Financial Crisis, 23 Feb 2009: Dow 7,114.78, -3.41%

Mountain View, CA (Global Understanding Institute)

Today was another bottom-bursting day for the U.S. stock market. The Dow Jones Industrial Average (DJIA:DJI) plunged 250.89 points, or 4.31%, to settle at 7,114.78. The last time the index closed this low was in 1997, over a decade ago.

The broader Standard & Poor’s 500 (SP500) was also down 26.72, or 3.47%, closing at 743.33. Both indexes are off by about 50% from their highs back in October 2007, and are back to levels of April-May 1997.

The NASDAQ index was also down 53.51, or 3.71%, closing at 1,387.72.

Dow Down and Chernin On the Way Out

Speaking of a falling of the value of the Dow, News Corp (NASDAQ:NWSA), the company that bought the venerable Dow Jones corporation for $5 billion in 2007, dropped $0.26, or 4.3%, to close at $5.78.

News Corp announced the planned departure of Peter F. Chernin, its #2 executive under Rupert Murdoch, when his contract comes due in June. Mr. Chernin, a Democrat, was known to have significant contentions with members of the Murdoch family, and with other executives in the Fox News division. This latest plunge brings News Corp down to about a quarter (25.53%) of the value its 52-week high of $22.64.

Stimulus in Time?

In an indirect reply to Republican Governor Jindal of Louisiana, Barack Obama spoke at the National Governors’ Association dinner about whether the stimulus was partisan pork (Jindal’s contention) or bipartisan recognition of necessity (Obama’s position).

You know, when I hear people say, “Well, there’s a lot of waste in this program,” well -- from my perspective at least, keeping teachers in the classroom is not wasteful; from my perspective, tax cuts to 95% of working families is not wasteful; from my perspective, providing all of you additional resources to rebuild roads and bridges and levees and dams that will enhance the quality of life of your state but also make it more economically competitive -- that’s not wasteful.

And so, if we agree on 90% of this stuff, and we’re spending all our time on television arguing about 1, 2, 3 percent of the spending in this thing, and somehow it’s being characterized in broad brush as wasteful spending, that starts sounding more like politics. And that’s what right now we don’t have time to do. ...

— President Barack Obama

U.S. popular sentiment is overwhelmingly on the President’s side at this time. And that time is limited. A Washington Post-ABC poll projects about two-thirds (64%) of Americans support the $787 billion stimulus bill.

Yet there is a sharp rise in concern about the Federal deficit. Overall, 59% of surveyed Americans in a Washington Post-ABC News poll described themselves as “very concerned” with the budget deficit, up 10 percentage points over when President Bush was in office. Under President Bush the U.S. debt grew from approximately $5 trillion to $10 trillion, the projected debt is presently at $10.85 trilion (as per the Brillig.com U.S. National Debt Clock). It is likely to rise to more than $12 trillion in 2009 through bailouts, the stimulus package, and a revenue shortfall due to the recession.

One looming question remains: whether the medicine of the stimulus package can be administered to the patient quick enough to prevent more castastrophic organ failure in the meanwhile. One dire scenario paints a default of the U.S. public debt by summer 2009. China has started to lose its appetite for U.S. dollars, and will have to afford its own $600 billion internal stimulus bill in 2009.

He also needs to, and has pledged to bring down the ballooning Federal deficit so that longer term massive budgetary hemmoraghing can be staunched. It is already at $1.3 trillion and may rise as high as $1.5 - $2 trillion in 2009. Plans released today by the Obama administration set goals of having the deficit to $533 billion by 2013.

In order to pull off this massive restructuring of the U.S. economy, indeed, the global economy, many things have to go right. It will take a combination of best faith efforts, cooperation, innovation, good governance, and the right amount of sheer luck for all the factors to fall into place.

U.S. Pledges $900 Million in Aid to Gaza

The total cost of the destruction of the war in Gaza was estimated initially at $1.9 billion (see the Global Understanding 19 January 2009 report). Now the U.S. is proposing picking up about half the cost of rebuilding via direct aid to the people of the devastated territory.

The U.S. must balance its involvement carefully. It must avoid fomenting anti-U.S. sentiment and touching off more unrest in the region. It must avoid antagonizing the Hamas-led local government, which will be made even more complex because the U.S. will not allow the donated funds to be handled by the Hamas government. It may stand accused of working as a collaborator with Israel for the political-economic control of the area.

Other Arab nations are also donating funds. Saudi Arabia is putting in $1 billion. Qatar is donating $250 million, and added another $30 million to U.N. projects in Gaza.

This puts the total pledged contributions to rebuild Gaza from three donors alone at over the recent estimations of damages: $1 billion (Saudi Arabia) + $900 m (U.S.) + $250 m (Qatar) = $2.15 billion pledges vs. $1.9 billion damages.

However, such pledges still need to be approved by the U.S. Congress, which is faced with a gigantic U.S. deficit and a local economic crisis of its own to deal with.

Financial aid may or may not be welcomed. It may or may not be siezed or diverted from its intended use. Many variables remain between the proverbial road paved with good intentions and the creation of actual paved roads.

Lastly, it must be recognized that any amount of economic contribution cannot ever directly heal the psychic traumas suffered by the population, fully heal the crippled and wounded, or raise the dead. There will be animosities, distrusts, and underminings of efforts for years to come. Such pains and hard hearts will be require time for any deep trust and for a lasting truce to build.