Nexus of Change

Toward Sustainable Habits and Durable Prosperity

Dogmatic Policy Worsens Economic Outlook

Price formation in financial markets are guided not only by data from quaterly balance sheets but also by global indicators of economic strength, growth, and emerging opportunities. Stock market indices fell by 5% today and, combined with previous price drops since July 25th, indices are displaying the sharpest rate of descent since early 2009 when the recession started.

The lesson to learn this time is that markets and political dogma do not mix. When the President speaks of a balanced approach to collecting revenues and imposing sacrifices for paying the national debt, and when the Federal Reserve Chairman speaks of the need for additional fiscal stimulii, words of reassurance are provided to stock market investors but when fiscal policies adopted by the government are perceived as being dictated by the intransigence of the most dogmatic factions of the legislature in regards to the role of the government in the economy, hopes for the kind of balanced propesperity needed to keep the wheel of growth turning are abandonned in the face of absurdity.

Afters a debt-ceiling deal was reached a few days ago, Obama promised to continue making the case for a balanced approach to fiscal revenues but unfortunately, nobody is paying attention because contrary to what the President expected, the cloud of uncertainty over markets is thicker now. The uncertainty before was not whether the debt was going to be paid but rather at what cost the debt-ceiling would be temporarily lifted.

Stock Market Drop -  August 4th 2011

Stock Market Drop - August 4th 2011

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This entry was posted on August 4, 2011 by in Financial Markets, Public Policy and tagged , , , .

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