The rise in stock prices that began last fall was essentially based on the belief that the U.S. economy can defy gravity - that both individuals and the nation as a whole can spend more than their income, not on a temporary basis, but more or less indefinitely.
To be fair, for a while the data seemed to confirm that belief. In 2005, the trade deficit passed $700 billion, yet the dollar actually rose against the euro and the yen. Housing prices soared, yet houses kept selling. The price of gasoline neared $3 a gallon, yet consumers kept buying both gas and other items, even though they had to borrow to keep spending (the personal savings rate went negative for the first time since the 1930's).
Over the last few weeks, however, gravity seems to have started reasserting itself.
That's one law even Bush can't break for very long.
I can't resist pointing out that the Bush administration's response to the squeeze on working families has been, you guessed it, to accuse the news media of biased reporting.
As I summarized it awhile back, we became a nation in which people make a living by selling one another houses, and they pay for the houses with money borrowed from China.
Now that game seems to be coming to an end. We're going to have to find other ways to make a living - in particular, we're going to have to start selling goods and services, not just I.O.U.'s, to the rest of the world, and/or replace imports with domestic production. And adjusting to that new way of making a living will take time.
Just like Iraq, economic sanity will probably be left to the next president. Or at least to the next one that has his eyes open.