Why the Dow Dropped 250 Points, or, the Only “Boom” is from the Economy Imploding
Not even the NYT can avoid reporting that on the last trading day in October, the Dow Jones dropped like it was pole-axed, completely erasing yesterday’s 2% gain, while other financial indexes posted a monthly loss for the first time in 7 months. Consumers still seem skittish despite news the Economy grew by 3.5% in the 3rd quarter. How can we grow like that and still have major issues with the Economy?
The Times reported the drop in Consumer spending was “tied to the end of the government’s cash-for-clunkers program, which gave car buyers thousands of dollars in vouchers for the purchase of new vehicles.” I would add to that the end of the Government’s program to give money to home buyers. I call it cash-for-condos.
It’s hard not to note this is what Administration critics predicted. Stimulus plans costing taxpayer billions have not produced a recovery. There are only blips here and there as people take advantage of “free government money” (read “tax dollars taken from someone else and given to them”, remember Joe the Plumber?). After Cash for Clunkers and Cash for Condos produced their false positives the Economy retreated to a more accurate picture of consumer confidence.
The Times also noted “The drops were led by stocks in banks and financial firms …” Yet just just a month ago this Economic sector was posting record profits. The Times failed to remind readers what the Government did in that sector. President Obama told some in the financial sector they could no longer pay their employees as they saw fit and called for a maximum wage when it comes to CEOs. Administration members ominously said they hoped the rest of the industry would voluntarily comply with the new wage structure.
Investors took one look at the President’s plan and bolted with their cash. Investors put cash in firms headed by those making millions seeking a good ROI from the plans and minds worth that sort of money. Investors rightly understand their return is jeopardized in the hands and minds of lesser corporate leaders. People who understand Economics told the President this would happen. They were ignored and, for their trouble, they were pilloried as racists.
The Times reports the most important facts in two separate paragraphs. They note “The revival of the consumer sector is considered paramount in turning the United States economy around, since purchases by consumers make up about two-thirds of the nation’s spending” shortly after revealing “Consumer spending in September dropped by the largest amount in nine months …” When the false positives of Cash for Clunkers and Cash for Condos are stripped away, consumer spending is getting worse, not better. What’s more, the rate of decline is escalating. After 9 months of Stimulus, consumer spending had its worst month in September.
The only question now is how long the administration will pimp failed New Deal era policies to solve the economic problems of another century. Perhaps if Barack Obama took time from date nights, golf games, begging for the Olympics and disrespecting Constitution and Liberty loving Americans to pay serious attention to the Economy he’d realize the only “economic boom” he’s likely to experience will come from the Economy imploding on his watch.
Cross posted from Blue Collar Muse