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I had another report nearly ready to go for today’s edition when news came across the wire that the DOW plunged a frightening 311 points this/Thursday afternoon (falling as much as 438 points at one point, recovering slightly as bargain hunters feasted on the wounded). After struggling for days to crack the “14,000 point threshold”, the DOW smashed the 14,000 point barrier with all the gusto of a 98 pound weightlifter before closing at “14,000.41” a week ago Thursday.

The DOW then collapsed in an exhausted heap on the floor, falling 149 points the very next day, the market bounced around like a basketball, making modest double-digit gains in between record triple-digit losses of 226 points last Tuesday and 311 points Thursday.

Last March, I reported on the DOW falling 416 points in one day, “officially” translating into a net ZERO gain (actually a net NEGATIVE loss) in the stock market (adjusted for inflation) since President Bush took office 6 years earlier. Since then, the DOW climbed an unwarranted 1,700 points in just four months, a staggering amount raising serious concerns when you consider that there has been NO significant economic news to justify this “irrational exuberance”. None, nada, zip. Employment didn’t go through the roof (quite the opposite, with anemic job growth averaging barely 1.4% over the past 12 months barely keeping up with the rate at which Americans newly enter the workforce each month), interest rates have been climbing unabated since June of 2003, inflation is up 2.7% since June, 2006… and of course, the war in Iraq drags on with no end in sight, costing Billions of dollars and a hundred American lives each month. I can not identify one single economic justification to justify such a precipitous climb in the DOW before Thursdays’ “correction”. Market analysts point to “growth in overseas markets” and the “booming European economy” as being responsible for a recent rise in corporate profits for American companies with the greatest overseas presence, but sales in the U.S. for most products has either fallen or remained flat. And the trend is unlikely to continue.

Compare this to the Clinton “Super Bull” where the DOW set a new record almost every month of his Presidency (sans election years when the GOP had to talk-down the economy to compete), climbing almost steadily 100 points or more each month. The proof that Bush’s “mini-Bull” has been the result more of wild speculation than solid economic growth seems to have come this week with todays’ 526 point readjustment. “Real-growth” doesn’t loose that much value in just six days.

So, what does this all mean? Why did the market rise so precipitously over the past four months, or are this past weeks “corrections” a sign of things to come?

The Neoconservative economy is not based on the exchange of any tangible asset or infrastructure. It is driven purely by investment… money changing hands. After 9/11 threatened to plunge an already weak economy into the toilet, a rapid succession of interest rate cuts discouraged saving and encouraged “big ticket” spending. Cars, homes, anything that required financing. Most of the car purchases went to Japanese/Asian automakers, but home mortgaging had a purely domestic benefit. A wave of people buying new homes they otherwise could not afford if it were not for super-low adjustable rate mortgages, people refinancing their existing homes at the new lower rates, and speculators buying “fix-r-uppers” that they then “flip” for a quick profit, swept the nation.

But the interest rate money train couldn’t run forever. Interest rates became “catastrophically low”… less than 1% by early 2003. Why “catastrophically low”? Because while low interest rates encourage spending, it discourages foreign investment. How do you expect to pay for two wars and tax cuts for all your rich friends and “all those corporations NOT creating new jobs with the savings” when you refuse to raise taxes to pay for it all? Interest rates need to be low enough to encourage spending to keep the economy humming, yet high enough to attract foreign investment so the government can afford to run. Without foreign investment, the government would have to pay for everything on what tax dollars were left over after paying interest on the massive debt we owe our creditors. The Bush Administration is not about to roll back its massive tax cuts, so instead, it would have to cut spending elsewhere: education, social services, highway funding, etc.

Foreclosures have reached an all-time high because all those adjustable rate mortgages have suddenly made all those low-finance homes unaffordable. But they can’t cut interest rates without risking loosing foreign investment to finance their grand adventures.

It’s no coincidence that interest rates started to go up just as the war in Iraq started to heat up (June 2003). Unwilling to roll back their massive tax cuts for the rich, they had to attract foreign investment to help pay for their wars. And now that the cost of the war in Iraq has ballooned to more than “$12 Billion dollars a month“, keeping those foreign dollars rolling in is more important to them than ever.

So what are we to expect now? Just as Bush’s “new strategy in Iraq” is really just more of the same, so would be any “solution” they might devise to revitalize a flagging economy. They’ll reach into their tiny toolbox of economic tricks and pull out their only tool: “tax cuts for the rich”.

Hey, it’s gotten us this far, right?

UPDATE: As suspected, the market continues its downward trend as the reality of poor economic news supplants the heady baseless enthusiasm that catapulted the DOW so fast without cause. As such, I will need to update this post Friday afternoon after the markets close.

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