Wall Street ends worst week in year on debt stalemate

NEW YORK (Reuters) - Stocks ended the worst week in a year as time runs out on Washington to reach agreement before the government loses its ability to borrow money.

The S&P 500 fell every day this week and was down 3.9 percent for the week as legislators failed to work out an agreement to raise the federal borrowing limit, which expires on Tuesday. Investors also worry about the likelihood of a U.S. credit downgrade.

The CBOE Market Volatility Index <.VIX>, a gauge of investor fear, jumped as much as 9 percent to its highest level since mid-March before paring its rise.

Natalie Trunow, chief investment officer of equities at Calvert Investment Management in Bethesda, Maryland, said investors are taking a more defensive stance, possibly moving more into cash.

"It's frustrating for investors and for U.S. citizens to see this unfold in the way it has been," she said.

"From an overall asset allocation standpoint, in an environment like this, you get bigger moves into cash and safe havens."

The Dow Jones industrial average <.DJI> was down 96.87 points, or 0.79 percent, at 12,143.24. The Standard & Poor's 500 Index <.SPX> was down 8.39 points, or 0.65 percent, at 1,292.28. The Nasdaq Composite Index <.IXIC> was down 9.87 points, or 0.36 percent, at 2,756.38.

U.S. President Barack Obama told Republicans and Democrats to find a way "out of this mess." The United States will be unable to borrow money to pay its bills if Congress does not raise the debt limit by August 2.

A second attempt for a vote in the House of Representatives is expected after the close of trading on Friday after a bill was modified to try to win over more conservative lawmakers. The measure has little chance of passing in the Senate, however.

Message to Democrats and those who criticize TEA partiers:

You inherited a land of liberty because a group of learned individuals over 200 years ago were willing to put their lives, property and sacred honor on the line on behalf of liberty for individuals and and, later, through their written constitution, they placed strict limitations on the persons whom they would elect to serve them in government.

Today's citizens who loosely call themselves the Taxed Enough Already party (that's party with a little 'p') people (named for their ancestors who rebelled against the King's abusive taxation)--these brave citizens are intelligent, resourceful and have studied the ideas of liberty. They understand that America can no longer be free, if the philosophy of Mao/Marx/Lenin and Keynes is allowed to prevail over the philosophy of Washington, Adams, Madison, Jefferson and Adam Smith.

Can you cite any authority on either economics or freedom who is more eloquent than Thomas Jefferson on the question of the ideas of liberty or of the consequences of debt and deficit?

"To preserve [the] independence [of the people,] we must not let our rulers load us with perpetual debt. We must make our election between economy and liberty, or profusion and servitude. If we run into such debts as that we must be taxed in our meat and in our drink, in our necessaries and our comforts, in our labors and our amusements, for our callings and our creeds, as the people of England are, our people, like them, must come to labor sixteen hours in the twenty-four, give the earnings of fifteen of these to the government for their debts and daily expenses, and the sixteenth being insufficient to afford us bread, we must live, as they now do, on oatmeal and potatoes, have no time to think, no means of calling the mismanagers to account, but be glad to obtain subsistence by hiring ourselves to rivet their chains on the necks of our fellow-sufferers." --Thomas Jefferson to Samuel Kercheval, 1816. ME 15:39

"I deem [this one of] the essential principles of our government and consequently [one] which ought to shape its administration:... The honest payment of our debts and sacred preservation of the public faith." --Thomas Jefferson: 1st Inaugural, 1801. ME 3:322

"I sincerely believe... that the principle of spending money to be paid by posterity under the name of funding is but swindling futurity on a large scale." --Thomas Jefferson to John Taylor, 1816. ME 15:23

"[With the decline of society] begins, indeed, the bellum omnium in omnia [war of all against all], which some philosophers observing to be so general in this world, have mistaken it for the natural, instead of the abusive state of man. And the fore horse of this frightful team is public debt. Taxation follows that, and in its train wretchedness and oppression." --Thomas Jefferson to Samuel Kercheval, 1816. ME 15:40

Your Party's control of the Congress since 2006, and of the Presidency for the last 3 years, along with any Republicans who have been coopted to go along with the Democrats' policies have brought us close to the kind of "wretchedness and oppression" spoken of by Jefferson.

Thank God for technology and the so-called TEA party movement! Else, future generations would never know that there were those in 2012 who stood for liberty, not "servitude."

The economy is responsible for the market overall, but the market wobbled and went down significantly this week, especially after the failed vote, because of the uncertainty.

I think we could have acted efficiently and gotten credit for moving it along, particularly since the change to the bill that finally enabled the “Tea Party” crowd to vote “yes” was virtually symbolic only and also because it was known that no matter what we gave the Senate, they were going to reject it. They had already said so in writing.

This was lousy propaganda and also led to some very bad tactics (such as the RSC using GOP money to secretly send out e-mails telling constituents to call their congressmen to vote no on what was already the official GOP bill) and some really bad rhetoric.

And it was entirely political. You do know that six of the “Tea Party heroes” were going to vote yes, but as soon as there were enough votes to pass the bill, they changed their vote to “no” so that they could get what they perceived to be credit for voting against it. Talk about politics as usual.

I attribute some of this to newbie mistakes among some of the recently elected people. But I also suspect that some of it is pure Ron Paul type politics with a few more adherents than he had before.

This was a very limited issue and I think it was poorly handled.

I agree that the Tea Party movement is very important - I went to that first great march on DC and it was wonderful.

I think one of the problems is that the movement as a whole is having an identity crisis. I liked it because most of the people in it seemed to be social and cultural conservatives dedicated to getting big government out of our lives. But it almost seemed to me that this focus was lost in the debt ceiling debate, where we had a few people using it as a means of scoring symbolic points for themselves rather than looking at the whole and planning a unified strategy that would really achieve the ultimate goal.

This has always been a danger with conservatives, for some reason, probably because we are better educated and more independently minded than the left. But it can also paralyze us and marginalize us, particularly since it tends to split people off into tiny groups (or eventually, 3rd parties) grouped around their solution to some specific, temporary issue. We lose the ability to present a united front defending and extending the overall program, and our disarray results in a loss of our initiative, a loss of energy and the creation of distrust and hostility among our forces.

Thanks for your thoughtful post.

Perhaps those who are studying and rediscovering the ideas of America's Founders will realize that it was the Founders' passion for individual liberty which motivated them. Their power is in the strength and appeal of their ideas.

Contrast that with the collectivis and redistributionist ideology of those who must use the coercive power of government to impose their will on others, and we can see why such persons' response to a "community organizer" brought us to where we are today--on the brink of loss of freedom, opportunity, and prosperity. Such is the way of all nations who have turned to the coercive power of government as the "solution" to problems.

Hopefully, in 2012, those who love liberty more than slavery will coalesce into an effective power to defeat those who reject the principles of the Declaration of Independence and restrictions on power provided by "the People's" U. S. Constitution.

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