Monday, November 10, 2008


Timothy A. Canova, Dissent Magazine - History should deal harshly with Bill Clinton. Throughout his terms, real wages stagnated, manufacturing and service jobs moved overseas in large numbers, and the middle class was squeezed. With the federal government asleep at the wheel, there was a significant rise in predatory lending practices by banks and mortgage companies. By Clinton's final years in office, all of these trends had contributed to an ominous rise in delinquencies and foreclosures on subprime mortgage loans. This was particularly pronounced in urban America. In Chicago, for instance, foreclosures on subprime mortgages rose from 131 in 1993 to more than 5,000 in 1999. . .

It is true that the Bush tax cuts contributed to a rising federal deficit, but the Clinton years were also marked by large public deficits. It was only at the end that Clinton saw any surplus and that was after racking up more than a trillion dollars in federal debt. Moreover, the Clinton surplus was a function of several troubling trends, including the administration's never-ending policy of fiscal austerity. In fact, federal spending fell to about 18 percent of GDP, the lowest level for the end of any presidency since those of Dwight Eisenhower and, before that, of Herbert Hoover.

Another factor that contributed to the final Clinton surplus was the inflated U.S. dollar and huge capital inflows that were attracted to dollar-denominated investments, all of which pumped up economic growth and tax revenues. It was therefore Clinton's commitment to the Washington Consensus platform of free trade and unrestricted capital mobility that made those hot money inflows possible while also setting the stage for the reversal of portfolio capital flows and today's declining dollar.

During Clinton's first three years in office, the federal government borrowed more than $1 trillion, much from abroad. Then between 1996 and 1998, foreign ownership of U.S. government securities rose 26 percent, from $669 billion to $847 billion. Under Bush, foreign ownership of U.S. government securities rose another 88 percent to $1.6 trillion by 2005.

During the Clinton years, mortgage debt grew by nearly two-thirds, from $4.1 trillion to $6.8 trillion. Under Bush, mortgage debt then doubled to $13 trillion in 2006. Likewise, under Clinton, consumer debt doubled from $856 billion to $1.7 trillion. Under Bush, it grew by another one-third to $2.3 trillion in 2006.

Much of this debt was borrowed from foreigners flush with dollars, a result of our huge trade deficits. This was the underside of the Clinton bubble economy, and it set the course for the Bush years. U.S. trade deficits also translated into increased foreign ownership of corporate America. Foreign ownership of U.S. corporate stocks and bonds rose nearly 50 percent in Clinton's final three years, from $1.9 trillion to $2.8 trillion, and then another 53 percent under Bush to $4.3 trillion. . .

Unfortunately, the myth of the Clinton economy has too often served to limit discussion about the political forces behind the present crisis in the Washington Consensus. For instance, Hillary Clinton, in promising a high-level emergency panel to recommend ways to overhaul at-risk mortgages, proposed in March that such a council of wise men should include two of the people most responsible for undermining the integrity of financial markets, former treasury secretary Robert Rubin and former Federal Reserve chair Alan Greenspan.


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