Reviving economy quite a task for next president

Here's a realistic prognostication for our doomed free-lunch economy, a domestic disaster paralleling the foreign-policy disaster of the dumbest president in U.S. history.

For the first time in a quarter century, the U.S. economy will record negative GDP growth. I conservatively estimate it at 2 percent.

This estimate collides head-on against the "expert" consensus. Two months ago, the Fed governors collectively predicted plus 2.1 percent. Kiplinger's opted for plus 1.5 percent. And that Nobel laureate economist, Dr. Rush Limbaugh, PhD (BS), recently saw nothing but blue economic skies ahead.

An eventual economic collapse has been predictable throughout this reckless administration's promotion of unregulated speculation and billionaires' tax cuts as keys to general prosperity. The crisis came, of course, with the subprime mortgage fiasco. Continued economic growth (even at the Bush administration's anemic pace, 30 percent below Clinton's) depended on a pervasive myth: Home prices will always rise.

With the collapse of housing prices accompanying subprime foreclosures, the recklessly leveraged financial system was doomed. Until the gas is purged from the gigantic housing bubble, the economy can't recover.

Home prices play an indispensable role in sustaining economic activity. As collateral for conventional mortgages and home equity loans, home values form the basis for consumer credit. In the past year, homeowners have lost some 10 percent of their former $21 trillion in housing wealth. To reach their 1995 level, home values must fall at least another $4 trillion. Even half that additional loss in homeowners' assets would deal another huge blow to consumers' ability to propel economic growth.

Aggravating the lost wealth effect of declining home values, jobs are disappearing at an accelerating rate. Employees are working fewer hours; that lost income is a further drag on consumption. With consumer consumption accounting for 70 percent of GDP, the decline in consumer credit and overall capacity to spend will cripple the U.S. economy. Cancelled business plans for expansion and additional hiring complete the vicious downward spiral.

If that's not enough bad news, consider other negative factors. Huge oil imports, fueled by commuters driving 60-mile round trips in SUVs, assure the dollar's continued decline. Our perennial balance-of-payments deficit floods the world with a daily $2 billion oversupply of dollars, whose value naturally falls. The resulting inflation weakens the Federal Reserve's ability to stimulate the economy with interest-rate cuts, already rendered impotent by the Bush administration's heedless increase in federal debt. Whereas Clinton cut federal debt by 16 percent (from 68.2 percent to 58 percent of GDP), Bush raised it by 19 percent (from 57 to 68 percent of GDP).

None of the three presidential candidates offers bold initiatives - rebuilding our crumbling infrastructure, reviving energy-conserving passenger railroads - to resuscitate the sick economy.

John McCain promises more of the same imbecilic Bush policies. Despite the investment bankers' demands for socialistic, taxpayer-financed bailouts for their huge speculative losses, McCain parrots their calls for less, not more regulation. He promises to perpetuate Bush's billionaire-favoring tax cuts, and to continue the hopeless, money-wasting Iraq war, which will ultimately cost at least 50 times Bush's original $50 billion estimate.

Judge McCain's economic competence also by his choice of flyweight economist, Kevin Hassett, author of the 1999 book, Dow 36,000, as a key economic adviser. Obama's chief economic advisers are Paul Volcker and Warren Buffett, the world's richest man, who nonetheless opposes Bush's tax cuts for people like him.

But even with the smartest economic team in Washington, reviving the moribund Bush-sickened U.S. economy in 2009 will pose a formidable challenge.

C.W. Griffin has lived in Ahwatukee Foothills since 1988. He is a retired consulting engineer.