- - Sunday, February 2, 2014

ANALYSIS/OPINION:

Last week, steep declines in currency credit and stock market values made for the worst January stocks report since 2010.


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It appears that investors are rejecting the notion that simultaneous mammoth increases in government spending and historic decreases in benchmark interest rates in the U.S. have put the world economy on a comfortable growth trajectory.

Yet, carnage in financial markets was not the most jarring event in January — President Obama’s State of the Union address was. He doubled down on an agenda that chokes off capital investment, crimps after-tax private sector incomes, and saddles an already overleveraged economy with even more debt — ignoring evident reality inside and outside America. He and his Democratic cohorts are wedded to rhetoric and policies that frighten badly needed investors.

Burdened with trillions more in debt piled on since 2008 in a benign period of abnormally low interest rates, the federal government now needs a strict diet, not more expanded, unfunded mandates such as Obamacare, whose true burden is not known because regulations guiding its implementation and performance metrics are evolving.

Abroad, America is diminished and tarnished by setbacks and scandals, large and small. Conflicts are spreading while America retreats, compounding risks to the fragile global economy.

Embracing the seductive notion of peace with Iran, the Obama administration left Egypt, Libya and Syria to burn as it hastened exits from wars in Iraq and Afghanistan. The destruction in progress continues — no one knows how the power vacuum in this regional crucible gets filled. For the moment, U.S. prestige and influence are on the wane.

In the end of Tuesday night’s address, we learned that Mr. Obama will fight in ignorance of reality for plans his Republican foes certainly cannot accept — so we face continued gridlock through elections in 2014 and 2016.

The business model for America’s bloated federal government needs to be retooled. Unfortunately, the mechanics who might do that retooling will likely keep fighting among themselves for three more years.

America has already lost its Super Bowl

The buck already has stopped — soon the dollar may forever lose its premier status as the world’s reserve currency.

Since 2008, the Federal Reserve has purchased federal debt at unreasonably low interest rates, pushing down the cost of consumer purchases and lowering annual federal deficits. But it also degraded the value of the dollar.

The right to exchange printed pieces of paper currency for goods and services is precious. America now clings to this privilege with a weakening grip.

In 2011, the United States lost the coveted “AAA” debt rating as politicians bickered over matters that are still unsettled. In months to come, we can be certain the fighting will continue. What we do not know is how debt rating agencies may react once they determine that spending reform cannot happen, given political realities.

Professional investors steadily have retreated from allocating funds to Treasury securities since May. Meanwhile, the Federal Reserve’s balance sheet is stretched thin by its purchases of trillions of dollars-worth of low-yielding securities whose value would plummet if America were forced to defend the dollar by raising key interest rates.

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