Let's Get Real, We're Not Greece

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Panic: If investors think the U.S. is as bad off as Greece, this sell-off is unwarranted. But if they fear the U.S. is trying to copy Greece or another socialist state, that's another matter. Fortunately, it's also quite correctable.

Markets that go up a lot - and this one ran up 82% on the S&P 500 in 14 months before topping two weeks ago - are entitled to correct. That is normal. But we'll admit Thursday's 8% free fall - and near-1,000-point dive in the Dow - was a little out of the ordinary.

After looking at the action in Procter & Gamble, you might even say it was a glitch. In a matter of 10 minutes, P&G, a 4.3% Dow component, plunged 37%. That qualifies as wild even for the most volatile Nasdaq stock, let alone one of the stodgiest Big Board issues.

P&G's plunge below its own circuit-breaker level then reportedly triggered automatic selling in other big-cap stocks.

Another rumor had a trader at a "major firm" accidentally placing an order to sell $16 billion, instead of $16 million, of futures contracts tied to equity indexes.

Such snafus aside, much of the blame for the market's recent weakness has centered on the debt crisis in Greece, the latest example of why socialism should never replace capitalism as an economic system.

But let's get real. There's almost no comparison between the U.S. and Greece or other failed European states. By almost any measure, the United States has outperformed Europe for decades.

This is especially true when it comes to productivity, a fact that only now seems to be dawning on the people of Greece if not Europe in general. We have noted with interest that, from 2002 to 2008 alone, American productivity grew 28% - a rate 50% higher than among the 10 biggest economies in Europe.

From 1980 to 2009, real GDP per person - the best broad measure of both productivity and standard of living - grew 6% faster in the U.S. than in Europe. Sounds like a small difference, but it isn't. In 1980, the average American produced just $4,500 more in GDP, after adjusting for inflation, than the average European. Today, the gap is $8,236 - and growing wider.

Thanks to its emphasis on free markets and entrepreneurship, and until now relatively little government meddling, the American economic system is a marvel that has created more prosperity and a higher standard of living than the world has ever known.

The only threat to that is the sharp left turn that this administration and Congress have taken in an effort to install a system that parallels that in Europe. It seems the only question is what kind of socialism will be adopted - Greece's, Spain's, Portugal's, Germany's or Britain's?

That, of course, would be a disaster. And maybe that's what the market is really saying. But like we say, its not without a solution. The U.S. also has a system of checks and balances, and now's the time for it to do its job.

In less than six months, the American people will have the opportunity to replace the people in Washington who have started us down this perilous path. Once they are removed - every last one of them - the stock market and economic system it serves will right themselves.

 

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