Posted on 06/27/2002 6:40:51 AM PDT by JohnHuang2
The sagging stock market is diverging significantly from the rising economy. It's a puzzling and very unusual event. Much of this disconnect can be traced to a loss of investor trust due to corporate corruption and the breakdown of accounting standards. Worries about domestic terrorist bombings are also weighing down Wall Street.
But there's more to it than that. Anti-growth policy mistakes by the Bush administration could be curbing investor appetites for longer-run stock-market commitments.
Recently, the administration's economic message has dramatically shifted away from the Reaganesque, free-market, free-trade, supply-side policy direction that George W. Bush touted during the 2000 campaign and last year -- when his broad-based tax-cut package was enacted into law, and hemispheric and global free trade were passionately supported. Instead of continuing with this winning formula, Bush has gone protectionist and regulatory. This shift is handcuffing investors.
In the name of political expediency, Bush is starting to sound more like Richard Nixon than Ronald Reagan. To win the 1972 election, Nixon gunned the money supply, imposed wage, price and energy controls, and set down a number of trade-import restraints. All this created inflationary recession -- or stagflation -- which blew up the economy and the Republican Party, and culminated in the election of a left- wing Democratic Congress in 1974. So much for short-run political expediency. It didn't work for Nixon. It won't work for Bush.
Consider this: The end of the post-Sept. 11 stock-market rally can be traced to March of this year. Since then, stock averages have slumped badly. It is no coincidence that a 30 percent steel tariff administered by the White House occurred that very same month, right at the market peak, marking the end of the stock market's war recovery.
Of course, the administration assured us that the tariff measure would have no palpable economic effect. But the exact reverse has occurred. Steel-price increases have ranged between 20 percent and 70 percent, covering a wide variety of steel-using industries, including old-economy manufacturers that would be responsible for a good amount of investment in the recovery. Sure, new Bush laws to lower tax rates on businesses are in effect. But the hike in the cost to make steel may be offsetting the positive results of any business tax cuts.
More, a new tax war between the United States and Europe may be coming on the heels of a threatened trade war over the steel issue. The Treasury Department and Republican Ways and Means Chair Bill Thomas are pushing to raise taxes on foreign-owned companies operating in the United States. This of course would repel foreign companies from operating here, and that's a significant negative for the growth of our economy.
Tax-policy officials are also moving to prevent American companies from reincorporating in low-tax havens such as Bermuda and Barbados. No one likes to see American firms relocate. But several companies are trying to reduce their overall tax costs in order to pass on higher after-tax profits to shareholders. That's not a lack of patriotism. It's a complaint against burdensome American business taxes. And there's a lot to complain about.
Of the 30 industrial-country members of the Organization for Economic Cooperation and Development (OECD), the United States ranks (SET ITAL) 24th from the top, with one of the world's heaviest corporate tax burdens. Even more, as conservatives sweep to victory in European elections, every center-right leader is talking about across-the-board tax cuts. If these cuts are implemented, the United States will fall even further behind in the highly competitive global race for capital.
Misguided U.S. policies on taxes and trade -- which have also produced a slumping dollar -- are two reasons why foreign investment-flows into the United States have nearly come to a halt. But there are even more anti-growth policies coming from Washington.
Consumers overwhelmingly support Microsoft in its long-running anti-trust case. But the government -- via the Justice Department -- may desert America's leading software maker, and approve stifling sanctions desired by a handful of aggressive states. The DOJ is also launching a criminal inquiry into semiconductor makers for alleged collusion to prop up prices, even though the temporary rise in chip prices earlier this year has already been erased. Chip prices have dropped roughly 25 percent yearly for a half-dozen years. And the DOJ is taking on this deflating yet vital sector? That's economic illiteracy.
With so many anti-growth trade, tax and regulatory threats in the air, stock markets are stuck in a funk. The president appears to have lost his economic compass and would do well to return to the Gipper's sound plan for domestic growth. Stock averages hated Richard Nixon but adored Ronald Reagan. Surely there's a lesson in this.
One thing has become clear is that there are tons of financial analysts and stock brokers who don't know what they eff they are talking about and should get out of the industry.
It's not puzzling at all. The government is lying about the health of the economy (what else is new?) and the market is finally starting to reflect reality.
It is pointless and ridiculous to argue against a "regulatory" response. A lot of middle aged baby boomers out there have essentially lost their 401K nest eggs because Wall Street either lied or bought into dot.com tulip mania. News about high tech companies shovelling manufacturing capacity to China and India and importing H1B's even as American programmers and engineers who were pestered nonstop by headhunters five years ago have gone nearly a year without work and other companies transferring to Third World taxless havens and thousands of working people losing everything while the executives who caused it got rich would, in the absence of the war on terror, give the Democrats whopping majorities in the House and Senate.
You are killing me.
America does not have a monopoly on the world's supply of carbon, which is what gives steel it's ductility.
The quality of steel comes from its composition. Not its place of birth. All the tariffs have done is increase the price of steel. That's it.
Steel price protection was done for security reasons.
Male cattle waste matter.
Tariffs were implemented to buy votes.
Nah, tariffs have nothing to do with it.
Fraudulent accounting practices were the norm for "the new economy".
The chickens are merely coming home to roost.
The obvious answer of course, is that the economy is not rising. A better word would be 'flickering' - as in a flickering candle, threatening to go out.
Male cattle waste matter. Tariffs were implemented to buy votes.
Steel tariffs will hurt most U.S. voters economically. Steel tariffs will save an industry needed during a time of war to the advantage of most U.S. voters. Tariffs were inplimented for security reasons -- no explitives or insults needed when I make a point!
Free trade -- except when it destoys our defenses!
Fair enough, FR.
I do know that I can personally see the effects of higher steel prices, and it's killing us. I certainly hope the US steel corporations don't squander their opportunity and use the extra profits to become truly competitive with foreign steel.
FRegards,
I appreciate your concearns about protectionism.
Regards
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