July 31, 2007
The big story of the recent stock market downturn was a wave of high anxiety credit fears over the value of corporate and housing loans. Credit circuits blew a fuse, lending markets temporarily froze and a number of buyout deals were postponed as analysts and traders worked through their problems, says Lawrence Kudlow, host of CNBC's "Kudlow & Company" and a nationally syndicated columnist.
But this is no time to lose faith, reminds Kudlow:
- The economy has found its legs with a 3.4 percent growth in gross domestic product (GDP) reported for the second quarter, a much-needed surge from only 0.6 percent growth in the first quarter.
- Moreover, core inflation came in at a rock bottom 1.4 percent.
- Most important, second-quarter corporate profits are flowing in 2 to 3 times better than expected.
Much of the profit gains reflect the huge global economic boom that Treasury Secretary Henry Paulson describes as the greatest worldwide surge in his professional lifetime, bringing new value into the stock market.
Congressional Democrats could make the situation even better if they would quit threatening to raise taxes on buyout firms and hedge funds whose ears are being pinned back by the bond market, says Kudlow. This is no time to raise capital costs by repealing George W. Bush's tax cuts or by raising new taxes. Taxing capital more will throw a wet blanket over American families' income and spending power by weakening the jobs picture, which remains one of the brightest spots in our economy.
Source: Lawrence Kudlow, "Profits matter," Washington Times, July 31, 2007.
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