Tue, 10 Feb 2009 20:09:05 +0000 – By Richard MillerAuthor, "In Words and Deeds: Battle Speeches in History"
As I write, the equity markets have already judged the Senate's stimulus plan, and by extension, the bills put forth by the House and the White House as well. The Dow is down 360 points, here, the judgment of millions of people is substituted for a relative handful of party hacks, earmark addicts, a White House dimly viewing a situation it barely understands, and all the others who would spin on their behalf.
Like generals waging the next war based on the last one, economic policy makers insist on understanding our situation based on those of post-World War II recessions or the Great Depression itself. But our situation is now so different that the past makes for lousy historical analogies.
Months ago, I declared in this space that we are deflating, and that there is little that our elected representatives can do about it. I repeat that assertion now. In the months since I first made that declaration, I have come to believe that inflation may follow but is probably several years off. I have also come to believe that understanding our current situation in terms of the past (recession/depression) is a trap. We are in a new state of economic affairs, one for which no name has yet been created.
Like generals waging the next war based on the last one, economic policy makers insist on understanding our situation based on those of post-World War II recessions or the Great Depression itself. But our situation is now so different that the past makes for lousy historical analogies. If one prefers history, here's Abraham Lincoln with an always relevant observation: "As our case is new, so must we think anew and act anew...." And today our economic case is very new.
So I will repeat the advice to individual investors offered in this space last year: stick with investment grade rated general obligation municipal bonds, direct obligations of the United States government, and CDs with the FDIC insured limits. Those of you who believe that there are "screaming buys" out in the equities market lack imagination--things can much lower, and will.
The stimulus bill, insofar as it might have done something, will achieve less than nothing. The political establishment has forfeited its own political capital in plundering the capital of others. The Senate bill is a monument to Democratic Party fecklessness and Republican Party pusillanimity.
We elected them, and as I have also insisted in this space, it is ultimately our fault, and our grandchildren's bill to pay.