and subtract 0.4 percentage points in 2009.
With the Federal Reserve pursuing a policy of negative real short-term interest rates, and with Congress pressing the fiscal gas pedal, the U.S. economy managed to avoid outright recession in 2008, growing 1.4 percent. But with unemployment rising, and food and energy prices rising even faster, voters turned to Barack Obama on Election Day to chart a new course for the nation, and the new president entered office amidst high, perhaps unrealistic, expectations.
There was no denying it: inflation had returned. While the media speculated about the economy — was the country on the verge of a 1970s-style stagflation, or was a “double-dip” recession
à la 1980-81 just over the horizon? — Obama spoke convincingly of the need for change.
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