Today is the 25th anniversary of the stock market crash of 1987. The Dow fell 23% in one session and lost over $500 billion. It remains the largest one-day percentage-point drop ever.
Markets in nearly every country around the world plunged in a similar fashion. Many economists predicted we were heading for a second great depression. The losses continued through that week, and by the end of the month most markets had suffered huge falls.
It began in Hong Kong which dropped 41% by the end of the month. The Federal Reserve immediately intervened to prevent an even greater crisis. Short-term interest rates were instantly lowered and the markets recovered fairly quickly.
There was even a post-crash bull market driven by companies that bought back their stocks which they considered undervalued after the market meltdown.
There could be another crash, but it will not have the same driver as 1987. The derivatives which contributed to Black Monday no longer exist.
The prophets of doom were wrong in 1987 and the long-term turnaround was remarkable. A decade after Black Monday, Bill Clinton finally agreed to sign legislation passed by the GOP Congress to significantly cut capital gains rates. Along with the Reagan recovery, it ranks as the greatest economic expansion in American history.
“Tax The Rich” is a major theme for Democrats and it was certainly apparent last night in the vice presidential debate. The Obama/Biden team is wrong and there is no $5 trillion Romney tax cut for the rich. Even the Brookings Institution has pulled back from that charge.
We are coping with the worst economic and jobs recovery in modern times, and the Romney/Ryan plan is to reward success, and create opportunity, growth and jobs. This will be done by increasing take-home pay for the middle class, and incentives for investment and risk-taking.
When liberals shout tax the rich, conservatives must remind them that the Romney/Ryan plan includes a strict dollar cap on special tax deductions. It will most likely be $20,000 limit that will be even lower for top earners who get a marginal tax-rate cut. It’s a huge revenue-raiser, at lower tax rates.
Since last Friday’s unemployment report, the President has been bragging about job growth. This chart from the New York Times does not support his claims. While a majority of jobs lost during the downturn were in the middle range of wages, a majority of those added during the recovery have been low paying.
Even the liberal advocacy group National Employment Law Project says “The overarching message here is we don’t just have a jobs deficit; we have a ‘good jobs’ deficit. Many good jobs were wiped out by the recession and they are not coming back.”
They are definitely not coming back under an Obama Administration. According to the Times, “Job growth has been concentrated in positions that tend to fall into two categories: manual work that must be done in person, like styling hair or serving food, which usually pays relatively little; and more creative, design-oriented work like engineering or surgery, which often pays quite well.”
Romney is in Van Meter, Iowa (population 1,073) at noon today. He is speaking at the 127 year old farm of Margaret and James Koch, who said “I am overwhelmed by it. I didn’t really think I’d ever get a chance to see him in person. He knows agriculture is important to this country, and it speaks volumes that he will come to a farm.” As the candidate speaks, combines in the background will be harvesting corn and soybeans.
Romney will promise farmers that he will cut government red tape and regulations. America has had no trade agenda during the Obama administration, and Romney will tell the farm audience they will have greater access to world markets.
The Republican will conclude trade negotiations such as the Trans-Pacific Partnership, and ask Congress for the authority to pursue new agreements. He says “The president has stalled ongoing negotiations, and initiated no new ones.”
He is promising change so they will be able to pass down a farm to children without losing over half its value to taxes, and keep their energy costs as affordable as possible.
Craig Hill, the president of the Iowa Farm Bureau, said “We haven’t seen enough assurance that we’ll be able to operate our farms without a heavy burden of regulation and taxation under the Obama administration.”
The Republican candidate will also spell out his vision for making the agriculture economy grow and prosper.
In 2011, the House of Representatives passed the Ryan Plan to cut the deficit by $6.2 trillion. They voted to eliminate federal funding for the Corporation for Public Broadcasting (CPB), which was allocated $432 million from the government in the previous year. They also passed a bill to cut off all federal funding for National Public Radio. These votes were mostly along party lines. All three measures were later stopped in the Democratic Senate.
Republicans said it was time for the government to get out of the TV and radio business. The final vote came a week after conservative activists secretly recorded an NPR executive making derogatory comments about Tea Party supporters.
The ensuing controversy led to the resignation of NPR CEO Vivian Schiller. House Majority Leader Eric Cantor said taxpayers no longer wanted to spend money on the content CPB and NPR provides. “The problem is, we’ve seen programming for NPR and CPB often veer far from what most Americans would like to see as far as the expenditure of their taxpayer dollars. That’s the bottom line.”
Today we learned economic growth was 2% and 1.5% during the first and second quarters of this year. It made us think of 1992 when the de-facto slogan for Bill Clinton’s campaign was about the economy. Despite a historic record approval rating of 90% for President George H.W. Bush after the 1991 Gulf War victory, within 18 months, it would drop by 60 percentage points.
The economy was clearly improving in 1992 but Americans still remembered the 1990/1991 recession which was mild compared to Obama’s first year. 64% of Americans disapproved of Bush’s job performance in August 1992.
Compared to Obama’s 1.75% for the first six months of 2012, the real GDP for all of 1992 grew 3.4%. This exceeded the average annual growth rate durng Clinton’s first term.
Bush’s average annual increase in jobs did not come close to matching Reagan’s level, but it was far better than Obama.
Because of the economy, Bush was defeated for re-election and received only 38% of the vote.
It was just announced the Gross Domestic Product grew at an annual rate of 1.5% in the second quarter (April to June). This is down from 2.0% in the first quarter and 4.1% late last year.
The 1.5% growth was overwhelmed by monthly inflation of 2.3% (April) 1.7% (May) and 1.66% (June). The U.S. economy has never been so sluggish this long into a recovery. The Great Recession officially ended in June 2009, when the Obama administration was promising 5.3% unemployment by this time.
The good news is that no president has ever been re-elected with such dismal growth.