Finance

While Congress grilled Edward Libby, the CEO of AIG, over the distributed bonus money that amounted to less than a tenth of a percent of the $170B of the TARP funds that AIG received from the US Treasury, the Federal Reserve pledged to purchase over one trillion dollars worth of mortgages and long term bonds. In elated exuberance, the Dow Jones Industrial Average jumped two percent in a matter of minutes. Much to the media’s delight, they reported about the strong positive reaction the markets had to the actions by the Fed. However, there was much more to the story that was going unnoticed; the Dollar was crashing.

The Dollar fell four percent against the Euro, four percent against the Sterling Pound, three and a half percent against the Yen, and three percent against the Candian Dollar. If you were a foreign investor and invested in the American markets Wednesday morning, a day in which the markets rose two percent, you would have actually lost money by the end of trading. This example could eventually become the end game for our recent economic woes. While the worry should be on the collapsing of the housing markets and the freezing of the credit markets, the long term health of the Dollar should be of the utmost importance and it is not.

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Yesterday, I discussed how the stock market is a poor tool in evaluating the failure or success of the president. Well, apparently Jon Stewart is a reader of my blog  as he decided to bring up this issue on last night’s The Daily Show.

What is the stock market? It’s an instrument of speculation and while it tends to reflect the nature of the economy, it should not be used to judge the strength of the economy. This is a common fallacy of the public. The market tends to reflect the public’ confidence on the economy as a whole. When it becomes common knowledge that the economy is in trouble, the market will feel the impact. If you were to search the web for articles regarding the housing bubble in this country, you will find articles from a few years ago, spelling out the impending economic catastrophe that we are experiencing today. But when one looks at the market in ’06, they would conclude that the economy was thriving. The common person never cares to look at the numbers behind the market and for this reason alone, the success or failure of the stock market should not be used as a model for success or failure of the economy.

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As per the news article from Bloomberg.com

The stimulus package the U.S. Congress is completing would raise the government’s commitment to solving the financial crisis to $9.7 trillion, enough to pay off more than 90 percent of the nation’s home mortgages.

Consider the absurdity of that statement. Our government will have committed $9.7 trillion to help address the financial crisis and yet the economy has shown no signs of improvement. At the heart of this economic meltdown, exists a housing market that while still crashing, will not enable a recovery to take place. Now image if the government used that $9.7 trillion to specifically address the housing bubble…what would be the ramifications? Would the economy continue to veer south or would recovery be just over the horizon? Would foreclosures cease as to allow financial firms the ability to recoup some of their losses?

When a cancer patient comes to the doctor’s office complaining of feeling ill, is it in the best interest of the patient to have the doctor treat the cancer or treat the symptoms?  Our government has pledged an ungodly amount of money that it does not have at treating the symptoms of the economic crisis… it’s time to wake up and treat the cancer. Sometimes the most painful solution is the course that one should take.

When asked about the delay in Congress passing yet another economic stimulus package, the president had these words to say:

The time for action is now. If we don’t move swiftly to put this plan in motion, our economic crisis could become a national catastrophe. Millions of Americans will lose their jobs, their homes and their health care. Millions more will have to put their dreams on hold.

To me this is eerily reminiscent of the Bush administration insisting that the country would fall into depression without an immediate approval of his economic stimulus package. Why have both presidents resorted to the use of fear in hopes that their bill pass through Congress quickly? Our economic crisis could become a national catastrophe? I highly doubt that a delay of a few days, even weeks will matter much in the long run when most economists claim that the brunt of the economic stimulus package will not be spent until 2010… so what’s the hurry?
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