1128 ★ CHAPTER 28 A New Century and New Crises
both houses of Congress for the first time since 1994. In January 2007, Demo-
crat Nancy Pelosi of California became the first female Speaker of the House in
American history.
In January 2009, as Bush’s presidency came to an end, only 22 percent of
Americans approved of his performance in office— the lowest figure since such
polls began in the mid- twentieth century. Indeed, it was difficult to think of
many substantive achievements during Bush’s eight years in office. His foreign
policy alienated most of the world, leaving the United States militarily weak-
ened and diplomatically isolated. Because of the tax cuts for the wealthy that
he pushed through Congress during his first term, as well as the cost of the wars
in Iraq and Afghanistan, the large budget surplus he had inherited was trans-
formed into an immense deficit. The percentage of Americans living in poverty
and those without health insurance rose substantially during Bush’s presidency.
The Housing Bubble
At one point in his administration, Bush might have pointed to the economic
recovery that began in 2001 as a major success. But late in 2007, the economy
entered a recession. And in 2008, the American banking system suddenly found
itself on the brink of collapse, threatening to drag the national and world econ-
omies into a repeat of the Great Depression.
The roots of the crisis of 2008 lay in a combination of public and private
policies that favored economic speculation, free- wheeling spending, and get-
rich- quick schemes over more traditional avenues to economic growth and
personal advancement. For years, the Federal Reserve Bank kept interest rates
at unprecedented low levels, first to help the economy recover from the burst-
ing of the technology bubble in 2000 and then to enable more Americans to
borrow money to purchase homes. The result was a new bubble, as housing
prices rose rapidly. Consumer indebtedness also rose dramatically as people
who owned houses took out second mortgages, or simply spent to the limits
on their credit cards. In mid- 2008, when the median family income was around
$50,000, the average American family owed an $84,000 home mortgage,
$14,000 in auto and student loans, $8,500 to credit card companies, and $10,000
in home equity loans.
All this borrowing fueled increased spending. An immense influx of cheap
goods from China accelerated the loss of manufacturing jobs in the United
States (which continued their decline despite the overall economic recovery)
but also enabled Americans to keep buying, even though for most, household
income stagnated during the Bush years. Indeed, China helped to finance the
American spending spree by buying up hundreds of billions of dollars’ worth of
federal bonds— in effect loaning money to the United States so that it could pur-
chase Chinese- made goods. Banks and other lending institutions issued more