Last week, we asked the question - "How Political Is This Economy?" We certainly got another solid answer, if any more were needed this week. Having rolled over and played dead during the "debate" surrounding Mr Bush's "detainee bill" last week and having managed to pass none of the appropriations bills necessary to keep the government funded, the US Congress decided enough was enough. They made the decision to recess for the upcoming mid-term elections a week early - on September 30 instead of the originally scheduled October 6.
The US markets reacted almost instantly. The Dow, which had risen to within five points of the high it set nearly seven years ago on January 14, 2006, duly broke well above that high on October 3, rising 57 points to a new all time high of 11727. The next day, it gained another 123 points to 11850. Oil reacted even faster, on the first two trading days of the week, it fell a total of $US 4.22(or 6.7%) to a new 2006 low of $US 58.68.
Presto, the economy was, at least for the moment, removed from the political equation, at least so it was fervently hoped. Americans once again had a "healthy" stock market and even had the prospect of having some disposable income, the price of gas having plummeted.
Of course, Gold (and the other precious metals) could not be left out of the mix. On October 3 and 4, the spot future price fell a total of $US 35.70 (or 6.0%) - all the way back to its June 2006 lows just above the $US 560 level. There would be no "inflation indicators" spoiling the campaign to get re-elected either.
This is the "economic" part of the election so far. But the political part is not taking any back steps either. So far, the epitome of this is the great (mass) media frenzy surrounding the pecadillos of Florida Republican Mark Foley and his email correspondence with "underage" Congressional pages. It is these revelations, and not the trashing of American and international law and morality perpetuated by the Bush Administration and gone along with by a supine Congress, which has been blown up into the BIG early "issue" of the campaign.
This "issue" is so big, it is reported to be drowning out the release of the new book by Bob Woodward of Watergate fame which documents the Bush Administration's bungling of the Iraq war and its brazen misleading of the American people over the course of the war. One is tempted to wonder whether Mr Foley's "juicy" sex scandal was "uncovered" this week for just that purpose.
Which do you think the brains trust behind the Republican party would rather American voters concentrate on? A lone Republican apparently caught in sexual practices somewhat more tawdry (depending on your viewpoint) than the ones that got President Clinton to the brink of impeachment in the late 1990s? Or a stack of blatantly impeachable offenses which would bury the Washington Monument all of which are not open to debate and some of which President Bush himself has openly acknowledged and even boasted about?
Truly, political economy as it is practiced in a one-party state is not a pretty sight. One can only hope that enough Americans hold their noses and vote against Republicans next month to make absolutely sure that Mr Bush loses control of one or preferably both Houses of Congress. There has probably not been a President in US history who more richly deserves to do so.
Getting back to the economic side of the equation. Since fiscal 2006 began, the Congressional Budget Office has been continually cutting their estimates of the actual 2006 budget deficit. The "estimates" have gone from $US 390 Billion to $US 361 Billion to $US 291 Billion to the latest estimate of $US 260 Billion released by the CBO on August 18.
Fiscal 2006 in the US actually ended last Saturday (September 30) We do not yet have the data for the official 2006 deficit but we do know what the increase in Treasury debt was over the fiscal year. According to the Treasury's official statement, their debt "to the penny" in fiscal 2006 increased by $US 574.27 Billion. By the way, on the first day of fiscal 2007, that official debt "to the penny" increased by almost $US 42 Billion. We feel confident in predicting that the official increase in Treasury debt over fiscal 2006 will end up being more than DOUBLE the official budget deficit admitted to in fiscal 2006. There's another example of political economy for you.
So, Oil is down to at or near its 2006 lows. The Gold price is still challenging (although it recovered in $US 12.00 in late trading - see the data above) its June 2006 lows. The Dow is at all time highs (although the S&P 500 and especially the Nasdaq are nowhere near the equivalent levels). We have a sex scandal overwhelming all other and somewhat more potentially "damaging" issues faced by the incumbent Republicans. For a first week of politiking (sic), that's not bad going. We can only wait and see what the next month brings with it
October is a month of "surprises". This is true on both a political (the infamous October surprise) and an economic (read October 1929 and October 1987) level. Note here though, that neither of those stock market crashes took place in a US election year.