A Reason to be Angry -- and a Better One to be Happy
After Standard & Poor's downgraded America's credit rating Friday and the stock market lost itself entirely yesterday, everyone's emotions are running high. Mine have gone like this. When news of the downgrade hit, I thought, "Eh, no big deal." In April, S&P gave 50-50 odds of a downgrade if last week's debt-ceiling deal didn't cut $4 trillion from future deficits. The deal didn't. So who was surprised? After I read why S&P made the downgrade, I became annoyed. After yesterday's 600-point bloodbath, I'm now angry. You should be, too.
Who am I angry with? Washington. By S&P's account, they are the sole reason the nation's credit was downgraded. Few sensible people think the U.S. lacks the economic means to pay its bills. Push comes to shove, and taxes can be raised or money can be printed. These create a litany of other problems, but they invariably solve a debt problem. America can pay its debts.
The real roadblock is the political acid that gets in the way of our debt management. The debt ceiling has been raised 88 times since the 1940s, almost always without incident. Last week was different. It was turned into a political hostage. And S&P made it clear that the last week's debt-ceiling rodeo show is what ultimately sparked the downgrade. "The political brinksmanship of recent months highlights what we see as America's governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed," it wrote. "The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy."
Now here's what's outrageous. After S&P made it clear that political bickering drove a stake through our nation's credit rating, political leaders responded by pulling out the howitzers and doubling down. "This is essentially a tea party downgrade," said Obama campaign chief David Axelrod. Republican presidential candidate Mitt Romney said, "The president's failure to put our nation's fiscal and economic house in order has caused a massive loss of confidence that resulted in an embarrassing downgrade."
Um, guys, this is exactly what S&P is talking about. By continuing to throw rocks at each other, you're engraving its point in stone. The biggest threat to our economy is not runaway spending or high taxes or entitlements. It's the vitriol used to prevent rational debate and agreement about those topics. The continuation -- even acceleration -- of that vitriol after the credit downgrade is what makes me angry. It should make all of us angry. When people asked what you thought of political bickering one week ago, the smart answer was, "Oh, I don't pay attention to that childish stuff." But that childish stuff shaved several trillion dollars off global wealth in the past week. This isn't just a sideshow built for cable news sound bites. It has a real, tangible, impact on people's financial lives.
But amid it all, there's reason for hope. There's reason to be thankful. There's reason to smile. It's simple: Every seed of prosperity is planted in the dirt of fear. Every bull market in history found its footing in the screams of panic. In 1933, people utterly gave up hope that the Great Depression would ever end. That turned out being the single best time in history to buy stocks. In 1982, people lost confidence that the Fed could tame inflation. That created a buying opportunity of a lifetime. In 2009, investors were sure that the financial system was unsalvageable. That paved the way for stocks to double within 18 months.
Will the crash of 2011 turn out the same way? Let's make it clear: No one knows how much further markets might fall. There could be more blood to come. But no one I know at The Motley Fool is panicking. Instead, we're looking at the current price of some high-quality stocks with sheer amazement, if not amusement. Yesterday, Fool Jeremy Phillips talked about Colgate-Palmolive (NYS: CL) . Others have mentioned Ford (NYS: F) and General Motors (NYS: GM) . Microsoft (NYS: MSFT) now trades at about seven times next year's earnings. Waste Management (NYS: WM) yields 4.5%. Berkshire Hathaway (NYS: BRK.B) trades at one of the lowest valuations it has seen in decades. We don't know how much lower these stocks might go. But we know that buying them at current prices will serve us well over the long haul. And that opportunity wouldn't be here without the charade that is our Congress.
"We're all in the gutter," Oscar Wilde once said, "but some of us are looking at the stars."
How about you?
Check back every Tuesday and Friday for Morgan Housel's columns on finance and economics.
Fool contributor Morgan Housel owns shares of Microsoft and Berkshire Hathaway. Follow him on Twitter @TMFHousel. The Motley Fool owns shares of Microsoft, Berkshire Hathaway, Waste Management, and Ford Motor. Motley Fool newsletter services have recommended buying shares of Ford Motor, Waste Management, Berkshire Hathaway, General Motors, and Microsoft, as well as creating a bull call spread position in Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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