Our Opinion: Record high, but no joy
Last Tuesday, the Dow Jones Industrial Average soared to a record high, and then nudged up from there. These highs came nearly four years to the day since the Dow plummeted to a low of 6,547, less than half the number reached by the blue chip index last week. Still, there were no ticker tape parades on Wall Street, none of the old "irrational exuberance," to borrow the cautionary phrase used by former Fed chief Alan Greenspan, the former genius who ultimately forgot his own advice and thoroughly misread the pre-collapse economy. Americans appear wiser now and skeptical if not cynical.
It took about five years for the Dow to recover from the Great Recession, and workers whose 401ks and IRAs fell through the floor are recouping their losses. It was feared that a second Great Depression was coming, but President Obama's economic stimulus package and bailout of key industries staved off the worst and helped trigger a slow recovery. If an anti-government advocate of cut-and-slash economics like Mitt Romney had been in the White House we can only imagine the mess we'd be in now. Luckily, the new president did what had to be done.
According to the Labor Department, private companies have added 600,000 jobs over the past three months. The small chunk taken from paychecks because of the increase in the payroll tax has not stopped consumers from consuming. Although housing prices remain about 16 percent below pre-recession levels they are slowly climbing. In spite of the economic good news and the stock market rally, however, there may quiet satisfaction but no joy in the land. Painful lessons have been learned and so far not forgotten.
Before the economic collapse, everyone from Wall Street bankers to home buyers disregarded the old adage that whatever goes up must come down. The quest for higher profits by overconfident investment banks that believed there were no risks involved produced complex, dangerous schemes that triggered the Wall Street collapse. Home buyers who took on mortgages at preposterous terms in the belief that their homes would only increase in value fueled this collapse and were eventually buried beneath it.
While legislation was passed in the wake of this disaster to prevent its repetition, congressional Republicans succeeded in watering down that legislation and continue to put up roadblocks to prevent its full implementation. Agencies like the Securities & Exchange Commission appear no more capable of or determined to crack down on huge and reckless investment houses and banks than they were five years ago. Trouble may not be far off.
Under Ben Bernanke, the Federal Reserve has bought hundreds of billions of dollars of Treasury and mortgage securities in recent years to stimulate the economy. Long-term interest rates, such as those for mortgages, are at record lows, and the Fed's short-term rate is nearly zero. This has assuredly helped create a stock market bubble, as the record Dow rates don't reflect the reality of an economy that, while imßproved, is hardly roaring. The Fed will have to tiptoe back to more traditional monetary policies at some point, and in doing so, it risks setting off a stock market slide.
While investors have shrugged off the sequester folly, that may because of the foolhardy belief that because nothing dramatic happened in a week nothing dramatic will happen. Those budget cuts, triggered by the refusal of Republicans to practice good government and compromise with the president, will cost jobs and will slow the economy. Tea party foolishness, every bit as reckless as the actions of Wall Street five years ago, comes at a cost that must be paid.
A Wall Street that eluded punishment and opposes regulation, coupled with an irresponsible minority party in Washington that doesn't want to regulate, suggests economic trouble is likely if not inevitable. Americans have a right to be cautious. Wisdom is often gained the hard way.
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