It was a beautiful month for the indices – the S&P 500 gained 9% for March, the Dow had its best percentage month since October of 2002, and the NASDAQ had its best March ever. Unfortunately, January and February were two horrible months in the equity market, and on a year-to-date basis, the S&P 500 and the Dow Jones Industrial Average are still both off more than ten percent.
This last week brought forth many news items, and many stories that we won’t dwell on so we don’t beat a dead horse, such as the AIG "Bonusgate" and the ousting of GM CEO Rick Wagoner. Whether or not GM and Chrysler will be forced in to a structured bankruptcy remains to be seen, but the rhetoric used this week by both the CEO’s of the auto manufactures and that of the President would lead one to believe that bankruptcy is a high probability.
One headline that the mass media will probably not be too keen on reporting is the sheer dollar amount that the United States has already committed to get us out of the Credit Crunch. According to recent figures from Seeking Alpha, we have lent, spent, or committed to $12.8 Trillion in rescue and stimulus packages so far. This figure includes the Stimulus Packages (both Round 1 and Round 2), the TARP, the TALF, and every other promise from the Fed and the Treasury. Just a few years ago, the notion that we would have a $200 Billion deficit scared nearly everyone. At the G-20 meeting, we committed about $100 Billion more to go to the IMF. Today, we are looking at a debt of $12.9 Trillion. Our entire GDP is roughly $14 Trillion. Essentially, we have just committed a year’s worth of American productivity in an attempt to get out of this crisis.
Now, I know that some of the promises are tied up into possibilities of a potential return for the taxpayers, and in some cases, we actually believe that the taxpayers can make some money. But, as one of my favorite economists Brian Wesbury pointed out, in February, the government said that the $787 Billion stimulus was spent to create 3.5 million jobs. That means we are creating one new job for every $225,000 that is spent – and that is assuming that 3.5 million jobs truly do get created! Either way, that is money that will have to be paid back over time, and one more reason that we believe tax rates will only be heading one direction over the long-term.
