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MmeGigs -> RE: Who else feels President Obama is trying to do WAY too much and too quickly! (3/11/2009 4:35:27 AM)
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ORIGINAL: ThatDamnedPanda
I don't know how you can say that the stock market is not an indication of the strength of the economy.
Seems to me that it's an observable fact. Over the last 25 years or so, the growth in the stock market has far outpaced the growth of the economy. In the early '80's the Dow was around 1,000. It reached nearly 14,000 in the fall of 2007. That's an average increase of about 15% a year. The average growth of the economy was about a third of that or less during that time.
The Dow gained about 1,700 points in 2006, a year when GDP, consumer spending, job growth and home sales all slowed, and mortgage foreclosures, consumer debt, credit card defaults and consumer bankruptcies were all on the rise.
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The stock market is the economy, in more ways than any other single aspect of our economy can ever be said to be. This is how businesses are capitalized, how new businesses are funded and existing businesses raise money to create new jobs and develop new products. This is how more than half of the people in America invest at least some of the money they're saving for retirement. I don't understand how anyone can truly believe that the strength of this facet of our economy is not a significant indicator of the strength of the economy as a whole. The two subjects could not possibly be more inextricably connected. You can not have a strong economy without a strong stock market. You just can't. So yeah, the Dow matters. A lot.
I think that the stock market is important, but it isn't the economy. It's a middle-man between those with money to invest and those who are looking for investors. A strong stock market depends on a strong economy, not the other way around.
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And as for your characterization of the traders as a bunch of people just interested in turning a quick profit, again - you could hardly be more wrong. I'm sorry, but I guess I have no idea where you get that. Traders are interested in one thing and one thing only - getting the maximum return on their investment, in whatever way circumstances may dictate.
"Quick" is a relative term. I wasn't thinking of day traders when I used it, but of all short-term investors. I think that you're wrong that most traders are in it for the long term. Folks who are investing their own money are, I'm sure, but I don't think they're most traders. If we take out the word "quick", it seems that we're saying the same thing. Their only interest is in turning a profit - maximum return on investment, as you say.
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They're laying out a pretty good 3-part argument for that, too - first, that nothing the administration does is going to do any good until the banking sector is stabilized; second, they have not yet seen anything from the administration to suggest that Obama has a plan for this, or for that matter even understands it; and third, that until this problem is addressed, they expect the profits of American businesses to continue to shrink, and more and more people to lose their jobs. That's a pretty damned serious argument, and I happen to think they're right. I'd like to be wrong - I'd like someone to make a counterargument that's even more persuasive than that one, so I can be less worried - but I have yet to hear one single person even attempt to explain why all these traders and economists are mistaken about the significance of the banking crisis. Until someone does, I have to say the traders are right. Until the banking system's fixed, nothing's really fixed, and there's no way to know where the bottom is.
The banking sector does need to be stabilized, but I think that if we do that without addressing the causes of the economic meltdown, it's not going to do much good. A lot of the bank and market folks seem to think that we can do this from the top down. I think they're wrong - any long-term fix will have to come from the bottom up. I think that it's the top-down stuff that got us where we are.
The stock market doesn't create wealth, nor do the banks. Spending creates wealth. People don't spend wealth, they spend income. Wages and salaries have been squeezed for quite a while. I remember some years ago that there were economists expressing serious concerns that mid-range retailers were losing serious market share to discount stores. They took it as an indication that consumers, who are the actual foundation of our economy, were getting shaky, and that this was going to cause problems for the economy down the road. They didn't get much attention, but it seems to me that they were on to something. They certainly seem to have had a more realistic view of what was going on than the stock market folks who were betting that the good times were going to keep going forever.
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