Thursday, October 04, 2007


Man, can you spare some change? Considering the point that the market is more about emotions than true monetary policy, let's recall just a few of the most obvious factors...

If the stock market was declining but you were getting nice wage increases wouldn’t you feel that the economy was better off? And the opposite is also true. The health of the stock market is a result of wages in America, not the cause of wages.

The value of a company is supposed to increase over time if its profits increase over time. How do profits increase when consumers have stagnating wage growth? They can’t. But, if we have wage growth even with the Dow declining our increased ability to spend will cause higher profits which will cause higher stock prices.

If our wages are declining and the Dow is increasing it’s because the companies are cutting costs either by layoffs, or some other point-shaving financial voodoo on the books. While that’s fine in the short term, in the long term it leads to a a depressed stock market.

Another stress point weakening our country is the massive debt that we all carry. Does anyone know anybody under 30 who is suffering under a college loan? A car loan and maybe a house loan? What about credit cards? The average college graduate has $7500 in credit card debt when graduating. Granted, a lot of this is from people not being able to say no, but it’s also a societal peneomenon. The point is that roughly 70% of the economy is predicated on consumer spending and you have to wonder when consumers will simply run out of steam, and pack it in for the simpler lifestyle revolution.

The job of the Fed is to manage the economy, but unfortunately it usually does a piss poor job of it. The conspiracy theorist in al of us says that the Fed exists to serve Wall Street because otherwise why wouldn’t it have been disbanded by now?

Greenspan talks about the Fed’s role, here.

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