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Imagine My Surprise

So much can go south when one goes missing for a week.

By 8.12.11

Imagine my surprise, after the first week in several years in which I had no access to newspapers, television, or the Internet, to be re-plugged into the web on Tuesday, digging back through the news of early August, and wondering if Harold Camping was just a couple of months early.

In terms of finance, the stock market had its worst day in years on Monday -- its sixth worst percentage loss ever --on the heels of losing 7.2% in the prior week. And that week was before ratings agency Standard and Poors ("S&P") downgraded U.S. debt, on which more in a moment.

During the past several days, the yield on a U.S. government 10-year note has plummeted to about 2.2%, roughly equaling its panic levels reached briefly during the heart of the financial crisis in 2008.

Imagine my surprise to read that after the market closed last Friday, S&P downgraded U.S. sovereign debt for the first time in our nation's history. Some argue that S&P wanted to make a political statement, and that its comments about political brinksmanship during the debt ceiling debate were a shot at Republicans. But make no mistake: This first-ever downgrade of U.S. debt happened on President Obama's watch. S&P has done more damage to Barack Obama's re-election chances than any other person or single event has.

It's not just my opinion: Since the debt downgrade, betting odds on Obama's re-election have dropped from about 56% to 50.5%, by far his lowest betting odds during his first, and increasingly likely to be his only, term.

During this week's Black Monday, the market's first opportunity to react to the downgrade, investors in American stocks lost a trillion dollars, more than seven percent of our GDP for the entire year. Think about that for a second.

In the early afternoon on Monday, President Obama decided to lead from behind again, offering another uninspiring, formulaic press conference. Perhaps telling Obama what investors think of him, the market proceeded to fall another 200 points. As the National Post's (Canada) Matt Gurney put it, "His speech might have been a futile gesture, but it was still a bad futile gesture."

Yes, imagine my surprise to miss just one week of trading and find stocks -- and Obama's re-election chances -- fully 10% lower and U.S. debt no longer AAA-rated by S&P.

But that wasn't the only shock upon returning to my plugged-in high-tech news-junkie everyday life. Imagine my surprise, anger and sadness to learn of the shooting down of a U.S. military helicopter in Afghanistan, ending the lives of 30 Americans including members of "SEAL Team Six," the group of warriors who brought justice to Osama bin Laden. President Obama mentioned this tragedy at the end of his Monday "vanity press conference," sounding as detached and robotic as we've come to expect from him lately.

How strange a change in a man who won election in large part due to soaring rhetoric: his words fail him now even in the presence of his teleprompter, and even on a subject that should instill genuine passion in a Commander in Chief. Ah, were he only that in spirit and character, instead of continuing to lead from behind, blaming everyone but himself for everything that befalls his presidency. Perhaps a new slogan for a Republican challenger: "Barack Obama: he just wasn't as shovel-ready as we thought."

And imagine my surprise to see pictures of riots, fire bombings, looting, beatings, and general mayhem in cities and towns across England. It's Rodney King, British style, on a massive scale. Nile Gardiner, one of Britain's best columnists (though he is based in Washington, D.C.), makes the point that "If British shopkeepers had the right to bear arms, vicious thugs would think twice before looting." No doubt. After all, as Gardiner continues, "Britain's gun laws are among the most draconian in the world, yet the nation has some of the highest levels of violent crime and burglary in the West, and there is no shortage of gun crime in major cities such as London and Manchester." It's unlikely that gun rights will stage a real revival in Britain, but here's hoping…

Tuesday, checking news from my thin fog of jet lag, was not without shocks of its own, both pleasant and not so pleasant: On the bright side, the results in the Wisconsin recall elections are, despite the brave face the unions are putting on, a disaster for the left. They went "all in" to beat Republican state senators and only beat two out of six -- and those two had serious vulnerabilities -- incinerating millions of dollars of union members' dues money in the process.

And earlier in the day, the Federal Reserve Board announced that it would keep short-term interest rates near zero for two years. It's an unprecedented statement by the Fed, not only because it substantially limits its range of action but also because three voting members of the Board dissented from the action, something which hasn't happened in 19 years.

Imagine my surprise to hear Ben Bernanke imply that Barack Obama's economic policies will continue to be so ineffective (or counter-productive) that the Fed is writing off any chance of substantial economic growth until well after the next presidential election. When you look at it that way, The Bernanke's move makes sense: There's no reason to suggest the job-and-growth-creating entrepreneurial class will or should take any risk, start or expand any business, or hire anyone, until this president and his tax cheat treasury secretary, are gainfully unemployed, trying for the first time in their unproductive lives to make a living in the private sector they understand so little about.

Imagine my surprise to hear Al "Rent Seeker" Gore's expletive-laden tirade against those who are skeptical of human impact on climate -- which is to say those who threaten the value of Gore's large stakes in "green" technology companies whose success requires a gullible and spendthrift government willing to funnel taxpayer money down the Gore rat hole. Sorry, Al, nobody's buying that "the very existence of our civilization is threatened"; we've figured out that it's your portfolio that's threatened. OK, I really wasn't surprised by any of this, but it's so much fun to hear Gore say "bulls--t" that I had to mention it.

Wednesday was no cup of tea in the markets either, as stocks plummeted almost 3% in the last 90 minutes of trading, erasing nearly another $700 billion in wealth, following rumors of liquidity problems at French bank Société Générale, with gold spiking up to over $1800 an ounce. (On Thursday, the Chicago Mercantile Exchange raised margins on gold futures. That combined with a moderately strong stock market knocked gold down about $50 from late Wednesday's highs, but it remains well over $1700 suggesting investors remain extremely fearful of owning either dollars or euros… as they should.) And if all that rollercoaster wasn't enough, the market then rallied more than 400 points, almost 4% in the Dow, on Thursday, even though it gave up 135 points in the last 15 minutes of trading.

Wednesday brought news of Republican appointees to the "Super Committee" designated to hash out an agreement on how to reduce America's long-term debt. While the absence of Paul Ryan from the GOP appointees was noted by some, the Republican team looks solid while the Democrat senators (the Dems haven't yet appointed their three from the House) look, well, like Democrat senators.

Really, what serious person would put Patty "PTA member" Murray, who is in charge of getting Democrats elected to the Senate and whose experience before politics was teaching preschool and being a left-wing activist, on a committee that has to deal with the real world's biggest current problems? Not only is Murray on the committee, she is its co-chair, showing even before the committee's work starts that Senate Majority Leader Harry Reid is all politics, all the time, even during some of the nation's most dire financial turmoil. And John "I served in Vietnam" Kerry? Puhleeze… Twenty-seven years on the finance committee supporting higher taxes doesn't make him anything but pompous and fiscally brain-dead. Max Baucus is the least bad of the three Democrat Senators on the committee. 'Nuf said.

If the Democrats’ Senate picks are bad, Nancy Pelosi's House selections for the committee are worse: James Clyburn (SC) is not an expert on economics, though he did secure a $3 million earmark for a kids' golf program after the golf facility renamed itself the "James E. Clyburn Golf Center." Putting him on the committee is like asking a bacon addict to become kosher.

Rep. Xavier Becerra (CA), Vice Chair of the Democratic Caucus, is no wiser, as he demonstrated on a recent Sunday show holding up a dollar bill and a savings bond and saying they were essentially identical. Perhaps he doesn't realize that to get the dollar to pay the bondholder, government has to tax somebody. And he's going to try to sort out our national debt? This is a guy who says that the top 1% of earners should pay more than 40% of income taxes, and who believes that the Social Security Trust Fund actually has money in it. Just what sort of "compromise" can be had with a man who thinks that way? None at all.

And lastly, Chris Van Hollen, the far-left Maryland Democrat perhaps best noted for heading the Democratic Congressional Campaign Committee during the Democrats' disastrous 2010 election performance. As far as I can tell, Van Hollen has spent his entire adult life in government. In other words, he has never created a job except for bureaucrats.

Meanwhile, with the possible exception of Rep. Fred Upton (MI), the Republican appointees look something like a fiscal all-star team, including former OMB director Senator Rob Portman (OH) and former Club for Growth president Senator Pat Toomey (PA). Against this crew, Democrats are punching outside their weight class, or at least they would be if their goal were really to come up with good policy. But it isn't. The real work of the Committee's Democrats will be to continue the politics of Mediscare as their party sees its Campaigner in Chief "becom(ing) Jimmy Carter right before our eyes."

And finally, imagine my total lack of surprise to learn that while the financial world crumbles around him, President Obama is leaving next week for his third annual summer vacation in hoity-toity Martha's Vineyard. When even USA Today describes the trip as "awkward" in the current environment, one knows that in a bit of reverse political alchemy Obama's ear has transformed from gold to tin.

It's been a truly remarkable week of news, the shock of which was, for me, magnified by having been blissfully ignorant of riots, ratings, and rates (while traveling with my family in the Zululand region of South Africa). Part of me wishes I still didn't know that the world -- other than perhaps Wisconsin -- has become a poorer and more dangerous place in the last few weeks, and not only because Patty Murray is co-chairing the "Super Committee."

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About the Author
After years as a self-employed trader and investor, Ross is now the host of “The Ross Kaminsky Show” on Denver's TalkRadio 630 KHOW, weekday mornings from 6 AM to 10 AM. He's a senior fellow of the Heartland Institute and an Objectivist/libertarian so you can't offend him by saying he's not sufficiently conservative. You can reach Ross by e-mail at rossputin(at)rossputin(dot)com.