Wall Street seems to have lost their belief that Republicans will do the right thing. Since the beginning of the week the DJI lost 4.2% of it's value. That's not a looming catastrophe (yet) but a drop that much, especially when most of it occurred in the last three days, tells me that if nothing is agreed upon on a debt ceiling bill that has any chance of passing Congress, Monday could be a very rough day for anyone who has investments, large or small in stocks and bonds. It means that investors don't believe the Republicans can or will make a deal by themselves unless it is solely on the Republicans Tea Party's terms.
This week's rout erased $700 billion worth of market capitalization, according to financial data company Wilshire, which owns the Wilshire 5000 Index. That index, which tracks every actively-traded stock in the United States, posted a loss of 4.2 percent for the week. The Dow fell 4.2 percent for the week, while the S&P declined 3.9 percent.
While paper losses and gains come and go as stocks fluctuate, this was the worst week for investors in more than a year.
And from the Wall Street Journal (that crazy liberal rag):
"The tone is pretty pessimistic," said Stephen Leuer, floor trader at X-FA Trading. "The market still believes a deal is coming, but it's becoming obvious that any and all solutions are going to be very painful."
Investors grew even more anxious Friday after the Commerce Department reported the U.S. economy expanded at a slower pace than expected in the second quarter. The gross domestic product report confirmed the economy's weakness in the first half of 2011.
"The GDP number was a huge disappointment," said Malcolm Polley, president and chief investment officer at Stewart Capital Advisors. "Couple that with the ongoing game of chicken in Washington, and consumers are scared."
The Dow has dropped 581.17 points during its six-session losing skid dating back to last Friday. The stalling of the U.S. debt-ceiling debate has convinced many investors that the government is on track to lose its triple-A credit rating.
I can only assume the markets didn't fall more because Wall Street believes the Democrats well do something - anything - to appease the hostage takers in the House. That something will likely involves cuts, now or in the near term, to our social safety net -- Social Security, Medicare and Medicaid.
I have some money in a 401k, but I also know that money will come back even if a deal isn't done on time. What I do know is that if the Big Three as slinkerwink calls them are cut, the Dems will lose next year. Oh they may retain the presidency but they won't reclaim the House and they will likely lose the Senate. In that political climate, all we can expect is more dysfunctional government and more cuts to critical needs, including a possible repeal of Health Care Reform.
I also know that once you start down the path of erasing benefits to our social safety net, they won't come back. Not in my lifetime. And I will need that money and those benefits far more than I will need my savings to survive after I reach 65. So I hope the Democrats in the House and Senate stand firm and demand a clean bill. I'd rather see some chaos for a few weeks if it saves us from a disastrous bill that cuts spending at a time when we need stimulus or places Social Security, Medicare and Medicaid in jeopardy. Such a bill that gives up so much for so little in return would be disastrous for the economy as well as for any semblance of national social cohesion created by the social compact between the government and the welfare of the overwhelming majority of Americans that the New Deal began.
Myself, I'm not optimistic that these Democrats will stand firm. If they don't however, they are cutting more than just their political throats. They are placing the country at risk of massive social upheaval, maybe not tomorrow or the day after, or even within the next few months, but soon and when it comes it won't be pretty.
Just my opinion.