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Dow Rebuts GOP Sour Grapes; Now, How About Some Stimulus?

Last updated on 2013.02.02

The rich must be done reacting. Right after the November election, conservative blog P&R Miscellany reveled in the stock market's slide as a sign that the 1% knew four more years of President Obama meant economic doom. I suggested that post-election stock market performance isn't the most reliable predictor of future economic results.

So, to paraphrase dearly departed Mayor Ed Koch, How're we doin'?

Dow Jones Industrials: Nov. 1, 2012 - Feb. 1, 2013
Dow Jones Industrials: Nov. 1, 2012 - Feb. 1, 2013

The Dow broke 14,000 today, boosted by an optimistic reading of jobs numbers and double-digit gains in auto sales. Since November 1, it's up 913 points, 6.97%. That's exactly the vote of confidence Mitt Romney said the markets would give after the election, right?

Unlike Mitt and P&R, President Obama and I will heed Han Solo's warning through the TIE Fighter bits. Remember what happened the only other time the Dow hit 14,000?

Dow Jones Industrials: Oct. 5, 2007 - Feb. 1, 2012
Dow Jones Industrials: Oct. 5, 2007 - Feb. 1, 2012

Oh yeah, that. 15 months, and our mutual funds lose 50% of their value. Yum.

This week's report that GDP went negative in the fourth quarter of 2012, the first shrinkage since 2009, may make you worry we're heading for a 2007-style cliff again. But read those numbers closely: federal defense cuts of an annualized rate of 22.2% by themselves wiped out the 1.1% GDP gain analysts predicted and then some, offsetting increases in personal consumption, business spending, and housing growth.

This cyclic down-blip in defense spending is nothing compared to the job-killing austerity that Republicans in Congress seem to back and toward which they are dragging Democrats:

The only thing wrong with the debt and deficit is that they are too small. We need to be increasing government spending, not reducing it. What in God’s name are our policy makers thinking? Why do they believe that, when we already have over 20 million Americans unemployed or underemployed, a laid off federal employee would suddenly find herself swamped with job offers? And how will those in the private sector replace the revenues that resulted from soldiers, Marines, park rangers, NASA scientists, postal employees, etc., shopping in their store? The short answer is, they won’t. As you cut federal spending, the economy–including the private sector–contracts, just as it would if you cut any other kind of spending [Dr. John T. Harvey, professor of economics, Texas Christian University, "The Coming Recession: How Fiscal Responsibility Is Economic Suicide," Forbes, 2013.01.30].

We do have a spending problem: we're hamstringing the economy with short-sighted political grandstanding. Prime that pump again, Mr. President!

Update 2013.02.02 07:30 MST: P&R responds, excusing his November post as somewhat "inarticulate" but still mostly right.

16 Comments

  1. Stan Gibilisco 2013.02.01

    If our economy is doing so well, why do we need more stimulus?

    Oh ya, I forgot ... If a little cocaine makes you feel good, then more will make you feel even better.

  2. Winston 2013.02.01

    Stan, it is doing better than the European economies, which mistakenly have chosen budget cuts over stimuluses. The 2009 Recovery Act should have been greater than it was. It is one thing if you pour gasoline down the carburetor of a stalled engine, but it sure helps if you also fill the tank too.

  3. Stan Gibilisco 2013.02.01

    Well, the booming stock market does seem at odds with the plight of the 99 percent.

    An economist, I am most definitely not.

    Do you not fear runaway inflation eventually, if we keep spending more money than we have?

    Do you not fear a collapse of the currency if unrestrained deficit spending goes on long enough?

    Or is the whole business a silly illusion? Maybe deficits and debt mean nothing. What do I know?

    Maybe it's all funny money. Ha, ha!

  4. Donald Pay 2013.02.01

    The problem is the market is irrational, not evidence based. Remember, the market climbed past 14,000 with the first hints of the Bush financial collapse.

    Since the Bush crash, I invest through a market timing theory. I get in and get out based on market signals, but I also look at what the government is doing. I don't have the stomach to ride out anything more than a 5-10 percent correction, and I try to limit loses. I stopped believing in buy and hold in the Bush crash, when I held too many stocks too long. I also don't hold individual stocks anymore. I hold ETFs in sectors.

    Technical signals were really strong for buying several months ago, but I have held off simply because of Republicans. I don't trust that they won't purposely tank the economy over their idiotic ideology. The latest uptick is due to people having a belief the Republicans have come to their senses, and won't screw around with the debt ceiling and push an austerity program. I continue to hesitate, because I think the Republicans either want to sink the economy on purpose, or are too damn dumb to realize their policies would cause another deep recession.

  5. Steve Hickey 2013.02.02

    More stimulus? Start the presses? The only thing wronbis the debt is too small? I can't believe what I read here. Somehow the rules that apply to your checkbook don't apply on a larger scale? Scary. The country is on the brink of insolvency. So what the fictitious digital money in the market is bullish today. It's driven by and based entirely on psychology not real value . Anything can happen tomorrow and set off a panic and all that digital money will evaporate in a nano second. Every time they turn on the presses your paycheck shrinks in value. A long economic winter is in our forecast. It's inevitable and unavoidable.

  6. larry kurtz 2013.02.02

    I have stock in three legal cannabis OTC: CBIS, PHOT, and MJNA. Suffice it to say: if they stay on their present course, Madville can expect a wad in the tip jar.

  7. caheidelberger Post author | 2013.02.02

    Steve, yes, the rules that apply to our personal checkbooks don't apply, not completely, at the macro level. It's like relativity: we think the idea that time and distance can be relative is crazy, because it applies noticeably only at really high speeds, totally removed from our daily experience. Stan, to some extent, yes, the deficit is an illusion. It at least is not as pressing a problem to solve as any individual worker's credit card debt or student loan debt.

    The last stimulus is a stunning counterexample to Steve's inflation economic fatalism. A new recession is certainly possible, as the Dr. Harvey (my closing source) warns, but let's not let cries of "it's inevitable!" give Republicans an excuse to advocate the really bad policies that will make it happen.

    I agree with Steve and Donald that the stock market is a poor indicator of our economic health. 2007 is a great example. That's why I found P&R's argument last November worth challenging.

  8. Rorschach 2013.02.02

    What government needs is to spend things the right way. Build roads - in America. Take care of the poor - in America. Stop handing out money to foreign countries like it's Christmas. Beat our swords into plowshares and cut our military spending in half - using that money to build our country rather than to destroy other countries.

  9. Michael Black 2013.02.02

    When you find your self in a hole, you need to stop digging. You can't spend more than you take in without someday having to deal with it. That day has now arrived.

    The biggest flaw in Cory's argument is that we can afford the interest payments on the national debt forever. We cannot. Rates have been held artificially low by the federal reserve for the past few years.

    What happens if interest rates would rise to historically normal levels?

    What is 5% of $16 trillion?

    The biggest line item in the budget will too soon be the interest payment on the national debt.

  10. caheidelberger Post author | 2013.02.02

    I don't assume we can afford those interest payments forever. But the economist I cite above seems to believe we can reduce those payments long-term by jump-starting the economy so we have more revenue coming in long-term. The sooner we quit playing Boehner games and do what works, the sooner we can get out form under that debt burden... or so the macroeconomic argument seems to go. What part of "austerity-driven recession" isn't clear?

  11. Curtis Price 2013.02.02

    "What happens if interest rates would rise to historically normal levels?"

    The debt is in treasury bonds. The federal debt interest rate will not change, so the Federal balance sheets will look better, not worse. Kind of like if you get a cheap mortgage and then rates go up, not down. Your equity picture is better --

    Especially, if we do the stimulus spending right, we end up with investments (roads, schools, broadband) that fuels more economic growth at a very low interest rate.

    Why don't people get this?

  12. Curtis Price 2013.02.02

    "Somehow the rules that apply to your checkbook don't apply on a larger scale?" -- Rev Hickey

    Yes, that's why they call it macro-economics.

    Yes, South Dakotans put people like Rev Hickey in charge of our state budget.

    But the results speak for themselves.

  13. Michael Black 2013.02.02

    People don't get this Curtis Price because you are WRONG!

    Don't believe me, fine. How about former President Clinton?

    http://nbcpolitics.nbcnews.com/_news/2012/09/24/14071974-as-clinton-sounds-interest-rate-alarm-does-congress-think-its-for-real?lite

    “If interest rates were the same today as they were when I was president, the payment on the debt, that is, what the taxpayers have to pay every year, the financial debt (payments) would go from $250 billion to $650 billion a year,” Clinton warned on CBS’s Face the Nation Sunday.

    Steve Bell, senior director of economic policy at the Bipartisan Policy Center in Washington and former staff director of the Senate Budget Committee, said Monday, “President Clinton is right.” Bell said the average rate on the ten-year Treasury note over the past three decades has been about 4.75 percent. The Bipartisan Policy Center estimates that if that interest rate were prevailing, “we would spend more money on the interest payment on the debt than we would for all of our national defense.”

    They noted that the Treasury “now has a preponderance of its debt issued in very short-term durations, to take advantage of low short-term interest rates. It must frequently refinance this debt which, when added to the current deficit, means Treasury must raise $4 trillion this year alone.”

  14. Stan Gibilisco 2013.02.02

    Just got a statement from my bank. A certificate of deposit is coming due. In seven months it paid five one-hundredths of one percent of its value in interest. That is to day, I got one penny for every twenty dollars I had in the thing.

    Predictions.

    Hillary Clinton will be elected President in 2016.

    Consumer prices will continue to rise out of proportion to official reports, as they are now.

    Loan interest rates will rise.

    The interest rates that savers receive from their banks will remain the same or rise to a negligible extent.

    The rich will get richer.

    The poor and middle class will get poorer.

    Cory, myself, and nearly all of us will have to work harder and harder and harder to pay for the same goods and services.

    Then around 2018 or 2020, the United States will get hit with a fifteen percent value-added tax (VAT) on top of all the other taxes we have now.

    So I am wondering where to bug out: Wyoming? Alaska? Costa Rica? Egypt? Syria? The Darien Gap?

    Or should I simply starve to death right here in the Black Hills?

    Our trusted institutions are broken. It does not matter who is to blame. Our current administration is not fixing it.

    End of rant.

  15. Jana 2013.02.02

    Pastor Steve, please tell me you really don't believe in the kitchen table economic theory works for the state or the country!

Comments are closed.