When Money isn’t Worth the Paper It’s Printed On
When I wrote back in August that the economy would become the most important issue in the 2008 presidential election, many doubted my prediction.
In that piece I suggested, based on our opinion surveys around the nation, that the sub-prime mortgage problem in the housing market was a much deeper crisis than most recognized.
Remember that during the summer, the stock market was close to all-time highs.
Subsequently, many doubted my predictions, including lots of hotshot Wall Street analysts.
Fast-forward just a few months later. I will repeat the very words I wrote in August. Tell me if they don’t seem more realistic today. I wrote, "Consumer spending and confidence are about to crash. The stock market is now artificially supported by infusions of federal cash printed so rapidly that the ink hasn’t dried."
As we all know, the dollar has been falling rapidly in value. News this week that China, which holds a massive amount of our currency, will be "divesting itself" of the dollar over time, has sent shivers of fear through the financial world. Well, as Gomer Pyle used to say, "Shazam!"
Two weeks ago, I sold every stick of stock I own. That’s only the second time I’ve done that. The last time was in the spring of 2000. I think you can remember what followed — the Internet crash.
I’m not pretending to be a great economist, even though I sometimes "play" one on TV. But when you are polling all across the nation every day and you get data back saying that people feel burdened by debt, or that in what had been the nation’s top growth areas, people are scared to death that their house value is plummeting, then you don’t have to be Milton Friedman to know something is not quite right.
As my friend and one-time quite worthy opponent James Carville put it back in 1992, "It’s the economy stupid."
And what’s amazing is that, based on the polls I’ve seen, the American people realized it long before the financial analysts or the politicians did.
Now we have presidential candidates still making immigration their huge issue — and it is important — while the entire underpinnings of our economy could be washed away.
In order not to seem a complete alarmist, let me share a few glimmers of hope. First, it is my judgment that our new Fed chairman, Ben Bernanke, is far more in touch with reality than was the greatly revered Alan Greenspan — who was never revered by me.
Greenspan raised interest rates too high in reaction to the booming technology-based economy of 2000, and then cut rates too deeply to correct for the recession he created. He was too cute for words with his silly nonsensical statements before Congress, which even he now admits were meant largely to say little or nothing.
The new Fed chair seems a straight shooter. He has cut rates, but not to outrageous levels, and all the while has kept an eye on inflation.
The other reason to limit panic is that neither China nor any other country can afford to "dump" dollars too quickly. Flooding the market too swiftly would hurt their own economies.
Still, the presidential and other candidates this year must begin to address real issues related to our economy. First, how can they promise every new government program in the world or even talk about raising taxes, when those who carry the burden of paying the bulk of the taxes in America are starting to see the value of their homes and that of the money in their bank accounts sink before their very eyes?
And candidates must begin to address a monetary system that can become a virtual hostage to, of all things, the largest communist nation in the world. That’s really great: We let China take control of Wall Street thinking. That’s a really smooth move.
It’s time for this unimpressive cast of presidential candidates to quit playing silly attack games, such as searching for endorsements from televangelists or showing up on "Saturday Night Live," and instead start "feeling our pain." This is a rapidly developing storm, one that some of us could see coming.