It’s been the big news since last Friday, overshadowing just about everything else. Yes, we’re thrilled for the bravery and heroism of three young American men who stood up to an Islamic terrorist on a Paris-bound train, but that’s not the big news. The big news isn’t the graduation of two females from U.S. Army Ranger School. And it’s certainly not the ridiculous reopening of the British embassy in Tehran, Iran. This news even overshadows the now seemingly imminent entry of Joe Biden into the 2016 presidential race, which we predicted here. What’s on the mind of every American is the Dow Jones plunge, which has once again brought the state of our economy back to the forefront.
As reported by FOXCT yesterday:
The Dow closed down down 588 points after day of massive swings. The Dow plunged as much as 1,000 points at the open on Monday — but it rebounded a bit and closed 588.47 points down at 4 p.m, representing the worst one-day loss since August 2011.
After recovering from those initial scary losses, the final drop was 3.58 percent.
Global fears about China’s economic slowdown are shaking stock markets around the world for a second week in a row. The wave of selling knocked the S&P 500 into correction mode for the first time since 2011.
Within minutes, the Dow plummeted as much as 1,089 points. That is the largest point loss ever during a trading day, surpassing the Flash Crash of 2010.
“We have not seen this level of full-blown panic in markets for quite some time,” said Peter Kenny, chief market strategist at Clear Pool Group, a financial technology firm. However, Monday was not that bad compared to “Black Monday” in 1987. Yes, there’s a lot of panic, but the Dow tumbled a whopping 22.6 percent on October 19, 1987. On Monday, the Dow was only down about 6.6 percent at its worst point. If this were a true “Black Monday” like what happened in 1987, the Dow would have fallen 3,700 points.”
Naturally, this sharp market volatility has sparked much concern about individual 401k and investment portfolios, as well it should. And, naturally, it begs the question of how well our economy is actually doing beneath the well-crafted messages about recovery.
Of course, the immediate blame’s been laid with China. But is there something far more systemic afoot? True enough, China’s holding some 23 percent of our U.S. debt, which continues to grow — closing in on $18.4 trillion and expected to reach $20 trillion by the end of Obama’s presidency. Remember when President Obama entered the White House and the debt was “just” $10.67 trillion? Yes, one president is close to producing more debt than all the previous combined. Hey, I wonder if that will be an exhibit in the billion-dollar Obama library?
But the real question is whether we actually have a viable free enterprise opportunity economy — or a matrix-like facade. Could we be seeing the beginnings of the bubble bursting, after the market manipulations emanating from the venerable and unaccountable U.S. Federal Reserve? After all, we’ve gone through Quantitative Easing (QE) 3.5. For those of you who haven’t paid attention, quantitative easing encompasses a series of monetary policies, including interest rate manipulations and massive printing of money.
The Fed’s been propping up a failing economy with billions of dollars, in an attempt to “stimulate” our economic system. The reason such propping is necessary is that current administrative spending, combined with tax and regulatory increases, has resulted in the worst economic recovery since WWII. We’ve written here on occasion about the new normal for economic growth; it can’t be an anemic 2-2.3 percent annualized GDP growth. Our economy needs to be clipping along at a much higher rate, closer to 6-7 percent.
The other issue is stagnant decision making to restore our economy. Some believe what’s required is MORE government spending in order to grow the economy — and that’s the worst possible solution. We need fiscal policies that enable capital to flow to investors, who will in turn grow businesses and get Americans back to work. The unpredictable atmosphere created under the Obama administration is being revealed in the volatility of our market.
Another problem is the markets have become crack addicts, addicted to the flow of printed largesse from the Federal Reserve’s coffers. And if our economy were strong, it would be able to absorb an interest rate increase. But what you see happening is a market that reacts violently to any potential indication that those interest rates would rise — ergo, an artificial economy based not on true economic principles, but rather the whims of one person, Fed Chairman Janet Yellin.
Sure, China has an impact; it’s the second largest economy in the world. But if we had economic visionaries instead of progressive socialist ideologues, perhaps we wouldn’t be tanking because of China’s manipulations.
So what must be done — but won’t be in the next 16 months — is tax reform in order to grow our economy. No more talk about raising taxes; as we reported, the federal government had record tax receipts in the first nine months of Fiscal Year 2015. Yet, we still have a federal government wastefully spending American taxpayer resources.
A bifurcated flat tax for personal income taxes and only two deductions — charitable contributions and mortgage interest — should remain. Our corporate business tax rate must be lowered and flattened as well, while we eliminate excessive deductions and exemptions. We should be assessing the elimination of capital gains, dividends and death taxes — not, as Hillary Clinton suggests, raising them. Most importantly, we MUST reform government spending — no more baseline budgeting — and rein in the bureaucratic regulatory administrative state.
We must restore and grow our small community banks, relieving them of onerous Dodd-Frank regulations, so we can get capital flowing for small business growth again. Of course, none of this will happen under the current Obama administration. The only solutions the White House will offer are more “STIMULUS” and blame — for Wall Street and big banks, both of which have thrived under Obama’s policies. We’ll hear more about hedge fund folks and how they’re crushing middle-income Americans. Well, truth be told, Obama created the ever-expanding wealth gap in America by promising “participation” trophies all for electoral patronage.
What may end up happening? The Federal Reserve will come out and promise they won’t increase interest rates. The Obama administration will demand more spending to jump-start the economy. Again, these are mere band-aids on the sucking chest wound that is the American economy. These are short-term fixes. And don’t be surprised if you hear about QE4 — no, that’s not a new Lexus vehicle.
The solutions are simple; famed Reagan economic advisor Art Laffer drew it all out on a napkin. (Check it out here if you’re too young to remember). Unfortunately, we have a bunch of liberal progressive academics who believe the Keynesian, socialist economic model they drew on chalkboards actually works. It doesn’t.