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I have been on paternity leave, so I have been watching much more TV than usual as I split baby-watching duties. The news channels seem to be a favorite around here and that means getting an extra-heavy dose of all the bad news in the world - as if a critic like me needs more reasons to be skeptical, right?!? It seems besides the iPhone hype and Paris Hilton's release from jail, we closed out June with a particularly bad news week. The dour mood of the country may work to put a short-term (summer?) cap on the stock market as well. Here me out on this one...
We had two big events on the political front. First, the Senate effectively killed President Bush's immigration reform bill. American government looked just about as bad as it can get all around: we managed to look confused between whether America should have any immigration laws at all and whether we should be encouraging immigration at all. At the same time we do not faithfully enforce existing immigration laws and borders, we are trying to figure out how to accomodate the current population of illegal immigrants without continuing to support incentives to come to America illegally. Further hampering efforts to bring sanity to our immigration system is the spectre of the failure of President Reagan's amnesty bill from the 1980s to solve the problem. President Bush's persistently abyssmal approval ratings suggest that this immigration bill was his last chance to matter to this country. And he failed yet again. And as if this was not bad enough, Bush got slammed with a second political storm. Highly respected Republican Senator Richard Lugar delcared that Bush's Iraq strategy is failing and that the U.S. should begin withdrawing troops. This has of course been obvious to all of us who have opposed this invasion from the start, but America seems to prefer learning these kinds of lessons the hard way these days. If Bush feels defeated now, he will look back on today with fond memories as the anti-war momentum finally picks up more and more former Republican allies by the Fall. Well, it is no secret that Wall Street tends to be as conservative as Hollywood tends to be liberal. I cannot help but think that Wall Streeters are not pleased with the sickly performance of their President and get sickly themselves when they look ahead at the prospect of an all-Democratic Washington. This cannot be good for their collective buying mood.
Even more disturbing was the terrorism plot that was foiled in Great Britain largely by accident this week (the exploding SUV at the Glasgow airport notwithstanding). This plot apparently featured the exact kind of car bomb that terrorists have been using in Iraq with increasingly deadly precision. This event is yet another reminder of how America's strategy in Iraq has failed. Even though weapons of mass destruction were not found in Iraq, we were supposed to be consoled by our efforts to keep terrorists "pinned down" in Iraq and away from our borders. Instead, just as those of us who opposed the invasion feared, Iraq has become an opportune training ground for terrorists. They have developed new weapons, new techniques, and have, tragically, experimented profusely. World financial markets held steady as we all let out a sigh of relief - events could have turned out so much worse. But the sense of alarm has heightened. Combine this with the growing alarm about our crippled government, and folks of any party must feel more sickly.
And speaking of sickly, we got more news of faulty Chinese imports. This time some 450,000 or more tires made in China may lack an important safety feature. I don't know how Chinese safety standards stack up against other imports or even domestic products, but given how daily American life is dominated by Chinese-made goods, I am sure Americans cannot help but feel some dread over these latest revelations of deadly imports from China.
This is all bad, bad news. So, it should come as little surprise that the latest report on personal income and outlays from the Bureau of Economic Analysis received so little fanfare this week - even though it told us that Americans are still sustaining a negative savings rate. For two years running, Americans have allowed incremental savings to go negative, that is, consumer spending is still eating up disposal income and dipping into the bank accounts too. This has happened even as the housing market has peaked and driven housing prices downward. Average annual regional drops of 1 to 3% are certainly drops in the bucket compared to years of double-digit gains. But one would think that the revelations of the growing sub-prime mess might get folks to start saving for a rainy day. I cannot imagine Americans can continue drawing down on bank savings even as their most valuable asset also declines in value, but it is also hard to calculate the point at which these two trends blow up on us. After all, unemployment remains historically low and GDP growth remains decent. The trend in savings has been downward for decades, so I suppose this is where momentum just continues to take its toll.
OK, so that was a long way of alerting you to the negative savings rate data. I could not help myself from layering in some more general news context given that I have absorbed so much of it this week. Thanks for indulging me!
Be careful out there!