It is becoming increasingly clear both from the economic data we are reading and the people on the ground that Senator Clinton is meeting, that our economy is facing a very tenuous period. We may very well be in, or near, a recession.
From the beginning of Senator Clinton’s campaign, she has made clear that the economic challenges faced by working families who are invisible to this Administration will be her focus each and every day as President. She believes that America needs a new strategy for shared growth and shared economic prosperity. Her long-term strategy will lay the foundation for high-wage jobs on our shores, provide quality and lower-cost health care for every single American, strengthen our education system, lift up the millions of children caught in poverty due only to the accident of their birth, restore fiscal responsibility and have an ambitious energy policy that addresses climate change and creates millions of new jobs here in the United States.
Yet, Senator Clinton has also kept a close eye on the immediate threats to our economy. In March, when even top officials at the Federal Reserve were calling the subprime mortgage issue “contained,” Senator Clinton gave a speech expressing the worry that “when somebody tells you this subprime market thing is no big deal, or…let the buyer beware…This market is clearly broken and if we don’t fix it, it could threaten our entire housing market, which in turn would threaten our entire economy.” She has continued to lead on this issue, prodding Washington and the Administration with a series of proposals, including major addresses and policy rollouts in August, October, and December of last year.
1. Anticipating the “Perfect Storm”: In addition to her vigilance on the housing market, Senator Clinton became concerned last fall based on her countless discussions with working Americans that our economy could be facing a perfect storm: with the pressures on families from declining incomes and rising health costs coinciding with higher energy prices, falling home prices and a weakening job market.
· Falling Housing Prices: While always important, housing values carry with them far more economic risk than usual in the current context. First, with real median family income down $1,314 since 2000 (and even down $497 since the end of the 2001 recession), there is little question that the spending of millions of families was based on the rise in their home wealth – and particularly from extracting home equity for spending. With continued downward pressure on home prices likely – as there is a 10.3 months supply of existing homes on the market – there is serious risk that families, already with little cushion due to high credit card debt, may be forced to cut spending
· Increased Risk of Foreclosures and Payment Shock From Foreclosures: The second element has been the subprime crisis, the prominence of predatory and manipulative practices, and the resulting pain to families and neighborhoods of frighteningly high levels of foreclosures, which threaten not only heartbreak for families but further downward pressure on prices and consumer confidence. With projections that in the first four months of 2008 we will see new records of subprime adjustable rate mortgages resetting, there is further reason to be concerned about housing’s negative impact on the broader economy.
· Energy Prices Hit Home: On top of this, we are also seeing that the rise in oil prices to $100 barrel is finally starting to hit family pocketbooks in both at the gas pump and with home heating bills, which are projected to be a full 26% higher than last year.
2. Leadership and Principles on Stimulus. In a December 5 speech asking for shared responsibility from Wall Street to address the housing crises, Senator Clinton was the first candidate from either party to call on Washington to begin seriously considering stimulus measures. The voices she heard on the campaign trail and the gathering economic storm clouds compelled her to call for action. As she explained, “the growing concerns in our economy should prompt us to consider whether working families need more immediate assistance in the form of economic stimulus.” She went on to state that “[t]his time around, let’s make sure we get it right. Let’s make the stimulus temporary and not an excuse for long-term fiscal recklessness. Let’s focus on hard-working families. Let’s support them because they’re the most likely to really provide what the economy desperately needs - a jumpstart. The Administration was asleep at the switch but we can’t wait until we have a new President. We need to make sure we do everything we can to get this President and this Administration to take action.”
3. Seeing the Evidence for Action on Stimulus: In the period since December 5, Senator Clinton has monitored economic developments closely. She takes the question of stimulus extremely seriously because, on one hand, the need to inject new funds into the economy without offsets is the rare exception to Senator Clinton’s rule to make all proposals deficit neutral and must only be done when absolutely necessary, yet on the other hand, for a stimulus to be effective, it must be timely. The straw that broke the camel’s back for Senator Clinton was when we saw in the first week in January that both manufacturing activity and private sector jobs were on the decline. Not only did the December Institute for Supply Management report show that Manufacturing had declined for the sixth straight month, but it showed that manufacturing activity was actually contracting. While the more than three million lost manufacturing jobs since 2000 may be invisible to the Bush Administration, Senator Clinton sees this downturn in manufacturing as a devastating blow to workers and a disturbing sign for the direction of the economy. In the December jobs report, we also saw that number of jobs in the private sector actually contracted – by 13,000 jobs. When viewing these trends alongside falling home prices, rising energy prices, and projected increases in foreclosures, Senator Clinton concluded that the risk of inaction was simply too great.
4. A $70-$110 Billion Economic Action Plan: On January 11, 2008, Senator Clinton offered what the New York Times described as “the first specific stimulus package to be proposed by a presidential candidate from either party.” She called for $70 billion in measures to prevent housing foreclosures, provide relief from rising energy prices, extend unemployment insurance, and spur “green collar” job growth. Senator Clinton chose these areas because they serve a double benefit: they help families facing economic distress and they meet her principles of being temporary, high bang-for-the-buck in jump-starting the economy, and directed toward the hard-pressed working families most likely to use the money quickly. For example, Senator Clinton’s emergency energy initiative would empower states to take a more proactive role in using existing income eligibility rules to distribute energy rebates or direct energy assistance to tens of millions of families without requiring time-intensive application processes. And while her comprehensive energy plan includes long-term investments with deficit-neutral offsets, Senator Clinton believes that we can accelerate $5 billion of those investments into 2008, which would become part of her stimulus package to jumpstart green collar job growth.
Furthermore, Senator Clinton believes strongly that without a substantial and aggressive plan to help stabilize the housing markets and rising foreclosure, it will be difficult for any economic stimulus plan to have its fully-desired impact. That is why in addition to her comprehensive plans to prevent foreclosures and predatory lending, Senator Clinton proposed $30 billion in immediate, time-limited resources to states, cities and community organizations to help prevent unnecessary foreclosures. While former Federal Reserve Chairman Alan Greenspan had expressed support for giving resources directly to distressed homeowners as a viable stimulus option, Senator Clinton felt it would be best to give states and communities the flexibility to target resources to a broader range activities that could get resources out quickly and best prevent a negative cycle of foreclosures and falling home prices. This will also help relieve fiscal stress on states and help prevent them from having to layoff teachers, firefighters and police officers, raise tuition, increase local taxes or make cuts to Medicaid.
Finally, Senator Clinton called for Congress to stand ready to enact an additional $40 billion in direct tax rebates for working and middle class families if our economy continues to deteriorate. Unlike President Bush’s 2001 plan, these rebates would not exclude or shortchange our hardest pressed worker. With recent declines in retail sales, evidence of fiscal stress on states that could lead to layoffs or Medicaid cuts, and a 16-year low in consumer expectations, this additional $40 billion installment appears increasingly necessary.
5. Examining the Economy Family by Family, Worker by Worker, State by State, Region by Region: While Senator Clinton and her advisors will continue to weigh the opinions of economic experts and monitor upcoming economic data, Senator Clinton strongly believes that a leader learns as much about the economy from hearing the voices, stories and experiences of workers, small business owners, working parents, farmers and others in different regions, states and rural and urban areas. Therefore, she plans at this crucial moment to reach out to discuss and listen to Americans in a broad cross section of states about the economic challenges they face, and what they feel is most needed to bring back the optimism, wage growth, high economic aspirations and shared prosperity that Americans deserve.