And The Fallout Begins…

This week in American econo-political history was significant for 3 reasons.

1)  The bailout deal actually coalesced.  The US did NOT default on any of its loans as Congress actually compromised and raised the debt ceiling.
2)  The Dow saw a 513 point drop as a general reaction to weeks of crappy economic news being ignored (see #1) and everyone realizing that the contagion has spread to Europe and its in Spain AND Italy.

3)  S&P downgraded US debt to AA+ status.  For the first time in history, one of the major ratings agencies has downgraded US debt.

With all that said, it all boils down to this.  #1 shows that politics and brinksmanship is more important than actually doing what is best for the country.  Everyone knows that the amount cut wasn’t nearly large enough and that you’re going to have to raise taxes to get the fiscal house in order – the whole is just too big.  Congress kicked the can down the road to buy time for the ‘super-Congress’ to try its hand.  Don’t hold your breath.  They didn’t address the underlying problems in entitlements now….they probably won’t do it then.  I applaud House Republicans for sticking to their guns, however pledges to Grover Norquist should not take priority of the oath you took to the country and your constituents.  Please realize that major corporations do not pay their fair share in taxes and that it is a fallacy to say that increasing taxes is a defacto job killer – the primary decision to hire employees is not based upon taxes you pay but ability to expand business and make more money in the market.

#2 Shows that we are not out of the woods.  This isn’t a muddle-through economy.  I believe this is an economy in recession that got a reprieve due to gov’t stimulus.  that stimulus has about run out at this point, so we will slip back into recession  The underlying problems in housing, banking, and the false economic expansion of the 2000’s due to those industries are still with us.  Until we address them and continue the deleveraging process, the economy will not recover.   Taking your eye off of the ball for months because of a distracting debt debate gives you a 513 single day decline because of these continuing underlying problems.

#3  The only AAA this country has left are surface to air missiles and the road-side assistance people.  We spend more than we make, we owe huge amounts of money to others, and we have no real plan of fixing things.  Pile a generally pathetic exercise in leadership from the politicians in DC and you get the crisis we’re in.

I recognize that its tough.  I see the merit in specific types of stimulus to help jump-start the economy.  The problem is, we didn’t do the right ones, everyone knew it, and now, there is rightly no appetite because the public doesn’t trust the federal government to spend that kind of money wisely.  They had their chance to enact good stimulus – i.e. really rebuild America’s infrastructure, or develop next generation energy sources.  Both would be long-term investments where your return was larger than the investment and created real jobs here at home.  Instead, they propped up failing institutions, bailed out banks and let them get bigger when they should have been broken up, and tried to stabilize housing prices when market forces are still telling us years after the peak that prices need to fall further.

Individually, the politicians in DC are palatable.  I really like my representative in Congress and I can accept my two Senators.  Collectively though, something very bad happens.  It’s a combination of group think, a culture that embraces gridlock as standard rather than compromise, and leaders who I do think are lousy (on both sides of the aisle) because they worry more about politics and the next election rather than doing what is right long-term for the country.  Toss in an entitled yet apathetic electorate that does not take their democracy seriously,  super PACs and special interests who do, a Federal Reserve that has been worrisome in policy for the past 20 to 30 years, and fraud waste and abuse from the red-tape that is known as the federal government and you have what we’ve got today.

I wish there was a reset button.

– G.S.

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