Think this economy is bad? Wait for 2012.


Washingtonpost.com
By Greg Ip
Sunday, October 24, 2010


We're barely two years past the banking crisis, still weathering the mortgage crisis and nervously watching Europe struggle with its sovereign debt crisis. Yet every economic seer has a favorite prediction about what part of the economy the next crisis will come from: Municipal bonds? Hedge funds? Derivatives? The federal debt?
I, for one, have no idea what will cause the next economic disaster. But I do have an idea of when it will begin: 2012.

Yes, an election year. Economic crises have a habit of erupting just when politicians face the voters. The reason is simple: They are born of long-festering problems such as lax lending, excessive deficits or an overvalued currency, and these are precisely the sort of problems that politicians try to ignore, hide or even double down on during campaign season, hoping to delay the reckoning until after the polls close or a new government takes office. Perversely, this only worsens the underlying imbalances, making the mess worse and the cost to the economy -- in lost income and jobs -- much higher.

Election-year prevarication has a storied history in the United States. In the summer of 1971, President Richard Nixon imposed wage and price controls in hopes of suppressing inflation pressure until after the 1972 election. He succeeded, but the result was even worse inflation in 1973 and a deep recession starting that fall.

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