Market Turbulence and Economic Concerns
Yesterday, as the market opened, stocks took a significant plunge, with the DOW dropping 512 points within moments. Wall Street reacted with heightened anxiety as the drops continued throughout the day.
Is this just the start of a troubling trend or a golden opportunity for savvy investors to buy the dip? Only time will tell.
However, we won’t focus on the stock market today. Our attention is drawn more towards pressing issues, such as a waning economy and the possibility of the government making reckless decisions to remedy the situation.
Public trust in the government’s capacity to manage the economy is waning. If faith hasn’t already diminished, it certainly should be, in our view. Yet, the government is likely to keep reaching for solutions until the ship of state is fully submerged.
Ultimately, we won’t know until the next economic downturn whether the populace favors more bailouts. The government will almost certainly respond with stimulus packages and promises of recovery to save us from our own choices. At the rate things are going, we may soon witness the launch of the next economic remedy…
Curious Questions
This past Tuesday, the Commerce Department reported a 0.2 percent decline in consumer spending for June. Since consumer spending constitutes 70 percent of our economy, a decrease in this area typically signals broader economic contraction.
The following day, we observed the effects of contracting consumer spending. The Institute for Supply Management reported the slowest growth in service sector activities—encompassing restaurants and hotels—in 17 months during July. Today, we await the July job numbers, which we expect to be disappointing.
What’s happening? Didn’t the recession officially end two years ago, as stated by the National Bureau of Economic Research?
But what if they were mistaken? What if the recession never truly ended? What if the economy has merely been bolstered by unprecedented levels of government spending? What happens when such spending fails to achieve its intended effects?
Here at the Economic Prism, we don’t pose these questions lightly or for entertainment; we are genuinely curious. The world around us seems inconsistent with the narrative we’ve been fed by politicians, the media, and our financial advisors since the so-called ‘recovery’ began.
When the Voters Get Whacked Again
When the financial markets collapsed in the fall of 2008, the Federal Reserve took swift action. Former Treasury Secretary Hank Paulson and Federal Reserve Chairman Ben Bernanke warned that our economic foundation would crumble without significant government intervention—namely, substantial spending.
Once public anxiety peaked, Congress passed the massive TARP bailout, enabling Paulson to funnel money to his associates at major banks via AIG. Following TARP, we saw the American Recovery and Reinvestment Act and multiple phases of quantitative easing.
Yet, these measures offered little in the way of genuine recovery. They were fundamentally flawed from the outset; the bailouts siphoned capital rather than generating it, exacerbating the nation’s financial predicament. Now, we seem to be back where we began, just before the previous crisis.
The economy appears to be stalling, with signs of risk emerging ominously ahead. A new wave of quantitative easing could soon be on the horizon. Nouriel Roubini, an NYU professor often dubbed ‘Dr. Doom,’ predicts QE3 is imminent, as he shared on his Twitter account. We suspect it won’t be long before Bernanke, Congress, and the President are clamoring for more money printing.
Will voters demand an expansion of government and increased control over the economy? Or will they recognize the pitfalls of government overreach that have become increasingly apparent?
While we’d like to maintain optimism about our fellow citizens, we currently feel disheartened. It seems likely that they will seek more government solutions to economic woes, although we anticipate a change of heart after they face further consequences.
Sincerely,
MN Gordon
for Economic Prism
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