THE LIBERTARIAN ENTERPRISE
Number 487, October 5, 2008
"What makes genocide and other kinds of
government-sanctioned violence possible?"
Special to The Libertarian Enterprise
So, last week, the stock market fell 777 points on news of the failure of Congress to pass the Wall Street Fat Cat Bailout Bill of 2008. Why did the market crash? Pundits claimed because the bill failed.
Why did the bill fail? I think because Americans were against it 9 to 1 and contacted their Congress critters.
So, this week, the Senate added another $150 billion of sleaze and "incentives" and various kinds of pork, and Congress ate it up. The president signed the bill, and the stock market crashed.
Yes, the Dow Jones is down 157 points (or 1.5%) on the news. Broader indices like the S&P 500 and NASDAQ are also down, about 1.35% and 1.48% respectively, as I write this note. Finance.google.com says the markets are closed.
So, let's review. Congress refuses to waste SEVEN HUNDRED BILLION taxpayer dollars bailing out risk crazy, wealthy, and foolish banking gangsters last week and the market crashes. Congress agrees to waste even more money, closer to a TRILLION taxpayer dollars when all is said and done, possibly much more depending on how much slush there is to this slush fund, and the market crashes, anyway.
Maybe, and I'm just thinking out loud here, maybe the markets do what they do without regard to what the government does. Possibly the government cannot have much influence on the market, which is going to go up or down in any case. And as we've seen over the last few weeks, up and down, with an overall trend down.
Let's take a look back to the end of last year, shall we? The Dow closed 2007 at 13,264.82. The S&P 500 was 1468.36 at the end of last year, and the NASDAQ ended at 2652.28 for 2007. Just in case someone wants to push the "monetary inflation" button, gold closed 2007 at $833.30.
Of these, gold has been the best performer, still trading on the Access market right now, but $832.20 is probably close to its close for the day. A bit more than a tenth of a percent down on the year to date.
The Dow closed today at 10,325.38, down over 22% on the year. The S&P 500 closed today at 1,099.23, down more than 25% on the year. The NASDAQ closed at 1,947.39 today and is down more than 26.5% on the year to date.
In October 2007, the Dow reached its all time peak value of 14,066.01. The same day, 5 October 2007, the S&P 500 peaked at a value of 1,557.59. The NASDAQ peaked a little later, 26 October 2007, at 2804.19. Overall, the markets are down about 26%, 29%, and 29%, respectively, for the Down, S&P, and NASDAQ since their peaks in October last year. In other words, the trend has been down for a year. And the trend continues.
Was the trend exacerbated last week when the bailout failed? Not especially. Stocks are lower today at the close than they were at the bottom last Monday, on all three markets I've been considering here. Prices recovered a bit last week, came down further this week. Next week, unless something fundamental changes about the economy, look for stock prices to drop further.
So, what would be a fundamental change? Well, right now, all factors are inflationary. Fiscal policy is to deficit spend, which is inflationary. Trade policy is to erect tariff and non-tariff barriers to imports, which is inflationary (and tends to cause reactions in other countries, limiting American companies' ability to export). War is inflationary. It is also very bad foreign policy, and it kills people (don't forget the dead people). Monetary policy right now is to relax access to credit, and that is inflationary.
Then, does the bailout bill change anything? Overall, in the economy, no, it does not. It changes nothing substantial. It places Americans into further debt for more generations. It saddles the taxpayer with more excesses of Congress. But it does not fundamentally change anything in the economy that wasn't true nine months ago, six months ago, three months ago, nor last week. On the fundamentals, the market is down. Housing prices are down. Mortgage debt is not performing as well. Collateralized debt obligations are not any more valuable this week than they were last week.
Oh, sure, the news is probably good over the next few weeks for the insider, the fattest of the fat cats, the scum of Wall Street, the evil doers with connections to the current administration. Goldman Sachs ought to be able to count on their former CEO to lard things onto their plate as much as possible. What has he to lose? It isn't like Paulson is going to be Treasury Secretary under the current president for more than a few more months anyway.
So, the spigot has been turned on, a huge new load of debt has been added to the taxpayers, and the government is blithely assuming that the markets are going to react to this news positively. Well, gee, they haven't.
And my guess is, they won't. Because the more things stay the same, the less reason there is to celebrate.