IT'S THE ECONOMY, SILLY PERSON – AT 8:20 A.M. ET:  It may be because the education journalists receive cause them to think of government action as the center of all things economic, but it's really the actual economy that will determine our future.  Right now that economy looks awful.  Please note that not many people in Washington are referring to the "recovery," a term used pretty loosely not long ago:

NEW YORK, Aug 2 (Reuters) - The S&P 500 turned negative for the year on Tuesday as the wrangling over the U.S. debt ceiling faded and investors turned their attention to the stalling economy.

The broad-based index fell for a seventh day and crashed through the key 200-day moving average in an ominous sign for markets. The seven days of losses mark the longest losing streak since October 2008.

"It is going to be a long week," said Jim Maguire Jr., a NYSE floor trader at E.H. Smith Jacobs. "The bid is not here in the market."

The selloff accelerated into the close as volume jumped well above average. The fall was broad-based, with four stocks falling for every one rising on the New York Stock Exchange.

The index also broke through its 2-1/2 year uptrend line from its bear market low in March 2009. Thursday was the index's worst day in a year.

Investors seemed to find little to cheer after the U.S. Senate agreed to a deal to raise the debt ceiling because of the possibility it will not stave off a downgrade of the U.S. government's triple-A rating.

"Investors have made the shift from Washington to what I'm calling economic realities," said Fred Dickson, chief market strategist at The Davidson Cos. in Lake Oswego, Oregon.

COMMENT:  It is difficult to see how this economy can make any kind of significant turnaround in time for the 2012 election.  That is especially true as Washington budgeteers are looking, with increasing lust, at the defense budget.

But defense is one of the great real stimulants to the economy.  We've said here since Obama took office that replacing the Pentagon's obsolete and worn out equipment – including planes and ships – would create hundreds of thousands of production jobs, perform an enormous service and retain expertise.  But I'm afraid Obaman ideology got in the way. 

Another ideologically unacceptable stimulant would go into action if this administration would just lift some of the restrictions on domestic oil drilling.  Al Gore might have to double his Zoloft prescription, but the economic benefits, although they might be slow in coming, could be significant.  It's pretty clear that the currently high gasoline prices are a massive foot on the neck of the economy, giving people fewer dollars to buy things other than octane.  Anyone noticing?

August 3, 2011