The stock market this week looked more like Mr. Toad's Wild Ride than the financial workings of the world's largest economy. On the news that the S & P downgraded America's credit rating, coupled with less-than-sunny economic indicators, the Dow Jones erased $3 trillion of value from July 22nd till August 8th. Then it began a dizzying roller-coaster of ups and down, which is leaving regular Americans quaking in their boots.
Just like the Hollywood blockbuster The Hangover -- just when you thought it couldn't get any worse...it does. It is not just the uncertainty or the loss of equity that's getting to regular folks, but also the straight-up fatigue at our lingering economic woes. Since the stock market crash of 2008, it seems like America can't catch a break -- from our anemic growth rates, to unemployment, to the total inability of our politicians to do anything about it.
The continuing bad news does, in fact, seem like a hangover in Vegas -- one that never ends. Just consider the parallels:
If you choose a half-wit miscreant to be your leader, you will end up face-down in the dirt, missing teeth, nursing the worst hangover of your life, and responsible for a hooker's baby.
George W. Bush (a.k.a Alan) has certainly been maligned enough, so no need to do more here. That said, it is worth mentioning that it will take a lot longer than a few years to clean up the mess that was created during his presidency -- a near-decade of mismanagement, irresponsible tax cuts, expensive wars, and limited investment in education and technology.
Binging leads to insane behavior and memory loss.
America has been on a bender for decades. Since 1984, America has been a debtor nation -- that is we spend more than we produce. For over THIRTY YEARS we've been over-consuming. The only reason we can is because foreign nations gave us a line of credit, benefiting their own economies by selling addicted Americans more stuff.
Our spending-high caused Americans to forget a basic principal of economics: you cannot consume more than you create -- indefinitely. No matter how much money we print (Quantitative Easing) or how much debt we raise, this fundamental will not change.
Today, we are paying the price for a decades-long binge. By spending instead of saving, by consuming instead of investing, America does not have the industrial or technological engine to grow this economy. That is the harrowing truth fueling current economic instability.
If you take a tiger home, he will cut you.
Frustrated with the status quo and what many saw as insufficient action by the Democrats on the economy, disgruntled conservatives and independents voted the Tea Party to power in 2010. The Tea Party promised fierce cuts to the budget -- at any political cost.
Sixty-plus congressional Tea Partiers invented the idea of linking the debt ceiling vote to budget cuts and brought us here -- to the partisan stalemate which sent the stock market seismic. Many voters may not have known what they bargained for in the Tea Party, however the nature of this animal should have given us a clue.
If you screw with a Chinese dude, he will smack you down with a crowbar.
The largest investor in America is China. China owns over one trillion dollars of American debt, with Japan as close second. Despite jingoistic concerns about China, the fact is their economy is inextricably linked to ours. When America's assets plummet, the Chinese economy suffers.
The Chinese are worried. The political wrangling in Washington signals that America is on shaky ground. As a result, there is some evidence that China will divest (or at least diversify) its debt holdings -- as well as to begin to move away from the dollar as a global currency. These moves are the equivalent of taking a crowbar to the American economy which currently relies on Chinese financing to function.
In the end the Wolf Pack can save the day.
At the end of The Hangover, the Wolf Pack saves the day by getting their buddy "to the church on time." This begs the question: can our politicians reverse the stalemate in Washington and make policy to improve economic conditions. The debt limit legislation called for the creation of a Congressional Super Committee (a twelve-person bipartisan council) tasked with the goal of finding $1.5 trillion in savings by Thanksgiving -- our Wolf Pack, so to speak.
But can the very same people who got us into this mess, get us out? Should we trust the folks who roofied us and left us up on the roof of a Vegas hotel for 36 hours while we crisped in the desert sun? And even if they have the best intentions, can they succeed? The caustic nature of the deficit debate doesn't bode well for compromise and the partisan rhetoric that continues to flow from D.C. -- even as our markets teeter on the brink -- leaves little room for optimism.
In the end, The Hangover is a feel-good movie and all turns out for the best. It's too bad Hollywood isn't writing this script.