No, I’m not talking about New Mexico. I’m talking about the official state of the U.S. economy (subscription):
Put it in the history books: The country was officially diagnosed with a job-killing recession Monday, and woeful new evidence showed that it’s getting worse. Wall Street convulsed at the news, tanking 680 points, and Washington pledged even more help to try to ease the pain.
With the economic pain likely to stretch well into 2009, Federal Reserve Chairman Ben Bernanke said Monday that he stands ready to lower interest rates yet again and to explore other rescue or revival measures.
Rushing in reinforcements, Treasury Secretary Henry Paulson, who along with Bernanke has been leading the government’s efforts to stem the worst financial crisis since the 1930s, pledged to take all the steps he can in the waning days of the Bush administration to provide relief. Specifically, Paulson is eyeing more ways to tap into a $700 billion financial bailout pool.
On Capitol Hill, House Speaker Nancy Pelosi, D-Calif., vowed to have a massive economic stimulus package ready on Inauguration Day for Barack Obama’s signature.
Admittedly, I’m not an economic genius, and I don’t have the impressive credentials of Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke, or the elevated position of House Speaker Nancy Pelosi, but I can do basic math.
The federal government printed anew and then injected 700 billion previously non-existent dollars into the system. It has done nothing to stabilize the economy. Quite to the contrary, it has further destabilized the economy with massive day to day shifts in the market the likes of which we’ve never experienced before in the history of this country:
The Dow lost 679.95 points to close at about 8,149. There have only been three days in market history with bigger point losses for the Dow—the Monday after the Sept. 11 attacks, and Sept. 29 and Oct. 15 of this year.
Think about that for a moment. Since the Federal government has come to the nation’s “rescue” with an “economy stabilizing” bailout, we have experienced three of the worst market declines in the history of the country. Granted, we have also had tremendous upward swings as well during this short period of time:
During the five-day win streak, which began when word reached Wall Street that President-elect Barack Obama would name New York Federal Reserve chief Timothy Geithner as his treasury secretary, the Dow had gained 1,276 points, and the S&P; 500 had surged almost 20 percent.
In normal times, the markets might gain that much in two good years, not five days. So analysts said a pullback was understandable.
Analysts say a pullback was understandable. Give me a break. There is nothing understandable about what is occurring. We are gaining and losing a trillion dollars in the market from one week to the next, and in some case from one day to the next. When that is happening, it means that no one knows what the real value of the market is.
Ok, the $700 billion economic stimulus package didn’t work – no surprise there. Now, what’s the federal government propose to do? Well, the geniuses in Congress are going to solve America’s ills by putting another $500 billion into the economy. Yeah, that makes sense.
That’s doomed to failure for several reasons, but let me just give you one to consider:
Credit card companies will reduce lending by more than $2 trillion over the next 18 months in a dangerous and unprecedented move for US consumer spending, Oppenheimer & Co.’s Meredith Whitney said.
Lenders that may have difficulty raising capital and want to avoid losses from rising loan defaults are pulling in credit lines, Whitney said in a research note dated Nov. 30.
More than 70 percent of US households have credit cards, she said.
You following this? The government introduces $1.2 trillion in new money, and the credit card companies withdraw $2 trillion. Translation: in about 18 months time, we will have at a minimum $800 billion less in the economy. It also raises the question of who is pocketing that $700 billion that the government gave to banks (aka credit card companies) to keep money in the system.
So, what’s this all mean? In the first quarter of next year, we’re going to see many major retailers and manufacturers file bankruptcy [Note to self: use gift cards recieved immediately.] By fourth quarter of 2009, that’s next year folks, we will have the worse holiday shopping season in the history of the country – 70 percent of US households have credit cards and they’re about to lose them.
Of course, like I said, I’m no economic genius, so I guess I could be wrong. What does this all mean for us in the Land of Enchantment? Well, I urge you to pay special attention to how those in the state government opt to spend our money this upcoming legislative session.
Keep in mind that the permanent fund and New Mexico’s various pension fund obligations are invested in the market. Our financial concerns are not just about declining tax revenues. In the very near future, we are going to wake up and find that all of the billions we thought were in permanent and pension funds will have vanished through loss of market value and dollar devaluation, and then we’ve got big problems.