Evidently the markets were not very impressed with the emergency government bailout passed, after dire predictions of a meltdown if it failed, and much angst on the part of conservatives who see the bill as a total repudiation of their basic governing philosophy. The U.S. markets went back into freefall on Monday, with the Dow off over 800 points before finally closing down 369.88, a drop of 3.5%. The other indexes followed suit, with the NASDAQ off 4.3% and the S&P down 3.8%.
But that was nothing compared to what was going on around the world. Earlier, the Asia/Pacific indexes were off sharply; between 3 and 6 percent, while the Jakarta Composite posted a whopping 10% drop. Europe’s markets followed suit, trading at 4 year lows, with losses of between 5 and 9 percent; trading on Russia’s RTX was halted after it plunged over 20%.
There is panic today in Europe. Over the weekend, Germany’s fourth largest bank went belly-up. In an attempt to prevent panic runs on their banks, Germany issued a statement that it would guarantee all private German bank accounts. That totals around 568 billion Euros; approximately $771 billion dollars – roughly equivalent to what Congress just agreed to in the bailout bill passed on Friday.
Germany too, is having a problem with their mortgage lenders. An additional 15 Billion Euros was pledged by commercial banks to increase liquidity in that area, bringing their total bailout, agreed to last week, to 50 billion Euros; around $68 billion U.S. While this may seem small potatoes compared to the $700 billion we pledged to clean up our mess last week, keep in mind that Germany, with a population of 82 million, is a much smaller country and much smaller economy (2.8 trillion GDP vs 13.8 trillion GDP) than is the United States.
The same is happening across the EU; Denmark agreed early Monday to guarantee all bank deposits in Denmark, as did Austria. Over the weekend, leaders from France, Germany, Italy, and the UK agreed not to let any large financial institution in their countries fail.
Iceland announced a partial rescue package for their country’s banking sector, while the Belgian government is working with France’s BNP Paribas bank to take control of the remaining Belgian assets of Fortis. Fortis, a Dutch bank, was nationalized by the Dutch government on Friday. The financial dominos are falling in Europe.
All this is apparently good for the dollar, which has posted a 14-month high against the Euro. Not that the current exchange rate is anything to write home about. The dollar is still trading at $1.35 to the Euro. Back in 2000, the Euro hit a low of $0.82 against the dollar. Still, it is much better than the $1.60 it posted back in July 2008.
The fact that the dollar is currently stronger than the euro simply points to just how bad the economic problems in Europe are currently. As you may have noticed, things are not peachy-keen here at home. We have borrowed (or printed) literally over a trillion dollars we don’t have to shore up our own leaky economic system, and are getting the money from lenders who are increasingly unwilling to pile on more debt in a currency that is obviously floundering. The only reason we are getting away with it is that everyone else is in the same boat and the alternative is unthinkable.
We may not get away with it for much longer. Last week, in an attempt to prevent possible losses, China ordered its banks to stop lending to United States banks in the interbank market. This is not to be confused with a Chinese refusal to buy U.S. Treasuries, a move that would seriously impact the United States since it would mean that China had decided they could no longer finance our debt. It does indicate however a certain amount of nervousness (or prudence) concerning the ongoing meltdown in the financial sector.
And as if that were not enough, the meltdown continued on Tuesday, with the failure of banks in Iceland, continued weakness in the European markets. Here in the U.S. the markets tried to rebound, but then they seemed to say, “you know, maybe we were right when we were down 800 points yesterday – and dropped another 5%; 511 points on the Dow to bring the two day total to 880 points. The Dow is now well below five figures at 9400 and change. The NASDAQ is down in the 1700s, and the S&P 500 is below 1000. Things are not looking well.
Pope Benedict is quoted as saying on Monday, "now with the collapse of big banks we see that money disappears, is nothing and all these things that appear real are in fact of secondary importance." Pope Benedict was saying, of course, that these things of man cannot be trusted; in the end they will not save you or nourish your soul.
Pope Benedict is speaking as a religious leader when he says, "the only solid reality is the word of God." Millions around the world would agree with him. Millions may disagree as well. But he did hit on a salient point; “money disappears, is nothing.” Our currency, as with all the other currencies in the world are “worth” something only in as much as everyone believes they are worth something. As their worth becomes less, they become worth, less. Ultimately if the trend continues, they become truly worthless.
This has happened to numerous countries throughout history. It is happening to some countries in the world today. It could happen here as well.
Our currency is backed not by gold or silver, but by the “full faith and credit of the United States government.” What happens if the faith begins to wane and the credit dries up? The crisis of two weeks ago was precipitated by banks and other lending institutions refusing to lend money to each other. There was a lack of faith that the bank borrowing the funds would be there tomorrow to pay back the loan.
There was a time when the term “sound as a dollar” was used to describe something of undoubted worth. There was also a time, during the revolutionary war, when the dollar was referred to as “not worth a Continental damn.” Let's hope the value of the dollar is not, as with many things in this world, a cyclic phenomenon!
So how is Congress fixing the problem? That is the role of government after all, isn’t it? To fix all our problems and kiss all our owies and make it all better? That’s what the Democrats say.
Secretary Paulson presented a plan to the President. It was three pages long. It called for the Government to back the bad loans to the tune of $700 billion. It wasn’t as originally portrayed, handing a check for $700 billion to Wall Street to do with as they pleased. In that regard, it wasn’t a bailout any more than the Chrysler “bailout” in 1979. Most of the mortgages the money guarantees have been and will continue to be paid on time. If all goes well, the taxpayers may even turn a profit.
Congress looked at the $700 billion and blanched. Instead of passing the bill quickly as both Paulson and Bernake advised, they voted it down, and then spent two weeks crafting their own bill in place of the one that was “too expensive.”
It is obvious that most of the members of Congress attended public school growing up. And evidently most of them failed math. The three page bill ballooned to over 450 pages! And a Congress that couldn’t seem to pass a $700 billion bill because it was too big somehow managed to pass an $850 billion bill instead; one that didn’t just guarantee loans, but which gave away actual cash money as well. And not just to guarantee mortgage loans. No siree! Congress, looking out for us again, has something for everyone in this bill. Why waste the opportunity to ladle on the pork when you have a bill that simply has to pass!
The first part of the bill, 113 pages worth, deals with the “Emergency Economic Stabilization”. Now 113 pages is still quite a bit more than three, but it begs the question, “what’s in the other 337 plus pages?”
How about “The Energy Improvement and Extension Act of 2008”, running from page 113 to page 260. While this may be worthy legislation, or it may not, it is now law; rushed into being tacked on to a piece of “vital gotta save the country” legislation with little or no debate.
And after that, we have “Tax Extenders and Alternative Minimum Tax Relief”, beginning on page 261. The Alternative Minimum Tax Relief section is rather short. We then get into the tax goodies section, some example of which include:
It seems that sometime recently, Congress enacted an excise tax on arrows, but unintentionally applied it not just to those mean nasty folks who hunt cuddly little animals with them, but also to the arrows junior uses to shoot at archery butts. Congress to the rescue! Or should I say, the congresscritter with the practice arrow factory in his district?
I like this one so much that I am going to quote it here in all its glorious completeness, so you can get a taste of all the fun and games that go on in congress with your hard earned money.
And finally after all this mess, ending on page 310, we get the “Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008”, another vital piece of legislation necessary to shore up the impending financial collapse of the mortgage loan sector of the economy.
This takes up more space, finishing on page 344, where we get the ubiquitous “Other Provisions”, where we get such things as “SEC. 601. SECURE RURAL SCHOOLS AND COMMUNITY SELF DETERMINATION PROGRAM.” (whatever that is), and, well, you get the picture. If your blood isn’t boiling by now, you can read the entire thing here, or you can save yourself an aneurism and just skip it. Of course, if you are an insomniac it just might help to put you to sleep instead. The topics are maddening, considering the document they are embedded in, but the actual text is pretty much a snoozer.
By the way, did you know that we are retiring the Space Shuttle fleet in 2010? That’s right. The program ends in 2010. There is no money in the budget to continue the program past that date. So how, you might ask, are we going to continue to send our astronauts to the International space station, that big thing up there in the sky that we built and financed to the tune of over $100 billion taxpayer dollars? Funny you should ask.
We are working on a new space craft. It is projected to be completed in 2015. If all goes well. Which it seldom does. This is assuming that all the technological stars align and congress doesn’t cut the budget sometime in the next seven years. Want to figure the odds on that?
In the mean time, we are going to entrust our access to space to – drum roll please – Vladimir Putin! Russia is going to provide our access to space for that five or more year gap.
Yes it’s Gospodin Putin, that kindly gentleman who most recently invaded Georgia for our amusement and who has some really wicked plans for reform in Ukraine and the surrounding countries. The man who has claimed the North Pole seabed as part of Russia for its mineral rights. The man who has resumed flying bombers at Alaska to test our air defenses (not to worry – Sarah Palin is on the job up there!) The man who is even now sending nuclear powered warships and Backfire bombers to Venezuela to engage in war games in the Caribbean with our good buddy Hugo Chavez.
That Valdimir Putin.
And we are going to depend on his good will to allow us to visit our space station? Suppose he tells us “sorry U.S., but remember those antiballistic missiles you set up in Poland? Out they go or else you don’t fly.” Or worse, the folks up there are in for an extended stay – with no resupply until you meet our demands.
Think he won’t do it? Ask Western Europe about their natural gas supply.
Of course, we might talk China into getting us into space. They might drop some of our astronauts off on the ISS – on the way to the moon.
So what’s my point here? It’s this. You would think that with Congress slinging around literally a trillion dollars they don’t have (taking all the bailouts and emergency measures into consideration – a hundred billion here, a hundred billion there, and pretty soon you are talking about real money…) on things arguably less important than our continued access to space, that they could possibly have cut a check for five or ten billion to keep the space shuttle active for a few more years and speed up the acquisition of the new space craft a bit so that they could meet in the middle, say around 2013 instead of setting up what is sure to be an international crisis sometime between two and seven years from now.
You might think that – but apparently you would be wrong. Throwing away a $100 billion dollar investment is small potatoes next to giving away a trillion; NASA doesn’t have much of a constituency after all. And those kids with the practice arrows are future voters.
‘‘(B) EXEMPTION FOR CERTAIN WOODEN ARROW SHAFTS.—Subparagraph (A) shall not apply to any shaft consisting of all natural wood with no laminations or artificial means of enhancing the spine of such shaft (whether sold separately or incorporated as part of a finished or unfinished product) of a type used in the manufacture of any arrow which after its assembly—
‘‘(i) measures 5/16 of an inch or less in diameter, and
‘‘(ii) is not suitable for use with a bow described in paragraph (1)(A).’’.
(b) EFFECTIVE DATE.—The amendments made by this section shall apply to shafts first sold after the date of enactment of this Act.
Whew! I’m glad they got that in there! The economic security of the nation is now assured!