Six months into a stock-market rally, Wall Street apparently saw more good news last week when a Labor Department report showed employment had jumped to 9.7 percent in August. Exactly why Friday's news -- joblessness at a 26-year high -- produced a 97-point gain in the Dow Jones Industrial Average is a good question, but if the stock market were perfectly predictable, we'd all be rich.
Alas, we are all much poorer than we were two years ago. The Dow, which peaked above 14,000 points in October 2007, fell below 6,600 in early March -- a 53 percent decline in 17 months. Even with the summer rally that has taken the Dow back up to 9,400, the net loss of asset value still exceeds 30 percent.
It's not just fat cats who have suffered. Because of 401(k) accounts and other investment vehicles, stock ownership has never been more widespread, and millions of ordinary Americans were traumatized by the quarterly mutual-fund reports that detailed their losses to the penny. This pain was intensified by a meltdown in the housing market that undermined the very bedrock of middle-class financial security.
The full extent of the losses in asset value cannot be adequately estimated, if only because policy interventions by Washington -- including programmatic efforts to halt mortgage foreclosures -- have prevented the kind of market-clearing function that would tell us what things are really worth.
First the Bush administration and now the Obama administration have pumped hundreds of billions of borrowed dollars into the system, justifying the stimulus-and-bailout policy as necessary to avert a financial cataclysm. Yet the augurs who study the entrails of the economy are muttering darkly about the inauspicious omens.
Last week, Vice President Joe Biden gave a happy-talk presentation -- "Rainbows! Unicorns! Recovery!" -- about the miraculous effects of the $787 billion stimulus package that President Obama rammed through Congress in February. Once more trotting out the administration's rhetoric about jobs "saved or created" (pick a number, any number), Biden declared, "In 200 days, the president's Recovery and Reinvestment Act isn't just working"¦it's working toward something: It's working toward a more resilient, more transformative economy."
Surely, many economists greeted this declaration with arched eyebrows. What, exactly, is a "transformative economy," and in what sense is it "more resilient"? Never mind. Being liberal means never having to define one's terms.
Biden showed himself adept at the art of ambiguity when he proclaimed to his Brookings Institution audience: "The Recovery Act has played a significant role in changing the trajectory of our economy, in changing the conversation about the economy in this country. Instead of talking about the beginning of a depression, we're talking about the end of a recession eight months after taking office."
Well, who is "we"? It is by no means universally agreed that the U.S. economy is now bound for the sunlit uplands of prosperity, and many of the financial augurs perceive that we may be approaching an economic abyss. Here are just a few of the recent portents of potential disaster:
"¢ An analysis last month by Deutsche Bank estimated that by 2011, 25 million American homeowners -- nearly half of U.S. mortgage borrowers -- would be "underwater," owing more on their mortgages than their homes are worth.
"¢ In a story on Friday's Labor Department report, Bloomberg News quoted a financial strategist explaining that continued high unemployment -- which shows no sign of declining before 2010, if then -- was putting "downward pressure" on wages. "The key ingredient for a sustainable recovery is still absent," said Tony Crescenzi of Pacific Investment Management.
"¢ Investors Business Daily and the Wall Street Journal reported a rise in delinquencies on home loans guaranteed by the Federal Housing Administration, indicating the danger of another mortgage meltdown and the possibility of yet another bailout at taxpayer expense.
"¢ Regulators shut down five banks Friday, bringing to 89 the total number of U.S. bank failures this year, and Bloomberg News reported that recently "a total of 416 banks with combined assets of $299.8 billion failed the FDIC's grading system for asset quality, liquidity and earnings."
"¢ Examining a chart of job losses in the current recession, Henry Blodgett of BusinessInsider.com declared, "Unless employment rebounds rapidly (it's still falling), it's hard to see how we're going to get the v-shaped recovery that the bulls are now expecting."
"¢ A Chinese official attending a weekend economic conference in Italy said that if the Federal Reserve "printing money to buy bonds it will lead to inflation, and after a year or two the dollar will fall hard." This was seen as a signal that Beijing, a major holder of U.S. debt, has tired of endless federal deficits and may be more reluctant to purchase Treasury bonds going forward.
Letter to the Editor
Robert Stacy McCain is co-author (with Lynn Vincent) of Donkey Cons: Sex, Crime, and Corruption in the Democratic Party (Nelson Current). He blogs at The Other McCain.
The ultimate hangover of all government spending is inflation. Can't wait for that!
Twitter Trackbacks for The American Spectator : Apocalypse When? [spectator.org] on links to this page. Here’s an excerpt:
If we can't trust Joe Biden...
You guys! SHUT UP!
Didn't Bob tell you all would be sunny and rosy again by the end of the year (for those keeping score, that's 113 days from today)?
Didn't Bob assure us that GDP ONLY goes up, up, up and effective tax rates never change?
DEBATE OVER. Move on, RS McCain and your merry band of right-wing ideologues. There's nothing to see here.
I have admitted numerous times that I don't understand the stock market. Official unemployment hits 9.7% and is projected to exceed 10%, there were more than 200,000 new unemployment claims last week, let me emphasize: new unemployment claims, but because some obumacrat predicted more than that, and we know just how dead-on accurate their projections are, this news is taken as a good sign that Buy-den's recovery is underway. The ancient Greek genius Zeno composed a riddle known today as "The Paradox of the Tortoise and Achilles," which illustrates why the speedier Achilles cannot beat the slower tortoise in a race. Once it was explained to him the shell-shocked hero conceded the bet. Those interested can find the tale at [http://www.mathacademy.com/pr/prime/articles/zeno_tort/index.asp]. This same site has a different version of the same riddle, which I am blatantly ripping off here. After all, in the age of the golden calf, it's perfectly acceptable to plagiarize another's work. "Suppose I wish to cross the room. First, of course, I must cover half the distance. Then, I must cover half the remaining distance. Then, I must cover half the remaining distance. Then I must cover half the remaining distance . . . and so on forever. The consequence is that I can never get to the other side of the room." Graphically, this is a simple equation written as f(x) = 0.5*x where x = the remaining distance. The tortoise postulated that x can never reach zero, so Achilles can not beat him in any race in which the tortoise is given a head start, I cannot walk to the opposite wall and My Better Half cannot bonk me on the head with a skillet. This is the obumarrhoid economic model. But the Chinese are much more clever than the Achilles of this tale. They are buying gold as a hedge against the obumassiah duller. The Duller Index is fast approaching 74. If it falls below that our economy will be all wee weed up for generations. obumacare plus cap and trade will destroy this country to the point of collapse. Welcome to hype and chains. Gill O'Teen â?â?¡ gill.Oteen07041776@gmail.com Don't Tread on Me!!
The Fundamentals Look Really Bad, But Maybe They're the Wrong Fundamentals links to this page. Here’s an excerpt:
{{nearly half of U.S. mortgage borrowers -- would be "underwater," owing more on their mortgages than their homes are worth.}}}
This fact is irrelavent to people who do not buy homes as an investment opportunity. If you are buying a home for residence and ownership....now is a GREAT time to buy.
This country is in severe financial hades, and anyone saying otherwise [including this moronic VP] is simply stupid! There is nothing in the federal so-called/ill-named 'stimulus' that will stimulate; since it is nothing but WELFARE. The income-multiplyer effect of tax cuts is not there, as governmental welfare/benefits do not create layered jobs/increased income. It was/is a waste of taxpayer money, and future generations will be left with the bill for same. The only 'hope' for America is the upcoming 2010 and 2012 elections, from which American taxpayers can defeat/eliminate any/all Obama change agents/politicians and hopefully get America back on the road to financial recovery thereafter!!!!!!
Sure this economy is "transformative". It is transforming the middle class into the welfare class, just as Obama and his liberal allies want.
but...but...this AP article says everything is fine.
http://finance.yahoo.com/news/.....8.html?x=0
"Kudos for bringing the public back to the Republican party. It's high time the public realized we conservatives aren't all Johnny-hatemongers and Charlie Bible-thumps, or even, God forbid, George Bushes."
-Sideshow Bob
What are some historic examples of a W shaped recession? My general impression of the economy from my extensive dealings with business people around the Mid-Atlantic Region is that the economy is bottoming out. I don't see a recovery, but I also don't see a further worsening of the economy.
The stock market is relatively bullish on the economy at the moment. The DJIA has rallied from approximately 6,500 in March to approximately 9,500 in September. Such a rally indicates that the market does not expect a W shaped recovery and it is usually viewed as a leading indicator for the economy. I would like to see the DJIA at its October 2007 of approximately 14,000 but that is not in the cards because the Democrats will be enacting higher taxes and increased regulation of our economy. I think we are likely to have a very slow recovery that will be quite similar to the slow recovery we experienced from 1991 through early 1996.
We would already in a strong recovery if the government had declared an individual income tax holiday for 2009. That would cost the government about the same amount of money as all of its stimulus plans. This is the true cost of adopting liberal policies in fighting a financial panic.
Christopher Scott, I don't share your optimism. It's going to get very bad indeed. I erred in my 10:59 AM post that the Duller Index was fast approaching 74. The number I meant to use is 77. Everyday after the market closes I check the closing prices of the Dow, Nasdaq and S&P. Then I check the closing prices of gold, silver, platinum and palladium. Then I check the exchange rates of the duller against other currencies. Unlike the stock market, the international currency and commodities markets never close, but I try to get their price between 4 & 5 PM EDT every day Wall Street is open. The best single indicator of how the duller is performing on the international exchange is the Duller Index. I use the value listed at Bloomberg [http://www.bloomberg.com/apps/quote?ticker=DXY:IND]. Today, when I checked the DI was 76.99, it's lowest point since I began tracking. This is not good. obumah's overspending and wanton printing of cash is causing an international loss of confidence in the American economy. It will of necessity lead to out of control inflation. And unemployment is on a constant upswing. It's like the geniuses in charge confused the graphs. They look at the unemployment trend and think they see the duller index and vice versa. Actually, if tax-cheat timmy couldn't even file a correct tax return using Turbo Tax, I doubt he even knows what the duller index is. Remember how wonderful life was during the Carter era. The U.N. recently called for a new international currency to replace the duller as the preferred medium of exchange. This idea is advocated by the Chinese who just happen to own a huge chunk of obumah's debt. By the way, the four metals I track all closed at new high points today back to when I began tracking them on January 16. While it's a good thing for those owning these commodities, it's not a good sign for our economy because instead of investing in business, investors are putting their trust in hard assets. Gill O'Teen â?â?¡ gill.Oteen07041776@gmail.com Don't Tread on Me!!
So what are you folks going to do? ...bitch about the lack of lifeboats while the darned ship sinks? http:judgeroy.wordpress.com
OOPS! I screwed up the url. Try this: http://judgeroy.wordpress.com
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