Investments–Politics and Stocks (V10-I38)

By Bob Wood, MMNS

Now that the country is in the heat of the race for the next presidency, we are hearing again and again speculation about which candidate will bring us a better economy and stock market. Oh, if only the talk supporting John McCain and the Republicans were true. Oh, if but a shred of evidence supported that claim, we’d all be prosperous Republicans.

I don’t know when the Republican Party became associated with strong economic cycles and rising stock markets, since the historic record goes firmly against those claims. Of course, the Republican Party enjoys financial support from the wealthiest among us, so it has the resources to make one claim after another for whatever conclusions we are expected to adopt as truth.

If you tune in to CNBC daily, you have seen extensive coverage of politics, even during times when more business news begs for coverage. Who at the business channel finds it so very important to spend this much time covering politics? We should all employ a healthy dose of skepticism about this ongoing pitch for the “wrong” party!

As a committed independent voter, I now call Republicans the “wrong party,” due simply to the amount of lying and spin used to burnish their economic credentials. If they had the facts on their side, would they need to lie so much?

What, specifically, are they lying about, you ask? Let’s start with the basic premise that the economy and the stock market fare better under Republican leadership. How strong is today’s economy after more than seven years of the Bush regime? Today’s news about the economy included that another 84,000 people lost jobs in August, and that information reveals only part of the true story.

Without the Bureau of Labor Statistics and its use of the phony “Birth/Death model” to figure in an increase of 125,000 new jobs (that didn’t actually materialize but were “assumed” to have been created), job losses would have climbed much steeper than the announced number. Even if we only resort to using official government numbers, our economy has shed 600,000 jobs so far this year!

Months ago, during the so-called “economic expansion” that compelled the President to call our economy ‘’the envy of the developed world,’’ job creation sat at the lowest point of any economic expansion recorded in the past few decades. Meanwhile, during the current administration’s term in office, workers have suffered with across-the-board rising prices while seeing their wages fall, in real terms.

We have heard over and over again that cutting taxes for the rich proves to be a wonderful thing, since the broader economy enjoys the “trickling down” of that freed capital. Yet with mounting job losses and falling wages over time, just what benefits have accrued for the vast majority of us?

The current administration’s fiscal policies have resulted in a crippling national debt burden, with more debt owed to foreigners than ever before in our country’s long history — another $4 trillion debt caused by massive budget deficits. Do you remember a few years ago, when the current vice president assured us that ‘’deficits don’t matter’’? Well, guess what? It seems that deficits do matter, after all. We now face interest payments to foreign creditors that we cannot pay without borrowing more money! The technical, unsavory term for such a financial process is ‘’Ponzi scheme.’’

In ominous ways, we hear that electing Barack Obama will kill what’s left of our economy, since he’ll raise taxes, as Democrats always do, to support over-spending at the federal level. We’ve all heard about those ‘’tax and spend Democrats,’’ and that sounds like bad stuff!

Yet what excuses validate the massive spending generated by the current Republican-controlled White House and Congress for most of the past seven years? We’ve seen the biggest rise ever in government spending during the Bush years, and instead of employing “pay as we go” via tax revenues, the country has borrowed its way into a deep hole by paying for debt with borrowed money. Which method sounds safer: tax and spend or borrow and spend?

If raising taxes is such a killer for the economy and the stock market, how much longer must we wait to realize benefits from Bush’s tax cuts? The stock market sits lower today than when that “pretender” took office, and most will agree that our economy is in a deep rut.

Right wing politicians hammered Bush’s predecessor, Bill Clinton, for raising taxes in 1993. Yet, how did the economy and the stock market perform during his two terms? Do we see a stunning lack of cause and effect from tax cuts? Or from tax increases?

In fact, during the wonderful, domestic secular bull market in stocks from 1982 to 2000, Presidents Reagan, Bush and Clinton all raised taxes on the middle class! Can we verify an obvious connection between tax policy and the stock market?

In addition, cutting corporate taxes has been hailed as a great way to create jobs. But today, with the lowest-ever tax collections from businesses as a percentage of all revenues in effect, we still see massive job losses. So how long must we wait after giving corporate America ongoing advantages before seeing the promised benefits?

Then look at Wall Street and the financial sector at large, which have successfully pushed for de-regulation of their activities in order to free up profit-generating capabilities that would, undoubtedly, spur widespread wealth creation. Yet, after getting all they asked for and more — plus an SEC that simply refuses to enforce the laws which it was created to do, the big brokers and banks are, themselves, in big trouble.

In just the last 18 months, Merrill Lynch has lost one quarter of all profits made during its history as a publicly-traded company, going back to 1971! Bear Stearns blew up, and troubling rumors abound about whether the venerable Lehman Brothers will be next to fall. Massive layoffs continue on Wall Street, causing New York City to struggle as it copes with losing hundreds of millions in tax dollars previously generated by financial firms and their highly paid employees.

Add to all this economic difficulty the billions of taxpayer dollars now earmarked for implementing various bail-out plans for mortgage lenders, investment banks and other poorly regulated financial entities. Of what advantage are the capitalistic ideals promoted by the party in power when taxpayers are forced, without their consent, to bail out the big brokers and banks?

When anyone suggests that taxpayers should pay more to help out fellow citizens with programs like universal health care, we hear this decried as socialism! Yet when taxpayers are forced to bail out big banks and brokers, the bleed is deemed absolutely necessary to keep the financial system and Main Street America functioning.

Of course, we’ve always been told that unbridled capitalism is, by far, ‘’the best path to economic prosperity,’’ and that Socialism and Communism are wealth destroyers. Yet, here we are, borrowing money daily from Socialist economies like Brazil, semi-Communists in China and Russia, and dictatorships like Saudi Arabia and other Middle East nations.

When, if ever, will any of what our political leaders claim actually prove true? We are mired in a financial quagmire and will never be able to pay off the debt, at any level, as well as the unfunded liabilities in Social Security ad Medicare. These promises will almost assuredly be repealed, even though taxpayers have done all that was asked of them to fully fund those programs for the last few decades.

This country is broke, and the closed political economies around the world seem to have all the money! We’re being led down the path to financial ruin, while all the way to the edge of the cliff, we are warned to avoid any alternatives. Does hanging on to power matter more to today’s leaders than espousing what is truly good for the country and its taxpayers?

Does making the richest among us ever richer matter more than paying our obligations to each other? Does invading other countries for financial reasons mean more than protecting our freedom and way of life? If so, how could our leadership sell the country on going to war for oil, new export markets or war profits?
We’re in trouble, economically, and the party in power lays claim, historically, to being the most fiscally irresponsible. Is it only in America that politicians find such gullible, disinterested voters to accept their lies? Have we become “Sheeple”?

Have a great week.

Bob Wood ChFC, CLU Yusuf Kadiwala. Registered Investment Advisors, KMA, Inc.,

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