The Elections—What Impact on Stocks and the Economy?

08/07/2008 12:00 am EST

Focus: MARKETS

Steve Forbes

Chairman and Editor-in-Chief, Forbes Media

Thursday, August 7, 2008

Steve Forbes, chairman & CEO, Forbes opened The San Francisco Money Show by telling investors that America is at a proverbial crossroads.

Forbes said that the US does have real problems, but they are not yet impossible to solve. But he warned that the upcoming election is the most important since 1980, as it will set the country's policy on taxes, Social Security, healthcare, national security, and energy-at a very critical time.

He noted that the problem with the continuing credit crisis is not the size of it. The worst-case scenario predicts losses of $1.2 trillion, which-although very significant-pales in comparison to the $50 trillion in net assets owned by American households. Forbes remarked that we will be able to absorb these losses, but the deeper problem is that even the financial industry doesn't know how much more in debt exists or where in the world it exists.

Consequently, regulators may be worsening the crisis. Trying to tighten lending standards, three-to-four years too late, they are now requiring massive write-downs on assets that are continuing to generate cash. But because there's no longer a market to sell them in, they are being booked as losses, ultimately fueling a need for the banks to raise capital.

Forbes stated that this crisis relates back to the real problem in America-monetary policy. He commented that the biggest mistake of the Bush administration is a weak dollar policy and that printing large volumes of money in 2004 to keep interest rates low, was fatal.

That fueled soaring commodities, unrealistic housing prices, and the drive for exotic mortgage loans that has now resulted in the big credit mess.

Forbes told investors that you cannot have a strong economy with weak money. And he recommended that they need only to watch the price of gold to tell you how well the economy is doing. If it stays lofty, it's time to tighten your seat belt.

In closing, Forbes remarked on the upcoming election, saying that this is a unique time period, and we will have to tackle income and estate taxes, create a better energy policy along with more accountable healthcare and Social Security programs.

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