The Panic of 2002

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by Patrick J. Buchanan – July 25, 2002

Since President Bush took the oath, the Dow Jones has fallen over 30 percent, the Nasdaq 75 percent. In Sunday’s New York Times, Seth Feaster, using a much broader index, has even more jolting news.

The Wilshire 5000, writes Feaster, tracks “every publicly traded U.S. company. The Wilshire hit its ceiling on March 24, 2000. Since then, the market has lost more than $7 trillion in value and shed more than 1,000 companies.”

Forty-one percent of the value of all publicly traded stocks in the United States has disappeared in 28 months!

In echo of Herbert Hoover, Alan Greenspan assures us the U.S. economy remains “fundamentally sound.” And any comparison with 1929 does seem absurd, when we consider that the U.S. economy is still growing, though at a slower pace than the blazing 6 percent of the first quarter.

Yet, such horrific losses for that half of America that has its savings, hopes and dreams invested in stocks cannot help but deeply wound the larger economy. Folks may continue buying food, clothes and gasoline, but the sickening losses from the Panic of 2002 must affect the plans of millions for vacations, new homes and new cars. And the consequences are going to be global, for in Europe and Asia the losses match those in the United States.

Among the first casualties are the troubadours of the New Economy, who dismissed as Chicken Littles those of us who warned of a “bubble market.” They should probably disappear for a decent interval. Not a few are headed into the history books alongside the late, great Professor Irving Fisher of Yale, who declared on Oct. 17, 1929, “Stocks have reached what looks like a permanently high plateau.”

House Republicans are now at risk. Recall: Ronald Reagan lost two dozen House seats in 1982, when his tax cuts had not yet taken effect and the economy had not recovered from the damage done by the 21 percent interest rates and 13 percent inflation of the Carter era. We are only 15 weeks away from the 2002 elections, and the economic numbers coming out before November are unlikely to be wildly positive.

Is America then headed for another Depression? Almost surely not. For while it is hubris to claim we have conquered the business cycle, we do know how to inject money into an economy bled dry of capital, as was the case with the U.S. economy in the Great Depression.

But given the staggering blow to confidence the stock market has delivered, a slowdown seems probable. And the Panic of 2002 is not only going to impact U.S. politics. With Argentina belly up, other Latin countries staggering and Brazil about to elect a radical, there is a likelihood of serial defaults across South America and a global cry to Uncle Sam to step in and bail out the bankrupts yet again.

But this time, the American people – their savings eviscerated, their economy tanking, unemployment rising – are unlikely to be so magnanimous in lending billions more to bankrupt regimes, as they were in the Goldilocks Economy of 1997-1998. Yet if the United States and the IMF do not bail them out, these regimes could default and the Big Banks will begin to take on the pallor of Arthur Anderson and Enron. Turkey and Brazil are already teetering on the edge of the abyss.

And the soaring U.S. merchandise trade deficit, now at $500 billion a year, guarantees a new audience for economic nationalism. Not only are dollars pouring out of the United States at record rates in foreign aid, IMF-World Bank bailouts and trade deficits, we are gutting our manufacturing base and losing our national sovereignty.

Fast track, or Trade Promotion Authority as it is now called, where Congress surrenders its right to amend trade treaties, may now be sidetracked. Too many Americans are now aware of how U.S. industry has been gutted and our economic independence lost because of NAFTA, GATT and the WTO.

Other ideas may be sidetracked, as well. Is it really wise for Congress to vote itself a $5,000 pay raise, the fourth pay hike in four years, at taxpayers’ expense, now? And for Congress to proceed with the 50 percent hike in foreign aid demanded by President Bush seems suicidal. Even the president’s plans for invading Iraq may have to be put on the shelf. To launch a invasion of one of the world’s leading oil producers, as the Global Economy sinks, is unlikely to send a buy signal to Wall Street.

Capitalism itself has taken a hit. Not free enterprise or free markets, but Gordon Gecko capitalism that celebrates greed as good and that piles up wealth by closing plants in the United States, shipping them to China and selling out American workers for stock options.

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