And This Too Shall Pass

Well... the "rescue" ain't working!

It's now early on Friday, October 10th 2008 and yesterday the Dow Jones Industrial Index dropped another 600+ points, leaving the Dow at just over 8500 points. We are now down over 40% from the high water mark of exactly one year ago of over 14,600.

What's the problem?

When the US Congress first failed to get the rescue package passed after Speaker Pelosi's poisionous rant on the House floor, the Dow dropped over 800 points. That was a little over a week ago. Once Congress passed the amended rescue plan, with $150 billion in "sweeteners" (also known as PORK BARRELL SPENDING!) the Dow hasn't had a single "up" day since.

So what's the problem?

Well, I think that we can find a few things. First: Consumer confidence is in the sewer. The average US consumer is worried about his job. He's worried that his retirement fund has lost 40% of it's value in one year ( on average ). He's worried that Joe six pack is no longer buying washing machines, automobiles or large screen TVs. He's more worried that Bernard the Billionaire isn't spending money to buy his new Bentley, his new 4,000 sq ft addition to his house that will be tiled entirely in Italian Marble, or that new $300,000 boat. He's really worried that he won't have a job in six months. So he's saving money and for the first time in two decades, he's paying off debt faster than he can incur it.

Second, I think that the We the People smell a rat. It wasn't market economics that got us into this mess, especially with the financial industry. Social engineering and tinkering of home finances brought into this mess by encouraging financial institutions (especially Freddie Mac and Fannie Mae) to lend money to people that ought not to have been approved. So when the same people that either a) created this mess or b) ignored this mess; now claim that the "rescue" will fix this mess, we are reacting with what can only be called skepticism.

There is actually some good coming out of this. Oil is back down to $88.00 a barrel. The American consumer purchased 8 million barrels less gasoline in August of 2008 than they did in August of 2007. The American consumer is starting to hold on to their hard-earned wages, and they are beginning to pay off their debt. We have been drunk on debt spending and revolving credit for over two decades now. It's going to take some time to get off the habit. But when we do, America will be leaner and meaner than we have since the early 80's. That's a darn good thing.

I'm a diehard fiscal conservative and moderate social conservative. But I do not trust the current Congress nor either candidate a plug nickel when it comes to fixing this mess. Personally, I believe that Government cannot solve this problem. If you are going to live in a free-market society, you must allow the free-market to work without tinkering with it. Congress got us into this mess. They ignored the warning signs back in 2004, 2005 and 2006 (even though to their credit several notable Republicans did try to sound the alarm about Freddie Mac/Fannie Mae).
Banks are going to fail. People will lose their jobs. The economy is going to go backwards for a while.

Fortunately, the United States has one of the most robust economies on the planet. This will knock us down temporarily, but not forever. Most definitely not for the long term. On the flip side, I'm buying stocks right now at a ridiculously low price. Imagine how they'll increase in value as the economy rights itself.