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It's Your Job Now

Bush hands over the reins.

Jan 26, 2009, Vol. 14, No. 18 • By IRWIN M. STELZER
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Fortunately, it might not come to that. Credit markets are already responding to the measures taken by the Fed and the Treasury. The commercial paper market (a key source of funding for borrowers such as companies and banks) is showing signs of life, with the portion of these IOUs that the Fed has been required to buy dropping precipitously. The market for mortgage-backed securities issued by Fannie Mae and Freddie Mac, the government-sponsored mortgage financiers, is improving. Risk premiums in the interbank lending market have dropped, as have those in the bond market. Investors have shown a willingness to take on more risk by buying the junk bonds offered by Cablevision Systems and El Paso Corp. (a natural gas producer and pipeline operator) last week.

More surprisingly, some banks--not many, but some--have begun to raise private capital to reduce their obligations to the federal bailout program. The Financial Times summarizes all of this: "There is now compelling evidence that the authorities are not simply substituting for private activity in the markets in which they are intervening, but pulling in private capital as well."

Problems in the credit markets are far from over, witness the need of Bank of America for additional billions of bail-out cash. But Obama might just get lucky and end the year with a recovery underway. Goldman Sachs's economists are atypically cheerier than most. They "expect the unfolding massive stimulus to end the technical recession in the second half of 2009." But they also expect the unemployment rate to keep ticking up "through late 2010." Economists know that the unemployment rate is a lagging indicator, rising only after a recovery is well underway. Less well-trained voters, who now rate unemployment America's top problem, don't deal in such technicalities, which would mean that they are less likely to hail Obama and the Democrats as saviors come the midterm elections if unemployment is still headed up. That might put Obama in mind of Jefferson's first inaugural address in which the Virginian noted, "I have learned to expect that it will rarely fall to the lot of imperfect man to retire from this station with the reputation and favor which bring him into it." A lesson the departing president learned all too well.

Obama's willingness to consult them, the inclusion of tax cuts in the stimulus package, the final shedding of the political liability that George Bush has become, and, if truth be told, the probability that Obama might come to "own" the current recession explain why all is not gloom in Republican circles as the inauguration of the new Democratic president approaches. In fact, most wish him well, and share with Obama's supporters the pride the country feels in seeing at least a portion of Martin Luther King Jr.'s dream realized through a man President Bush described in his farewell address as one "whose history reflects the enduring promise of our land."

Irwin M. Stelzer is a contributing editor to THE WEEKLY STANDARD, director of economic policy studies at the Hudson Institute, and a columnist for the Sunday Times (London).