Obama vs. Reagan

Need a break from the breathless media coverage of tomorrow’s big event? Here’s a level check from yesterday’s Kelly Letter end note:

Let’s hope Team Obama does as good a job as Team Reagan did back in the early 1980s.

When Reagan took office, unemployment was passing 7% on its way to 11% in late 1982. As Obama takes office, unemployment just hit 7.2% and is probably on its way to double digits as well.

Reagan faced an inflation rate of 12.5% as oil came off a 600% price increase in the 1970s. Interest rates in the high teens didn’t help, and are part of why stocks had been in a 14-year funk. You read that right: 14 years.

Reagan cut taxes and built up the military, while the Federal Reserve under Reagan’s urging cranked credit down hard. The combined decrease in revenue and increase in spending produced a record deficit of 6% of GDP. After more pain and two quarterly GDP drops of 5% and 6%, unemployment hit the aforementioned 11%, and then at long last the economy began recovering. Reagan was given credit, and won re-election to his second term in 1984.

Obama’s stimulus plan is equally ambitious. He, too, is planning increased spending. His spending will go mostly toward infrastructure improvement instead of the military, but will also produce a record deficit when added to the enormous deficit Bush leaves behind. The projected FY 2009 deficit is 9.2% of GDP.

So, while the media is already putting Obama’s face on Mount Rushmore as the man who saved us from our worst moment in history, it’s just not true. Other presidents faced equally challenging times, indeed tougher times. We got through those and we’ll get through this, but nobody has any idea yet who the heroes will be.

This entry was posted in Uncategorized. Bookmark the permalink. Both comments and trackbacks are currently closed.
  • The Kelly Letter logo

    Included with Your Subscription:



    $200/year
Bestselling Financial Author