Bush and the Republicans Are Not to Blame for the Recession, Part II: The Real Causes of the Recession and the Democratic Policies that Exacerbated It

           In my first post in this three-part series, I examined the prosperity of the Bush years that was stimulated by his income tax cuts.  The purpose of this post is to identify the true causes of the recession and the factors that exacerbated it.

What accounts for the current recession that ended the Reagan boom of 1982-2007/8 was not federal fiscal policy, but the natural business cycle of boom and bust.  Unless equilibrium is maintained, usually by artificial government intervention, economic growth causes inflation, which, in turn, slows down economic growth.  The recession that began in 2007 or 2008 was triggered by a rise in oil prices that began in 2005 for the first sustained period since before Reagan, which was the result of increased global demand (e.g. more factories producing more goods require more oil, more purchases of vehicles, etc.).  The rise in energy prices caused inflation, which, in turn, necessitated a rise in interest rates from central banks around the world like the U.S. Federal Reserve in order to counteract rising prices by reducing the money supply. 

The current recession might have been mild and brief like its 1990-1991 and 2001-2002 predecessors, but for the exacerbating factor of rising interest rates.  Many risky mortgages became problematic once debtors could no longer afford to make payments because of the higher interest rates.  Exotic investments based upon these mortgages were undermined in value and the entire credit system was poisoned, which nearly brought down the entire global financial system.  This financial crisis became known as the Panic of 2008. 

These risky mortgages were encouraged by the policies of the Democratic Carter and Clinton Administrations to increase home ownership, particularly among blacks and the urban poor.  The Bush Administration added only slightly to this policy, but warned repeatedly about the risk of these loans to the federally-backed mortgage lenders.  The Administration’s warnings to the Democratic Congress, of which Barack Obama was a Senator, were ignored.

A depression has thus far been avoided thanks to lower interest rates and other actions by the Fed and foreign central banks, as well as other aid provided by the Bush and Obama Administrations, but the Panic has left enough scars to make this recession the worst since the Great Depression.

In Part III of this series of posts, I shall examine the Bush policies for which liberals and Democrats blame him for the recession, refuting all their arguments and observing how all of policies they cite are either Democratic policies that exacerbated the recession or Bush policies that have been continued by President Barack Obama’s Democratic Administration.