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The Tentacle


April 20, 2011

Financial Stink Bomb Explodes

Kevin E. Dayhoff

On Monday, the U.S. stock market went into a 1.1 percent slide after it was announced early in the day that Standard & Poor’s fired a warning shot across our nation’s fiscal bow and downgraded its outlook on U.S. sovereign debt from “stable” to “negative.”

 

It was a normal, groggy, slow early Monday morning the other day when Becky Quick, Carl Quintanilla and Joe Kernen, of CNBC’s Squawk Box announced Standard & Poor’s decision that dropped a stink-bomb on the financial markets for the day.

 

As the day’s financial events malingered, and I finally changed my shirt that wore the coffee that came squirting out my nose with the news, Monday turned-out to be the biggest percentage loss for the Dow Jones Industrial Average since March 16, when the markets got jittery over the consequences of the earthquake and tsunami in Japan.

 

As Ms. Quick turned over the television screen to Erin Burnett and Mark Haines of Squawk on the Street, not even the delightful and brainiac presence of either Ms. Quick or Ms. Burnett, who hails from Mardela Springs on Maryland’s Eastern Shore, could soften the news.

 

After years of countless wordy, long-winded promises and empty political rhetoric, it appeared that Standard & Poor’s spoke for many financial analysts and in 160 words said enough is enough.

 

Standard & Poor’s made the obvious quite clear, saying that there is a “significant risk” that Congress will not adequately address our national economic malaise, as a result of four years of out-of-control spending, until after the next presidential election.

 

The Wall Street Journal carried the credit-rating agency’s tersely and bluntly worded release in the late morning. It clearly laid the blame on the current political climate in our country and not on the vagaries of the capital markets: ‘AAA/A-1+’ Rating On United States of America Affirmed; Outlook Revised To Negative.

 

The Wall Street Journal article quoted Standard & Poor’s credit analyst Nikola G. Swann: “More than two years after the beginning of the recent crisis, U.S. policymakers have still not agreed on how to reverse recent fiscal deterioration or address longer-term fiscal pressures…”

 

The article added: “In 2003-2008, the U.S.’s general (total) government deficit fluctuated between 2% and 5% of GDP. Already noticeably larger than that of most ‘AAA’ rated sovereigns, it ballooned to more than 11% in 2009 and has yet to recover.”

 

Yet, as if to prove the rating agency correct, a Reuters’ article carried by CNBC led with: “The Obama Administration moved swiftly Monday to downplay ratings agency Standard & Poor's downgrade of its U.S. credit outlook, calling the decision a political judgment that should not be taken too seriously.”

 

Top White House economist Austan Goolsbee told CNBC that “What the S&P is doing is making a political judgment and it is one that we don't agree with…”

 

“The timing of S&P's announcement was unwelcome for the White House, coming just as President [Barack] Obama tried to regain the initiative on the deficit debate in Washington,” said Reuters.

 

“Last week Obama laid out his plan to reduce the budget deficit by $4 trillion over 12 years, trying to give markets confidence that he was serious about tackling U.S. fiscal woes.” For more insightful commentary on President Obama’s speech last week, see “The “Millionaires Paradox” Speech” by Steven R. Berryman on www.TheTentacle.com.

 

The next political challenge over our nation’s fiscal well-being will transpire by the middle of May when Congress takes-up the matter of raising the U.S debt limit, to which, according to Reuters, “House Republican leader Eric Cantor on Monday called the S&P downgrade ‘a wake-up call’ against those seeking to ‘blindly increase’ the U.S. debt limit.”

 

Meanwhile the financial markets continue to maintain the attention span of a ginormous goldfish as the persistent problematic worries in the financial markets over European debt, the precipitous rise in gasoline prices, the large U.S. budget deficits and rising sovereign debt, inflation fears and recalcitrant high unemployment continue to plague the U.S. economy.

 

For additional flavoring of our messed-up monetary market stew is the continuing financial mess of too many state budgets and the political upheaval of the Middle East. Throw-in the staggering cost of public employee pension systems and the skyrocketing cost of entitlements and it is a wonder the U.S. economy has not collapsed under the sheer weight of the overwhelming ineptitude and economic incompetence of our nation’s political leadership.

 

Not to be overlooked is the persistent “regime uncertainty” of the administration of President Barack Obama that has begun to be the current administration’s hallmark economic policy legacy. The Obama Administration seems to have – so far – never made the transition from the evangelic ideological idioms that pervaded throughout his 2008 campaign to the tough choices of governing in the real world.

 

As a result, small businesses, the engine of employment in the U.S., never has a clue as to just what the Obama Administration is going to do to them next. Most businesses in the U.S. have adopted a “let’s hide under the bed” approach to the challenges of business planning and waiting out the great ideological experimentations of the Obama Administration’s social-welfare-state approach to economic-governance.

 

Let’s not forget that the “let’s print money and spend our way” out of an economic downturn, that has failed throughout economic history, was started by the administration of President George W. Bush, who got a taste for ‘spendonomics’ that he learned to enjoy.

 

So, in essence, the two institutions, Congress and the office of the president, that caused our current economic mess, are now tasked to fix it. Yeah, right.

 

At this point, the only aspect of the future of the U.S. economy that remains certain is that if our national leaders – on both sides of the aisle – keep doing what they are doing, we are going to keep getting what we are getting – economic mismanagement of historic proportions.

 

. . . I’m just saying…

 

kevindayhoff@gmail.com

 



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