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   President Obama Is Doomed, But Only If the Republicans Figure Out Why

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10/23/2011 5:50 pm

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Entered 10/24/2011, Updated 10/24/2011

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In late September of 2009, this column observed that James Grant’s economic exuberance was very much overdone. Specifically, Grant had penned a Wall Street Journal opinion piece in which he proclaimed that the looming economic recovery would “be a bit of a barn burner.” Notably, Grant’s general presumption about recessions/rebounds was correct. With U.S. recessions having historically acted as cures for them ridding the economy of all the malinvestment and labor mismatches that had brought on the downturns to begin with, logic spoke to a major rebound from the horrors of 2008. Grant cited a research report from economist Michael Darda, who noted that the “most important determinant of the strength of an economy recovery is the depth of the downturn that preceded it. There are no exceptions to this rule, including the 1929-1939 period.” Grant had history and logic on his side, but this column disagreed. At the time, I wrote that “while history strongly supports Grant’s basic thesis of powerful economic growth in the future, there’s an argument to be made suggesting that the recovery won’t measure up this time.” My main argument was that Grant had failed to include a weak, floating dollar in his model, that many of the rebounds he cited had occurred amidst a strong, stable greenback, and with the dollar unstable and declining, any recovery would be weak for investment remaining stuck in the hard assets of the past over the growth concepts of the future. A limping economy since then has proven my assertion correct.


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