US economy is key to re-election of Barack Obama

WASHINGTON. May 7. KAZINFORM The worst of the recession is over. Unemployment is high but heading in the right direction. The president can boast that he has taken decisive action on a foreign field to defeat the US's enemy. Yet still he lost, for this is not Barack Obama in six months' time but George HW Bush in 1992.

Obama's team know their history and they can read the opinion polls. These suggest that the race for the White House will be a close-run thing and that a stuttering economy between now and November could see Obama leave Washington as the first one-term president since Bush Snr.

The case for Obama, who kicked off his re-election campaign in Ohio last weekend , is the one succinctly put by the vice-president: Osama bin Laden is dead; General Motors is alive. The administration can boast success on two fronts: eliminating public enemy number one while at the same time intervening to ensure that the Great Recession of the past five years has been less severe in the US than in Europe, Kazinform quotes the Guardian.

That's not saying all that much, however. As the International Monetary Fund has noted, housing busts that result from an excessive build-up in personal debt tend to be long and painful. Governments can help to ease the pain but there are no quick fixes. Falling house prices mean household wealth shrinks, and rising unemployment makes it harder to keep up mortgage payments. Consumer confidence falls and spending dries up.

The US over the past decade fits this pattern perfectly. In the bubble phase, low interest rates resulted in both a house-buying spree and a residential construction boom. In the past five years, house prices fell by a third, the number of foreclosures rose fivefold and unemployment peaked at 10% of the workforce. More detailed work at a local level showed that those counties that saw the biggest increase in household debt between 2002 and 2006 saw the biggest drop in consumption once the crisis began.

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