Have you ever worked around someone that I call an Eeyore? You know the Donkey from Winnie the Pooh. The person that that always sees the glass as half empty, they are constantly gloomy, never ever really upbeat, or happy. If you have ever spent any time around them you too start to get gloomy and negative and thinks start not to look too good. Even sunny days start to appear dark.

Well, not that that this totally explains what is going on, but I do think it is part of what is happening with the US and World economy. While we do have problems, the press over the past 10 years has gotten gloomier and gloomier. Everything is a crisis, and the economy has become the proverbial football in this US election season.

The Democratic candidates seem like they are trying to make it seem even worse as they try and pitch the various new government sponsored fixes for everything from your teeth, your oil changes, to the way you raise your children. The government is the answer supposedly. They have apparently named Eeyore as their official mascot.

They want the government in every part of your businesses. So, of course for you to allow them to take over control of all of those decisions, things have to be bad and getting worse by the minute and in need of fixing. There has to be a crisis.

To be fair, some of the Republicans candidates are in the same boat.

Just a friendly reminder, economic crisis’s are causes by government interference in free markets, they are not the fix for them normally.

The best thing for them to do is to get out of the way. Not play with interest rates, not do a myriad of other things to tinker with the economy.

They are caused by governments taking away the ability or incentive of the market to make good decisions. This goes way; way back with perhaps the two worst US government blunders are the Fordney-McCumber Act and the Smoot-Hawley Act.

There were several other stupid moves leading up to this that helped as well, but we will save those for another time. This is only a few decades after the government promised to implement income taxes in the US as an emergency measure to be put in place only until the crisis was over. The crisis of politicians spending your money unwisely is apparently ongoing.

If you don’t know what Fordney-McCumber Act or Smoot-Hawley was, here is a direct excerpt with a decent explanation from the US Department of State.

The Smoot-Hawley Tariff Act of June 1930 raised U.S. tariffs to historically high levels. The original intention behind the legislation was to increase the protection afforded domestic farmers against foreign agricultural imports. Massive expansion in the agricultural production sector outside of Europe during World War I led, with the postwar recovery of European producers, to massive agricultural overproduction during the 1920s. This in turn led to declining farm prices during the second half of the decade. During the 1928 election campaign, Republican Presidential candidate Herbert Hoover pledged to help the beleaguered farmer by, among other things, raising tariff levels on agricultural products. But once the tariff schedule revision process got started, it proved impossible to stop. Calls for increased protection flooded in from industrial sector special interest groups and soon a bill meant to provide relief for farmers became a means to raise tariffs in all sectors of the economy. When the dust had settled, Congress had agreed to tariff levels that exceeded the already high rates established by the 1922 Fordney-McCumber Act and represented among the most protectionist tariffs in U.S. history.

The Smoot-Hawley Tariff was more a consequence of the onset of the Great Depression than an initial cause. But while the tariff might not have caused the Depression, it certainly did not make it any better. It provoked a storm of foreign retaliatory measures and came to stand as a symbol of the ‘beggar-thy-neighbor’ policies (policies designed to improve one’s own lot at the expense of that of others) of the 1930s. Such policies contributed to a drastic decline in international trade. For example, U.S. imports from Europe declined from a 1929 high of $1,334 million to just $390 million in 1932, while U.S. exports to Europe fell from $2,341 million in 1929 to $784 million in 1932. Overall, world trade declined by some 66% between 1929 and 1934. More generally, Smoot-Hawley did nothing to foster trust and cooperation among nations in either the political or economic realm during a perilous era in international relations.

While there has been a fix offered by Bush, there are many that think that the market should be allowed to sort itself out. Be that as it may, the treasury is whipping up the printers to turn out more money and lower interest rates which could help devalue the dollar even further.

Apparently none of the World markets liked what they heard or did they? Is Eeyore out there braying for everyone to hear that will listen? It does make a good cover story for sure.

I guess we will have to wait and see what happens. The only advice I can offer is that if you have not figured out how to play the short side of the market, you are missing more than half of some of the best investment opportunities out there. If you are long stock, you should at the very least be selling covered calls if they are available.

The next few months will tell what is going on. Oh and by the way, the best defense against Eeyore is to not allow him anywhere near you. Because with him braying so loud, it can be hard to figure out what is really going on. Let him ruin someone else’s day.

This entry was posted on Monday, January 21st, 2008 at 5:44 pm and is filed under Economics, Opinion. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.