The Dow Jones industrial average dropped 350 points in morning trading, wiping out all of its mediocre gains for the year to date. Other indexes, including the Nasdaq and S&P 500, were down even more.
The markets have been in decline for a couple of weeks now, with yesterday’s weak rally turning out to be only a brief pause in their descent. So much for the “markets made nervous by the approaching debt ceiling” narrative. That has to be the shortest-lived Obama excuse for failure ever.
All sorts of theories have been advanced for the surprisingly sharp decline in the markets, and since the markets are complex, most of these theories have at least a kernel of truth. Economic crises in Europe are thought to be making investors jittery, although I don’t see any reason to read the Italian financial papers for horror stories. We have the same debt-to-GDP ratio as they do.
Some suspect investors are nervously awaiting tomorrow’s unemployment report, which doesn’t seem like it’s going to be much of an improvement over last month. Maybe if the media stopped describing all the entirely predictable bad news as “unexpected,” investors would no longer feel like the world was spinning out of control. Calling the latest dreary installment in a two-year economic funeral dirge “unexpected” is tantamount to saying our lousy economy is inexplicable. It’s not inexplicable. The people at fault are just very good at escaping blame.
Fox News quotes BTIG analyst Daniel Greenhaus saying, “The speed at which people are marking assets down doesn’t match the speed at which the economy has deteriorated.” I would hazard a guess those people are expecting an accelerating downturn, rather than some miraculous recovery on the horizon. Gosh, I wonder why they would feel that way.
Investors and businessmen just sat through weeks of angry lectures from politicians about how evil and greedy they are. Those who brought us two years of double-digit real unemployment have stated, loud and clear, that they have no intention of relinquishing the slightest bit of power they’ve taken. Congress is so tired of being criticized for its fiduciary failures that it’s going to appoint a Super Committee that will fail while seated around a much smaller table, in a nice private chamber. White House spokesman Jay Carney actually blamed persistent U.S. unemployment on the Japanese tsunami this afternoon.
China’s top credit agency, the Dagong Global Credit Rating Company, downgraded America’s credit rating yesterday. They had already removed our coveted AAA status. Now we’re just “A”. America’s out-of-control federal government borrows a lot of money from China, and has no plans within the next decade to repay any of it.
Everyone knows the other big credit agencies are artificially delaying a downgrade of America’s credit rating, in what might be described, if you’re feeling testy, as a breach of their financial duty to their clients. Nothing in the great debt-ceiling compromise addresses the reasons we were clearly given for an impending downgrade. One of the Big Three will downgrade us soon. It will be hard for the others to maintain the AAA fiction afterwards. That could blow another five hundred billion dollars in interest payments out of the Treasury, practically overnight.
The L.A. Times notes that “investors have been moving into perceived safe havens such as gold, Treasury bonds and the Swiss and Japanese currencies.” Prosperity sails into safe havens to die in peace. Why take risks on companies that could be crushed by regulations and mandated costs, for market victories that might be thwarted by government bailouts, to earn returns that will probably be seized by politicians desperate for cash and hungry for scapegoats?
Jobs come from growth. Growth requires risk. Risk thrives upon confidence. Confidence withers in the shadow of power. Power accumulates at the expense of liberty. Begin at the end of that formula and work your way backward, if you seek prosperity.
Update: The Dow ended up dropping by a total of 512 points for the day