Snap Back: Stock Crash!
August 10, 2011 by John Myers
Stock indexes went postal on Washington’s debt deal celebration. Last Thursday, the Dow Jones industrial average declined more than 500 points, its worst setback since the Crash of 2008. Then on Friday, Standard & Poor’s downgraded America’s debt from AAA to AA+. In response, the market suffered an even greater setback on Monday, with the Dow Jones industrial average falling 643 points.
The sky is falling. If you don’t believe me, check what happened to the stock market just last week. American stock indexes vaporized $2.5 trillion in assets over five days last week, and the likelihood of a crushing depression now looms large. The only good news out of any of this is that Congress — that useless bunch of imbeciles — has gone on vacation. Good riddance.
The world is waking up to the reality that President Barack Obama and Congress have agreed only to waste more of our money. Investors get it: America is a runaway train headed for bankruptcy. Traders finally understand that Obama’s vision of Big Government is grinding the world’s greatest nation into a second-rate power at best. America, with all its debts, is being stretched past the breaking point.
Congress needs to own up to some of this mess. Just scant hours before the deadline of deadlines, Washington voted to pass a bill that would raise the U.S. debt limit by at least $2.1 trillion and cut spending by about half that amount over the next decade… or so says Washington.
This has created a big stir with the popular media, yet the government has not done its job. All this hubbub, and Big Government (just the way the Democrats want it) goes on.
But Republicans share some of the blame. The useless agreement involved wrangling, threats and even name-calling by our elected officials. The only reduction in deficit spending set in stone, for now, calls for the government to trim $900 billion in spending during the next decade. Other cuts may be made, but it is uncertain under the agreement.
Put that in perspective: Concrete spending reductions amount to $90 billion per year. Washington is expected to spend roughly $1.4 trillion this year, which it can finance only by further borrowing. These so-called cuts amount to only about 6.4 percent of the current deficit.
It is like a gambler who promises his wife to blow the family paycheck only at a discount resort in Lake Tahoe rather than Caesars Palace in Las Vegas. Remember, the Federal government has promised to reduce spending more times than Charlie Sheen has promised to quit smoking crack.
The U.S. dollar continues to slump while gold has reached all-time highs, prices that were incomprehensible a couple of years ago. The once-unassailable U.S. dollar is sitting on death row. Washington has given it only a short reprieve — and judging by the reactions of the stock markets, a very short one at that.
Equity investors finally understand that the cinching sound they hear every time America raises its debt ceiling is the sound of impending doom.
I know from experience that all things — from debt to barbed wire — can be stretched only so far.
A Tale From The Prairies
I will never forget my days repairing fences with my dad. We stabled horses and always kept an eye on the fences. We would secure them with barbed wire.
Loose wire could maim a horse, so our job was straightforward: Find and tighten any loose wires between fence posts.
We stapled the barbed wire tightly to each post, then moved on to the next one. Dad would then attach the wire stretchers, a jack-like device through which the barbed wire was threaded and then advanced. The key to the operation was to have the wire as tight as possible without causing it to break.
At each post Dad would start cranking the wire stretchers. At first, there was no noticeable change in the slack of the wire. Slowly, each crank would pull the wire through the stretchers. Within a few minutes, the wire would become taut. Then, I would staple down the wire, and we would move on to the next post.
My dad was a perfectionist. If the wire would take three more cranks, he was determined not to stop after one or two. Like anything, you can stretch something only so far before it snaps.
I could always tell when we reached that point, because the wire would start to give off a low humming sound.
That was my cue to step in with a hammer and staple. Sometimes, he would wave me back. “Let me give it a few more tugs. I want to make it tight.”
He would crank again. By then, the wire would be humming like a fluorescent light. That was when I knew to step back. Crank… snap!
At the weakest point between the two posts, the wire would snap. This threatened life and limb, because barbed wire was racing in opposite directions at breakneck speed.
I wish that more members in Congress and the President had put in a little time farming. If they had, they might understand that things can be stretched only so far before they reach their breaking limit.
Instead, our leaders are blissfully ignorant of their massive spending that continues today and every day.
Perhaps the debt ceiling should not have been lifted. Perhaps America should have experienced default. Only our mistakes teach us life’s hard lessons. And I am willing to bet that most of our government officials have never had to face tough lessons. In my opinion, that makes them poor leaders. They are sending America off in the wrong direction, one that will eventually end with a catastrophic result.
Raise And Call
There is an old saying that after you have been sitting at the poker table for more than 15 minutes and you are still looking for the patsy, you’re the patsy.
I am an American living in Canada, a nation best known for its beer and hockey. A decade ago, the Canadian dollar (“loonie”) traded under 70 cents to the greenback. It is now worth $1.05.
This speaks volumes about the mess Washington has made over the past 10 years and portends dark days ahead.
Yours in good times and bad,
Editor, Myers’ Energy & Gold Report