DOW plunges 387 points a day after Fred Thompson calls the Bush economy “The Greatest Story Never Told”.
August 10, 2007


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Why does reality keep intruding on my weekly blog? Another completed column will be put on hold due to breaking news on the Bush economy.

The Dow Jones Industrial Average (“Dow” for short) has been bouncing around like a “Happy Fun Ball” ever since it struggled to break the 14,000 point threshold last month. I’ve never liked using “daily” fluctuations of the DOW as any reliable indicator of how the economy is doing. It’s not unlike those who dismiss “global warming” after a cool day in August. You have to look at “trends” going back months or even years.

I’ve been reporting on this recent string of market plunges for several weeks now, and analyzing the Dow in terms of “economic progress” for nearly a year (March, October). The Bush economy has been a complete and utter disaster, mostly for the American middle-class, but for stockholders as well… which includes anyone with a 401k or profit-sharing plan at work.

The reason for the “recent string of steep plunges followed by moderate climbs that then get wiped out by the next plunge” is the housing market… the same housing market Republicans pointed to for YEARS as PROOF of just how GREAT the Bush economy is. In 2004, President Bush cited “record home ownership” as proof that his economic policies were working. The GOP touted “Hispanic Home Ownership” in 2005. “Home Ownership” was again a Bush talking point when addressing the NAACP in 2006. But the problem was, all these new home buyers didn’t actually “own” their homes, they took advantage of unprecedented low interest rates that followed after 9/11 in order to jumpstart the economy, but fell victim to unscrupulous lenders offering huge home loans with low adjustable-rate mortgages. These people then bought homes they otherwise could not afford if it weren’t for the low interest rates. Then, when rates went up (as they HAD to do), their payments became so high they could no longer afford their homes. They started defaulting on loans at a record rate.

A funny video started making the rounds on YouTube this past week when Jim Cramer, host of CNBC’s “Stop Trading” went into full meltdown mode over the looming disaster in the market:

When mortgage-holders start defaulting on their loans, Mortgage lenders get stuck holding the bag. Enough customers default, and you go bankrupt. The impetus for last weeks 735 point plunge (over the course of 6 days) was one of the country’s largest lenders, “American Home Mortgage”, filing Chapter-11 bankruptcy. The home mortgage market has gotten SO bad, it has started to affect the EUROPEAN BANKING industry. Once thought of as being able to shrug off any downturn in the U.S. mortgage lending industry, the U.S. market gave European banks a nasty jolt when French bank “BNP Paribas” announced it was suspending three investment funds worth 2bn euros ($2.7Billion US) because of “problems with the US sub-prime mortgage sector.” This move by the French forced the European Central Bank to pump $130 Billion into Europe’s money markets as banks scrambled for cash. But don’t go looking for these stories on your local network TV. I only heard about it listening to the BBC.

So when people are losing their homes due to the high interest rate, mortgage lenders are going belly up, European banks are pumping Billions into their own markets to make up for loses overseas, and the Dow threatens to push the economy into a recession, what do you do? Well, the obvious answer would be that you’d “cut interest rates”. Not if you’re head of the Federal Reserve under George Bush. When the Federal Reserve met last Tuesday, they decided to keep interest rates pat at 5.25%.

Why? Because as I’ve detailed here numerous times, the Bush Administration is borrowing money like a drunken sailor to pay for a war that is costing us $12 Billion dollars a month while refusing to raise taxes on the wealthiest Americans. It can’t lower interest rates because then foreign countries wouldn’t loan us all that lovely money to pay for our war.

You can imagine my surprise then, when I read this morning that Presidential non-candidate Fred Thompson called the Bush economy “The Greatest Story Never Told“… better than even the Clinton economy. The basis for this claim?

Since the spring of 2003, the economy has had average growth of over 3%, 8.2 million jobs have been created, and the inflation rate has stayed low. The current unemployment rate, 4.6%, is a full percentage point below what it averaged during the 1990s, and there have been 47 consecutive months (almost four years) of job growth. In the last three years, workers’ salaries have risen by $1.2 trillion, or $8,000 per worker, and consumer confidence recently reached its highest level in almost six years.

If you’re like me, you’re probably wondering where YOUR $8,000 is. Of course, between me and Bill Gates, we have AVERAGE net worth of $20 Billion each. Rather than re-invent the wheel, I recommend reading the analysis over at “The Carperbagger Report“.

So then, what does it mean when, after 6 years in office, the New York Stock exchange is lower now than it was when George Bush started criticizing the Clinton economy at the start of his 2000 campaign? (when adjusted for inflation, the January 2000 DOW high of 11722.98 translates to 13,726.10 today. The market closed Thursday at 13,270.68).

Back during the 1992 Presidential campaign, former Massachusetts Senator Paul Tsongas proposed a $0.50 cent per gallon tax on gasoline as an alternative to raising income taxes, earning him the nickname Paul “Tax-on-gas”. Republicans savaged his plan, claiming that such high gas prices would plunge the economy into a recession. People would have less money to spend on other things. The cost of shipping everything would go up as a result. The effect it would have on the economy “would be devastating” we were told. Flash forward to today. The price of gas has nearly DOUBLED since Bush took office. The predicted inflation that would result from high gas prices has crept into every little thing we buy. The economy is stagnant and the DOW is dead in the water. But since it’s happening under a Republican President, this economy is “The Greatest Story Never Told”.

Maybe tomorrow “Hollywood Fred” will tell us about our imminent victory in Iraq?

(Check back tomorrow for Friday’s preempted blog entry.)


August 10, 2007 · Admin Mugsy · No Comments - Add
Posted in: Politics

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