Posted on 07/18/2002 11:01:35 PM PDT by Uncle Bill
There Must Be Some Way Out Of Here
THE ECONOMIST
July 18th 2002 | WASHINGTON, DC From The Economist print edition
Americans are losing confidence in the economy. Can George Bush stem the slide?
THESE are not happy times for the White House. Share prices are tumbling, consumer confidence has fallen sharply and George Bush's own approval ratings seem to be heading down. For an administration haunted by the ghost of George Bush senior, whose defeat in 1992 was blamed on a sluggish economy, the parallels are becoming painful, not least because the current president's efforts to reassure Americans are also falling flat.
Mr Bush's trip to Wall Street to preach about corporate ethics was widely derided as too little, too late. This week's follow-up, a hastily-arranged pep talk on the economy in Alabama, proved another embarrassment. “This economy is coming back,” boomed Mr Bush. “That's the fact.” Meanwhile, in one of Wall Street's more dramatic days, stockmarkets slumped (though they recovered somewhat after he finished). It was all too close to Herbert Hoover, who famously proclaimed America's economy to be on a “sound and prosperous basis” in October 1929.
Judging Mr Bush's words by short-term movements in share prices is, of course, neither fair nor useful. The real questions are whether the White House has correctly diagnosed what ails the American economy, and whether its policies are right.
Mr Bush's basic contention is that the fundamentals of the American economy are in good shape. This was also the message of Alan Greenspan, chairman of the Federal Reserve, in congressional testimony the following day. At first blush, they have a point. Inflation is low and productivity growth remains surprisingly robust. Much of the excess investment that firms had built up during the boom has been worked off. Consumer spending remains surprisingly solid. Retail sales, for instance, rose 1.1% in June, far faster than analysts were expecting. The Fed has raised its forecast for economic growth in 2002 to 3.5-3.75%.
Yet despite these apparently good fundamentals, consumers are worried. The University of Michigan's consumer-confidence index fell sharply in July, to levels last seen in November. The main reason, of course, is the stockmarket slide (see article). Over the past two weeks alone the Dow Jones Industrial Average has fallen by 6%. The S&P 500 has dropped to levels not seen since October 1997. The technology-laden Nasdaq index is 72% below its peak in March 2000.
In large measure, this slide is the deflation of the 1990s bubble, a point Mr Bush himself hinted at: “America must get rid of the hangover that we now have as a result of the binge...we just went through,” he said in Alabama. But it has clearly been aggravated by the slew of corporate scandals and the loss of investor confidence.
Sliding equity prices could begin to hurt those fundamentals, promoted so assiduously by Messrs Bush and Greenspan. Household saving, in particular, may be found wanting as Americans re-evaluate what they can expect from their retirement portfolios. That suggests a protracted spell of sluggish, rather than buoyant, consumer spending. Capital investment could also suffer, if firms become more cautious about borrowing.
Unfortunately, there are scant signs that the administration will help counter this. In his Alabama speech, Mr Bush promised an “agenda for long-term growth”. This encompassed: fiscal policy (he wants to make his tax cut permanent, whilst forcing Congress to hold the line on spending); trade policy (he urged Congress to grant him “fast-track” authority to negotiate trade agreements); corporate reform (he touted his new Corporate Fraud Task Force, promised more money for the Securities and Exchange Commission, and urged Congress to send him an accounting-reform bill before August); boosting accountability in schools; and terrorism-risk insurance.
This grab-bag of assorted policies hardly constitutes a post-bubble economic agenda. Even if you thought it did, once you start going through the individual bits, the progress is patchy. For instance, the Senate certainly passed a tough corporate-reform bill on July 15th, and Mr Bush welcomed it. The next day Republicans in the House of Representatives promised to dilute many of the measures in the Senate bill (though they did agree to stiffer sentences for corporate criminals).
Nor do the prospects for trade policy look good. The Bush team has been pushing Congress for fast-track authority for 18 months. Legislation squeaked past the House of Representatives last December and the Senate in May. But reconciling the two bills has been difficult. If Congress does not get round to voting on fast-track by the August recess, the proximity of the mid-term elections in November suggests that the politically sensitive trade bill has little hope.
The biggest and most intractable problems, however, concern fiscal policy. Nobody seems to have absorbed how a post-bubble environment might influence the budget. On July 12th, the Bush administration announced that the federal government would run a deficit of $165 billion this year, compared with an earlier forecast of $106 billion made in February 2002. Although the economy has grown faster than expected since February, tax revenues have plummeted. Much of this revenue drop is due to the stockmarket, as individuals' capital gains have turned into losses. If the bear market lasts, so too will those revenue shortfalls.
In these conditions, Mr Bush's main fiscal policy—that his 2001 tax cuts, ostensibly to be reversed in 2010, should be made permanent—is hard to justify. If demand weakens substantially, there may be a case for more tax cuts (or spending) today. But it is hard to see the fiscal wisdom in making future tax cuts permanent at a time when revenues are so uncertain.
On spending, blame needs to be divided between the White House and Congress. Mr Bush talks tough on spending. He has threatened to veto a $27 billion supplemental budget bill that Congress has larded up to $31 billion. However, by agreeing to far larger, and permanent, expenditures (such as the massive farm bill) Mr Bush has lost the moral high ground. Congress, in turn, is closely divided, and short on any procedural systems for fiscal discipline. Finger-pointing and partisan bickering are far more likely in Washington than the confidence-inspiring policies that America's economy needs.
Copyright © The Economist Newspaper Limited 2002. All rights reserved.
Repeal the 16th amendment and abolish the income tax. Abolish the IRS and take away the citizenship of senior IRS officials and send them to Russia where they'll feel at home. Obliterate federal spending, and start to pay off the national debt in large chunks. Abolish "static scoring" with regards to taxation of any kind. Reinstate and restore the Constitution and Bill of Rights and abolish all laws, treaties, emergency orders and executive orders that have rendered it useless and return to the Constitutional boundaries of our constitutional Republic our founding fathers gave us. Importantly, repeal the Emergency and War Powers Acts. Repeal all laws created by unconstitutional and extraconstitutional devices, such as Executive Order or Presidential Directive. Repeal and abolish all unconstitutional federal involvement in states issues such as: crime, health, education, welfare and the environment, and only God knows how many other intrusions. Social programs such as Social Security, welfare and Medicare must be repealed. So too, do most federal subsidies. Rescind all treaties and International Agreements which are not in perfect agreement with the Constitution. Tell the United Nations to stuff it! The U.S. should disassociate itself from the U.N. and the U.N. should be forced to leave the United States. Destroy all documentation that links the U.S. with the U.N. See Arthur Andersen for details. Alger Hiss, screw you. Furthermore, demand that the federal government refrain from meddling in the business and squabbles of foreign nations, unless there is an imminent threat to the people of the United States. PROTECT OUR BORDERS!! Elect a real small government candidate for President, and the same for Congress. Take memory loss drug to try to forget that most Americans love socialism in about every way and that politicans are simply a reflection of themselves, and, none of the above is going to happen. Now, returning back to reality. Terrorism, shadow government, Stock market crash, federal government crash, Police State, Martial Law, gun-confiscation, FEMA, FBI, CIA, Dictatorship, T.I.P.S., Carnivore, Operation Magic Lantern, Echelon, The Patriot Act, Executive orders too numerous to count, slavery, death, One World Government. It could never happen here. For those of you not just interested in Medicare Part B.
HOW BIG IS THE GOVERNMENT'S DEBT? - $33.1 TRILLION!
"Paranoia will destroy ya."
Sell those stocks! It'll make it cheaper to purchase!!
The Big Bad Bear
"Seldom have the unwanted words of a Cassandra been more ignored than Alan Greenspan's speech on "The Challenge of Central Banking in a Democratic Society." In that speech, given on Dec. 5, 1996, he coined the now-famous phrase "irrational exuberance" in reference to "unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade."
It is worth noting that on that day of warning, the Dow opened at 6422.90, 19.38 percent lower than last Friday's catastrophic open of 7967.20. This is a clear indication that the market not only can continue to go down, but probably will."
**TODAY'S POLL**
Where is "the bottom" on the Dow?
We're there. - 484 votes (12%)
No lower than 8,000 - 646 votes (16%)
No lower than 7,500 - 724 votes (18%)
No lower than 7,000 - 632 votes (16%)
Below 7,000 - 1443 votes (37%)
3929 people have voted so far.
Falling stocks may hurt Japan banks - Hayami
Mitsubishi Tokyo Financial May Lose Y17 Billion On WorldCom
Yen Falls; Japan May Sell Currency to Foster Export-Led Rebound
J
Dow 7,784.58 -234.68 (-2.93%)
Nasdaq 1,282.65 -36.50 (-2.77%)
S&P 500 819.83 -27.91 (-3.29%)
10-Yr Bond 4.467% -0.098
NYSE Volume 2,166,985,000
Nasdaq Volume 2,350,736,000
Quote data provided by Reuters
Brokers: E*TRADE Securities -
Scottrade - TD Waterhouse - Datek
Wall Street Plunges Another 3 Percent
Volatile Market Ends at 5-Year-Low
Stocks Drop Again as Wall Street Has Another Volatile Day
Wall St. Damage Ripples Across the Population
Eurostocks fall to worst close since Oct 1997
GLOBAL MARKETS-More misery for stocks as bonds, gold rise
Investor optimism sinks to new lows
Harried investors flee stock funds - Bonds funds score record inflows amid downdraft
Airlines end in the tank again
Brazil stocks down 6.6 pct on U.S. markets, election fears
Toronto stocks freefall as confidence fades
The Incredible Shrinking Stock Market
The New York Times
By SETH W. FEASTER
July 21, 2002
Notice how no one is calling this a "correction" anymore? The corporate greed heads have shot their wad, no telling how long the meltdown will continue now.
I really feel for all the pensioners who have seen it all go up in smoke. My next door neighbor was planning on retiring here in a year or so but now he says he's stuck working for well into the distant future.
Steal with a gun and it's the shackles for ya! Steal with a pen and it's "Have another martini, Mista Skilling!". Just plain sick.
J
I guess they call it an unusual financing technique. Can you imagine a bank robber asking a teller, give me all your special purpose vehicles? If he was lucky, the teller would reply, we don't have any auto repossessions on hand right now.
Stocks See Fresh Lows, Fear Grips Street
Markets fear action against Salomon analyst
Telecoms sector reels from WorldCom's woes
Fear and Loathing on Wall Street
Dun & Bradstreet second qtr. profits fall 72 percent on charge
Airlines May Post Losses of $6 Billion This Year
Could airline bailout backfire?
Kmart Posts $137M Loss in June
Dow falls 234 in third straight triple-digit selloff
GLOBAL MARKETS-Fear hammers stocks around globe, bonds firm
The bull’s 18-year gain is cut in half
Stocks' Collapse Raises Questions About Fed's Role - Fox News
Buy Maalox !!!!!
That's kinda nearly tied with "Buy Pitchforks!!!"
The D's and the R's will not let that happen.
That's because the American people are in love with socialism, ponzi schemes, and a great desire to be lied to by politicians. To do it over and over again is the definition of insanity.
Well, I WAS going to make the suggestion that GWBush get some assistance and advice from his daddy's aces; Darman, Baker, Greenspan, a few of them, but then I noted this line in your reply --- "To do it over and over again is the definition of insanity." So, nevermind.
Now, Clinton is STILL at fault, even for companies that weren't influenced by HIS mob.
I just can't figger it out.;-)
There was no promise made, the part you played, the chance... you took..---Pink Floyd
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.