Daily Investment Interpretations

November 21, 2011

2011-11-21: (Monday Night): The markets dropped sharply today:U.S. stocks decline sharply on debt worries, Sentiment Turns Dour; Stocks Down Again. The NASDAQ Composite descended 49.36 points (-1.92%) to close at 2,523.14. The Dow nose-dived 25.43 points (-2.11%) to 11,547.31; the S&P 500 spiraled down 22.67 points (-1.86%) to settle at 1,192.98. Oil backed down further to 97.09: Oil slips further below $100; gold plummeted to 1,678: Gold under $1,700. The VIX gained 0.91 points to 32.91.
    So this is what happened on Monday. 
    This State of the Markets article, The Most Important Man in America You've Never Heard Of?, tells a shocking story. 
    "'As head of Americans for Tax Reform since 1986, Grover Norquist has transformed a single issue - preventing tax hikes - into one of the key platforms of the Republican Party. As Steve Kroft reports, his biggest coup was getting more than 270 members of Congress, and nearly all of the 2012 Republican presidential primary candidates, to sign a pledge promising never to vote to raise taxes. But some opponents say the pledge may be hindering a solution to America's debt crisis.
    "'The person at the heart of those negotiations - and some would say the person responsible for the deadlock - is neither a member of Congress nor the holder of any public office. He is a lobbyist and a conservative activist named Grover Norquist who, over the years, has gotten virtually every Republican congressman and senator to sign an oath called "The Pledge." It's a promise that they will never, under any circumstances, vote to raise taxes on anyone. And so far Grover Norquist has held them to it, controlling 279 votes, including the speaker of the House, the Senate minority leader and all six Republican members of the Joint Committee on Deficit Reduction.'"

    "Whether one agrees with the “no new taxes” pledge or not, or with Mr. Norquist, something does not seem quite right when Republican members of Congress fear for their political futures if they get on the wrong side of one individual. As one political figure pointed out, “making a lifetime pledge is something one should only do with one’s spouse, family, faith and government,” not to a fiscal policy."
    I imagine we'll hear a lot more about this in the next few days. But basically, this amounts to a semi-dictatorship. (Here are a few more articles: Norquist: "Dems are lying." And the WMD's?, Grover Norquist - Wikipedia, the free encyclopedia, 
, The Pledge: Grover Norquist's hold on the GOP - CBS News, and Just saw the Grover Norquist segment on 60 min.. I'm Dumbfounded ). 
    Why would 279 Congressional Republicans sign such a lifetime pledge that transfers their authority to Grover Norquist and whoever's behind him, and causes them to abdicate accountability to the voters who elected them? (All but four House Republicans and six Republican Senators have signed the pledge.) Allegedly, it's because of threats that they won't be re-elected if they don't sign the pledge. And why would they sign a tax pledge issued by a right-wing lobbyist? How did he get their attention? After thinking about this, it seems to me that this is the worst sellout in American history. It lends substance to claims that the Republican Party has been co-opted by right-wing extremists... worse yet, by a single right-wing extremist. 
    Presumably, Mr. Norquist is a sock puppet for not-yet-publicized  billionaire puppet masters. The proposed tax increases are for taxes on the wealthy. As for these tax pledges being promises made by Republican representatives to the American public, I don't recall being asked whether or not I wanted my Congressional Republicans to pledge that they won't ever support any tax increases. Do you? What happens if we have a war? I don't recall being informed that such a pledge existed, and obviously, neither did our media mavens. This makes a total mockery out of representative government.
    The current federal deficits are a result of the depressed economy, leading to reduced tax revenues at all levels of government, combined with elevated levels of safety-net programs such as unemployment compensation and federal aid to state governments. These roaring deficits began in the Bush Administration in the fall of 2008 when the Bush Administration rescued Bear Stearns, Freddie Mac, Fannie Mae, the FDIC, automakers (Loans made to automakers in doubt), and the insurance conglomerate, AIG. And these articles are illuminating: Top Economist: Americans Should Worry About Bank Deposits if Congress Doesn't Act - Tech Ticker, Yahoo! Finance, and Can Congress put Wall Street together again? This was followed by the $700 billion TARP (Troubled Assets Relief Program), all implemented by a Republican administration
    This isn't saying that government expenditures and deficit financing haven't exploded under President Obama, but the first trillion of that deficit was run up by the Republicans in the fall of 2008 to keep the U. S. banking system from collapsing and taking the rest of us out with it.  
    I believe they did the right thing. I think the U. S. economy would have collapsed if the Bush Administration hadn't ignored the conservative stereotype of reducing government intervention, and taken dramatic action when it did. And I believe that if John McCain had won the 2008 election, his Republican Administration would be ballooning the deficit the way the Obama Administration is.
   I'm finding it taken as accepted wisdom that the middle class is being destroyed in America. (Tommie and I are seeing our retirement incomes dropping by a few percent a year now, in the face of slow inflation.) 
    In case anyone missed it, Supercommittee Succumbs To Gridlock; Ready To Admit Failure, and Debt-panel clouds outlook
    I think we can thank the Democrats on the Super-Committee for not caving in to the Republican committee members' handler, Grover Norquist.
    Here's a Wall Street Journal article that lampoons the other articles that are starting to appear regarding Grover Norquist: Thank You, Grover Norquist. (Always remember that a few years ago, Australian billionaire Rupert Murdoch bought the WSJ and replaced its existing editor with his own choice of editor.) The article says, "Democrats don't believe they need to do more than tinker around the edges of the entitlement state while raising taxes on the rich. Republicans think the growth of government is unsustainable and can't be financed no matter how much taxes are raised."
    If you look at the numbers, you'll find that the federal government hasn't grown under resident Obama, but if someone keeps telling a lie long enough, people who don't know the truth will believe their lie.
    The article continues, "And Mr. Obama does not want to lead on reforming entitlements or reducing the deficit."
    According to what I've read, U. S. safety nets are less protective than the safety nets of any of the other 18 industrialized nations. In any case, reducing social safety nets and focusing on the deficit is, I believe, exactly what the Republicans won't do if they take over in 2012, any more than they did between 2000 and 2008. (Remember Vice-President Cheney's "Deficits don't matter." statement?) And it's exactly what governments shouldn't do right now. 
    "As for the alleged tyranny of Grover, Republicans on the committee explicitly risked his wrath by putting tax revenue increases on the table. Pennsylvania Senator Pat Toomey offered $500 billion in revenues—$300 billion in the statically scored tax increases that Democrats demanded—by cutting deductions mainly for the wealthy. Democrats rejected the offer because it wasn't $1 trillion and because in return Mr. Toomey also wanted to lock in lower tax rates. Never mind that nearly all economists agree that lower rates and a more efficient tax code would increase economic growth and lead to more revenues over time."
    What Mr. Norquist is seeking is a continuation of the 35% (down from 39%) tax cuts for the wealthy
that are scheduled to automatically expire on December 31st. As for nearly all economists agreeing that lower rates and a more efficient tax code would increase economic growth and lead to more revenues over time, that's precisely the claim that I remember being made in a TV debate by Ronald Reagan's "supply-side" economist (the "trickle-down" theory) and hotly contested by President Carter's economist who insisted that reduced tax revenues would lead to increased budget deficits. And guess what? That's precisely what happened. Budget deficits soared once the Reagan tax cuts went into effect, and this was also the point at which the standard of living of the rest of us stalled out while the standard of living of the wealthiest began it's climb to our present income inequality levels not seen since 1929. 
    So much for the "trickle-down effect".
    But the key point here is that all but ten congressional Republicans have just been revealed to be members of a secret circle that reports to one lobbyist rather than to their constituencies. 
    This also raises questions about what else may be happening under separate cover of darkness in the Republican Party.

    David Marsh writes tonight: Case for a euro split-up.
    The next frontier in emerging opportunities -- solar roads and water  
    Red flags signal new bear market   
    Key moving average is broken  

    State of the Markets' articles include:
    Technical Talk: The Bears Are Back In Town  
    Hedge Funds Are Having A Lousy European Debt Crisis  
    Rates Fall at French T-Bill Auction  
    Moody's Says French Sovereign Debt Rating at Risk  
    Existing Home Sales Rise in October; Prices Continue to Fall   

    Market futures are up ¼ % tonight.