After an ugly day in the stock market Thursday, a little perspective may be in order. On March 9, 2009, the Dow Jones Industrial Average (DJIA) closed at 6,548. Capitalism as we know it seemed to be in utter collapse. And yet, less than two years later, the DJIA closed out 2010 at 11,578. Not many people would have made the bet in March 2009 that the DJIA would have recovered so rapidly.
In The New Yorker this week, James Surowiecki makes a cogent argument that any problems that may arise from the failure of Congress to raise the debt ceiling limit would be a self-inflicted wound.
Surowiecki maintains that the debt ceiling is superfluous because "if Congress really wants to hold down government debt, it already has a way to do so that doesn't risk economic chaos – namely, the annual budget process. The only reason we need to lift the debt ceiling, after all, is to pay for spending that Congress has already authorized."
Nothing in this article should be relied upon as being of any value. If you find any tax advice contained in this article, then you do not have to pay taxes in 2011. This article is meant solely for the intended recipient, his or her family, and their friends, co-workers, and heirs.
Such is the inanity of many disclaimers tacked onto the bottom of emails in an apparently vain effort to limit liability or impose confidentiality. One online wag describes disclaimers as poorly worded legal gibberish written by overzealous lawyers in a futile effort to enforce binding contracts to protect their careless mistakes.
While we do not seek to ignore the lessons of history, it is not unusual for us to forget them. The recent initial public offering of LinkedIn, a social networking web site for professionals, may be yet another example of memory loss.
As the financial newspaper Barron's pointed out, LinkedIn stock traded at astronomically high valuations after its initial public offering -- 35 times its 2010 revenue and 550 times its 2010 profits. At that time, by comparison, Google was valued at 5 times revenue and 20 times its trailing profits.
Over time, some people have feared that California may slide into the Pacific Ocean due to an earthquake. A more immediate concern is whether California will descend into an abyss due to its financial problems. Many states and municipalities face similar difficulties, causing the safety of municipal bonds to be questioned.
Hopefully, we won't revisit the debt crisis of 1835, when the "United States succumbed to a craze for building railroads, canals, and turnpikes, all backed by state credit." As Ron Chernow describes in the book "The House of Morgan," the state debt had been largely marketed in London to British and European investors. Some states chose to stop making interest payments as "American legislators found it easier to pander to the hatred of foreign bankers rather than to raise new taxes to service the debt." No wonder "British investors cursed America as a land of cheats, rascals, and ingrates."
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