On Fat Tuesday, the New York Stock Exchange bumped up against the 13,000-point mark (appropriate, huh?). That’s great news, right? Well, considering the market conditions that seem to have brought this about, we might want to stop and think a bit before we answer that question.
Greece and its recent 172 billion euro bailout talks appear to be major factors influencing world markets. Certainly, that is about the only positive global economic news that one can find these days. The United States remains mired in its own debt with it equaling about 100% of GDP. Greece’s debt is far greater relative to its GDP, with debt threatening to reach 160% of GDP if adjustments and corrections had not been made. Even with the agreements reached in current talks, Greece is still going to be saddled with around 124% of GDP in debt.
Of course, supporters of the American president were quick to give him the credit for the increase at NYSE. But this may be premature! There is little of substance to support this value in the stock market. Gas prices are soaring. War seems imminent in Iran and Israel … possibly even nuclear war. North and South Korea still cannot coexist. Companies are still not hiring back laid off workers. Debt continues to drag nations down all over the world.
Worse the US Congress still has not taken to heart the seriousness of the situation and, at the request of the President, continues to tack on new national debt and cut the taxes that fund programs as foundational as Social Security. At the same time, the White House gives away money via loan guarantees to bankrupt companies.
On the other side of this coin it must be seen that investors have been turned into cash addicts by all of these financial bailouts. As soon as this second influx of cash floods the Greek economy, their markets, indeed the collective European market will benefit, but only for a short time. The debt will absorb the bailout cash like a sponge. It is also only a matter of time before Ireland, Italy, and Iceland will be looking for their own handouts. When they do call out, and they will, the EU isn’t going to be as agreeable. The cash junkies will withdraw as inevitably they must, and the markets will sink again.
Nations cannot continue on this grand scale to shore up failing economies without first fixing the foundations of those economies. Bailouts are none but a Band-Aid on a gaping wound. High and unfair taxation levels, wasteful government spending, and unproductive social programs are at the heart of the blight that covers the world. Couple this with legislation like NAFTA and unrealistic real estate loan programs in the United States, and the result is a perfect economic storm.
There is still a bitter, bitter pill that must be swallowed. The nations of the world are avoiding this as though it were a plague. That pill is the fact that government cannot be the do-all, fund-all, panacea that politicians often would like it to be. At some point, the politicians need to step back, get out of the way, and let failing companies fail. Let failing social philosophies fail, write off the debt, and then pick up the pieces.
After all, there are reasons that companies, countries, and philosophies get themselves in to that failing condition. They are either mismanaged, their products have no viable markets, or their ways of life run counter to human nature. All are doomed to eventual failure no matter how much or how often they get their cash transfusion.
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Some additional comments for TPN readers:
Cash strapped companies pay premiums on debts that they have likely already defaulted on. Creditors typically use this excuse to raise credit rates to the highest rates they possibly can. When these troubled companies suddenly get a cash infusion, they must, by all that make any sense economically, pay off their debts...stop the bleeding!
Little if any bailout money makes it into the R&D departments, the engineering and design departments, or (most importantly) into development of new markets and lowering prices.
Investors' hopes right now are hung on the faint glimmer of the proverbial "sky hook" that politicians are using to shore up financial systems that have no foundation otherwise. In short, we are doomed unless we elect a true conservative!
Romney is NOT that person!