When Obama speaks, the market drops

By E. THOMAS McCLANAHAN

Since the beginning of the year, the stock market has fallen about 20 percent — about half that drop coming since the inauguration of President Barack Obama.

Yes, the economy is in a mess and the market’s queasiness reflects that. But the Obama administration has contributed greatly to falling share prices. Virtually every time an Obama administration official speaks, the market drops again — a vote of no confidence in the profusion of new programs and the prospect of ever-higher spending.

The Dow Jones industrial average dropped more than 381 points last month when Treasury Secretary Tim Geithner revealed that despite eager expectations, the administration had only vague plans for dealing with the banking crisis.

Some people I’ve talked to seem to think the stock market’s behavior is of minimal significance. But even if you don’t invest, the market is an important leading economic indicator.

The prices it discovers every day are a collective judgment of the future value of the nation’s stock of capital, and traders most definitely don’t like what they see.

The Dow dropped nearly 300 points when Obama signed the stimulus bill, which was largely devoid of any significant measure to encourage increased investment.

Indeed, the bill’s stimulative effect will be very weak. It’s loaded with political pork for Democratic constituencies, including tens of billions of dollars in new spending on means-tested social programs that will be nearly impossible to cut when the federal money runs out.

Congress is likely to continue much of this spending, building those amounts into the budget baseline and permanently expanding the size of government. This gives the lie to Obama’s pledge to push through major cuts in the deficit.

Medicaid recipients

For example, states will sign up new recipients for an expansion of Medicaid. In two years that money will go poof. Will politicians then say to recipients, “Sorry, you’re on your own?” Not likely.

A recent paper by the non-partisan Tax Policy Center paints a grim picture of the government’s future financial position.

“In 2009, the federal deficit will be larger as a share of the economy than at any time since World War II,” write the authors, Alan Auerbach and William Gale. “What is more troubling is that, under what we view as optimistic assumptions, the deficit is projected to average at least $1 trillion per year for the 10 years after 2009, even if the economy returns to full employment and the stimulus package is allowed to expire in two years.”

So much for Obama’s talk of reducing the red ink to $533 billion by the end of his term.

The constant eruptions of new spending have sent tremors through the bond market. The financial ground has shifted to the point that Secretary of State Hillary Clinton, during her recent Asian trip, was reduced to pleading with the Chinese government to keep up its purchases of U.S. Treasuries.

Obama isn’t content to concentrate his efforts on major crises of the day — housing, the auto industry, the credit markets and the economy in general.

No, he has decided that his administration must also forge ahead on major health care reform, an education initiative, the transformation to a “green” energy economy and even a cure for cancer.

It’s an agenda of staggering proportions. Whatever the next few months bring, it’s now clear that this president is no centrist.

X E. Thomas McClanahan is a member of the Kansas City Star editorial board. Distributed by McClatchy-Tribune Information Services.