George Herbert Walker Bush became president on January 20th, 1989. His theme of his presidency was of harmony and conciliation President H. W Bush entered his presidency during a period of a radically changing world. The Soviet Union was beginning to collapse, the Berlin Wall fell, and after a long forty years, the Cold War headed towards its end. During Bush’s term of presidency, the stock market was impacted in accordance to things under his control, as well as things out of his control.
In his first year, Bush was confronted with the Exxon Valdez oil spill in Alaska.
The Exxon Valdez oil spill happened on March 24th 1989 in Prince William Sound, Alaska. This was an incident out of President H. W Bush’s control, but obviously had a negative impact on the economy. In response to the oil spill, many “fisheries for salmon, herring, crab, shrimp, rockfish and sablefish were closed, with some shrimp and salmon commercial fisheries remaining closed through 1990” (Amadeo, 2009) This oil spill created a large decline in the commercial fishing industry, causing many people to go out of business.
There were over two thousand Alaskan Native Americans and thirteen thousand other “subsistence permit holders” who lost the source of their food because of the accident (Amadeo, 2009). The tourism industry in the Alaskan area immediately lost over twenty six thousand jobs with more than $2. 4 billion in sales loss (Amadeo, 2009). In January of 1991, President H. W Bush played a significant role in organizing the international community of thirty-two nations against an aggressive Iraq who violated international law by annexing Kuwait, which is also known as the first Persian Gulf War (Gulf Wars, 2005).
The United States led the coalition of nations and on January 18th of 1991, began an enormous air war to destroy Iraq’s forces and military infrastructure. Iraq retaliated by launching missiles at Israel and Saudi Arabia, attempting to break up the coalition, but they were unsuccessful. The strong Unites States-led coalition invaded Kuwait and Iraq on February 24th, 1991, and over the next four days, they demolished the Iraqi forces. President George H. W Bush declared a cease-fire on February 28th, 1991, and the coalition had defeated the Iraqis and liberated Kuwait (Gulf Wars, 2005).
This First Persian Gulf War affected the U. S stock market and economy drastically. There were some expansionary effects as well as some contractionary effects. One of the expansionary effects of the Gulf War on the U. S. economy and stock market was the extra stimulus given to the consumer’s demand of U. S goods from the government spending (Throop, 1991). The monetary costs of the war to the United States were mainly covered by assistance from our allies. Some of these financial contributions were “in-kind”, which were contributions of goods or services. These “in-kind” contributions obviously did not alter the demand for U.
S. goods, but the remaining cash contributions and monetary spending by the U. S. military did have an effect on the American consumer’s demand (Throop, 1991). “According to Data Resources, the extra Defense Department purchases of goods and services attributable to the Desert Shield and Desert Storm operations rose from 0. 2 percent of real GNP in 1990. Q4 to 0. 5 percent in 1991. Q2. In real dollars this amounts to $7. 5 billion in 1990. Q4 and $22. 4 billion in 1991. Q2”(Throop, 1991). Since the United States GNP rose, this caused a positive effect on the stock market and U. S. economy.
One of the Gulf War’s contractionary effects of the U. S. economy and stock market was the negative oil shock. Iraq blew up major sources of oil, in attempts to destroy the economies of the U. S and other major nations in the coalition. Since these nations were major oil importers, they had to radically increase oil prices, which really hurt their economies. These nations in the coalition did not have the same expansionary effects from military spending as the United States did, and the negative effect of the oil price shock absolutely took over their economies. This indirectly but significantly affected the U.
S economy because these nations were considered our major trading partners. Since their economies suffered so much, they could not purchase as much U. S. exports as they usually did. This made the U. S. GNP decrease rather extensively (Throop, 1991). An additional contractionary effect of the Gulf War on the U. S. economy and stock market was on the American consumer’s confidence and on real incomes. The higher oil prices caused a reduction in the purchasing power of individuals’ real incomes. This reduction in American income purchasing power therefore reduced the average American consumer’s spending in general.
It also caused the general consensus of consumers to spend less money, because the overall “consumer confidence” decreased. The economic variables that appear to have the most significant influence on “consumer confidence” are the inflation rate, alterations in oil prices, and change in the unemployment rate (Throop, 1991). “Consumer confidence, as measured by the University of Michigan survey, dropped by 28 percent between the second and fourth quarters of 1990, and then recovered over half of its previous decline by 1991. Q2” (Throop, 1991).
Overall, the stock market did tremendously well under President H. W Bush, even with the oil spill and the Gulf War in the mix. The stock market raised nearly sixty percent within Bush’s four-year term of presidency (Weisenthal, 2012). This was evidenced by the S & P 500 indexes from the year of 1989 to the year of 1993. The S & P index is also known as the Standard & Poor’s 500, and is a stock market index based on the common stock prices of 500 top publicly traded American companies (Wikipedia, 2005). The S&P 500 is one of the most commonly used standards for the general U. S. stock market.
Even though gas prices spiked during the year of the Gulf war, they went back down by the end of the Bush administration in the beginning of 1993. Although the stock market and gas prices generally got better in the Bush term, the same claim cannot be made for the unemployment rate. During the first year of President Bush’s term in 1989, the unemployment rate was at 5. 3 %. It rose to 5. 6% in 1990, to 6. 8% in 1991, and to 7. 5% in 1992.
Amadeo, K. (2009, March 20). Effect of the Exxon Valdez oil spill on the economy. Retrieved from http://useconomy. about. com/od/suppl1 Beschloss , M. (2009). The White House. Retrieved from ttp://www. whitehouse. gov/about/presidents/georgehwbush Gulf Wars, Info please. (2005). Retrieved from http://www. infoplease. com/encyclopedia/history/persian-gulf-wars. html Investorwords. com. (2012). Retrieved from http://www. investorwords. com/2186/GNP. html Throop, A. (1991). The Gulf War and the U. S. Economy. IDEAS -Research Division of the Federal Reserve Bank of St. Louis, Retrieved from http://ideas. repec. org/a/fip/fedfel Weisenthal, J. (2012, July 08). Retrieved from http://www. businessinsider. com/the-economy-under-george-hw-bush-2012-7 Wikipedia. (2005, July 13). Retrieved from http://en. wikipedia. org/wiki/S&P_500
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