The stock market has plunged since late September when it became
pretty clear that President-elect Barack Obama would become our next
president in January.
While the mounting financial crisis certainly has had a major role
in sinking stocks some 40% year to date, speculators are worried that
Obama will follow through on his promises to raise income taxes on
dividends and capital gains, rescue General Motors (GM), Ford (F) and
Chrysler and make it virtually impossible for private employers to
resist unionizing drives.
Traders are hoping that Obama will realize that tax increases will
push the economy deeper into a recession or even a depression.
Speculators and economists fear that if Obama, House Speaker Nancy
Pelosi and Senate Majority Leader Harry Reid bailout Detroit-based auto
makers instead of letting them file for Chapter 11 bankruptcy, the
country will face a very long and deep Japan-style recession and
depression. Japan made the mistake of bailing out failing banks and
companies instead of letting them fail so new companies could take
their places. This is why Japan’s economy has been depressed for some
17 or 18 years.
Unfortunately, Senate and House Democrats are buying Detroit’s scary
lies that if the auto companies declare bankruptcy, millions of jobs
will disappear. Not true. The companies would re-organize with many of
their current workers under revamped union contracts. Reorganization,
new labor contracts and new employee and retiree health benefit plans
would make the companies competitive and profitable after they emerged
from bankruptcy. And some auto workers would find jobs with Toyota,
Honda and other companies that have factories in the U.S.
If unions win their card check plan, which would take the secret
ballot away from workers during union elections, more than 50% of
privately-employed workers would be unionized in a few years, and that
would Europeanize the American economy.
While Obama continues to pledge that he and Congress will enact
another economic stimulus bill and bailout Detroit, he hasn’t backed
off his plans to raise taxes or payoff the unions that helped elect
Investors also are worried that if Obama nationalizes health
insurance markets, cuts defense spending and imposes onerous
regulations on banks and Wall Street, the economy will be in for a
rough ride, and they’re right.
So, we wait and watch.
Obama’s staff and cabinet appointments as well as his public
comments between now and January 20 will offer important clues for the
markets. As the markets sink, the pressure on him to clarify and revise
his plans will increase.
Because there’s so much uncertainty about Obama’s plans as well as
about the world financial markets and economies, many financial
advisers reportedly are telling client to stay out of the markets until
we know more.
(I own GM.)
Don Johnson is a former editor at Modern Healthcare. He blogs regularly at The Business Word Inc., where this post first appeared.