ELDER PATRIOT – As the Dow Jones Industrial Average (DJIA) suffered a 588-point loss today, coming on a 530-point loss on Friday, the talking heads on what passes for financial news television blamed it on the overnight sell-off of 8.49% of China’s Shanghai Index.
Are we really that closely tied with other markets around the globe that the policies of governments and economies abroad should so severely affect our stock markets? The answer is no.
The overnight news from China resulted in a record-setting 1089-point decline immediately upon the opening of the DJIA, but then the DJIA spent the day swinging wildly eventually recovering almost the complete loss before falling off again. If China was the lone cause of financial concern money would have rushed out of the Shanghai Market (it did) and looked to find a safe haven in other markets (it didn’t, at least not here.)
The sad fact is U.S. markets have been teetering all year and rightfully so because Fed policy and U.S. Government policy have undercut the fundamentals most important to any economy’s well being. Even before the recent sell-off began last Monday the market had lost 1.56% Y-T-D. Over the past week the DJIA lost almost 6.2%, wiping out all DJIA gains made since early November of 2013, almost two years.
When the DJIA had its last serious decline in 2008 our GDP was approximately $14 Trillion. Since that time it has inched upwards to $17.8 Trillion. After allowing for inflation the true growth rate of our nation’s economic output has been a paltry 2% annually over the last seven years and that’s after Fed programs QE1, QE2 and QE3 pumped trillions of dollars into the economy ostensibly to help it. It didn’t, but in the process it successfully created trillions of dollars of new debt for United States taxpayers.
Since 2008 debt per U.S taxpayer has risen 129% to $154,491 and is now greater than the nation’s GDP. Unfunded liabilities, such as Social Security and Medicare, further increase the debt of each taxpayer eleven fold to over $1.5 Million.
Making matters worse has been the outright assault on small business that government waged when it passed the Dodd-Frank Wall Street Reform and Consumer Protection Act so that segment can no longer serve as a viable buoy for today’s economic woes.
The bottom line isn’t pretty: more unemployed U.S. citizens than anytime in our history putting incredible pressure on government welfare programs, runaway debt that cannot realistically be repaid, and an anemic economic growth rate.
Even the tools normally reserved to spark a recovery in dire times are no longer available to policy makers. The Fed rate is at zero and borrowing for another round of quantitative easing has already proven fruitless.
Blaming China may be convenient but is a lot like blaming your neighbor for a financial mess you created. The blame lies in Washington as it always does and we will pay for it as we always do.