Why the Dow is Hitting 10,000 Even When Consumers Can't Buy And Business Cries "Socialism

[Crewleader]

Robert Reich's Blog

Tuesday, September 22, 2009

Why the Dow is Hitting 10,000 Even When Consumers Can't Buy And Business Cries "Socialism"

So how can the Dow Jones Industrial Average be flirting with 10,000 when consumers, who make up 70 percent of the economy, have had to cut way back on buying because they have no money? Jobs continue to disappear. One out of six Americans is either unemployed or underemployed. Homes can no longer function as piggy banks because they’re worth almost a third less than they were two years ago. And for the first time in more than a decade, Americans are now having to pay down their debts and start to save.

Even more curious, how can the Dow be so far up when every business and Wall Street executive I come across tells me government is crushing the economy with its huge deficits, and its supposed “takeover” of health care, autos, housing, energy, and finance? Their anguished cries of “socialism” are almost drowning out all their cheering over the surging Dow.

The explanation is simple. The great consumer retreat from the market is being offset by government’s advance into the market. Consumer debt is way down from its peak in 2006; government debt is way up. Consumer spending is down, government spending is up. Why have new housing starts begun? Because the Fed is buying up Fannie and Freddie’s paper, and government-owned Fannie and Freddie are now just about the only mortgage games remaining in play.

http://robertreich.blogspot.com/

[ShortnFiery]

1. You didn't get the memo: We gave hundreds of billions of OUR tax dollars to Wall Street.

The recession only effects us unwashed masses. :(

[pitohui]

2. this writer is just a silly person overlooking the basics

interest rates are near zero so folks have no option other than to get back into stocks, hence, the DOW goes up regardless of whether or not consumers go "shopping" -- money has to flow somewhere and money that is not gaining interest is losing value over time to inflation

this is pretty much personal finance/investing 101

[TheWatcher]

6. "this writer is just a silly person overlooking the basics"

:rofl:

Best. Projection. EVER.

Most of the movement of this current fake bubble has very little to do with Public Participation.

Yes, yes I KNOW, that's all conspiracy and it doesn't exist so just forget I even said anything.

The Recovery is real, and we're all getting rich off The Dow.

The "Rules" of personal finance/investing 101 no longer apply to these markets, and haven't for awhile now.

This post is one of the best examples of how effective the Propaganda Blitz has zombified much of the country that I have ever seen.

[Celebration]

3. because the value of the dollar dropped

If we look at the Dow in international currency, it hasn't done nearly as well. It has only done okay when it is dollar denominated, and the dollar has gone down.

[seafan]

4. The banks are still acting like hedge funds, via taxpayer-funded TARP bailouts.

For the banks, absolutely NOTHING has changed in their behavior.

And now, health care stocks are also rising, on the greedy anticipation of government subsidies to many of the 45+ million people who are not covered under health insurance. That subsidy money will then flow directly to Big Insurance/Big Pharma, when all of these people are forced to buy private insurance.

Nice how this works to pump up health industry stock prices, isn't it?



Paul Craig Roberts is saying similar things to Reich.

The consumer has been chastened, but not the banks. Refreshed with the TARP $700 billion and the Federal Reserve’s expanded balance sheet, banks are again behaving like hedge funds. Leveraged speculation is producing another bubble with the current stock market rally, which is not a sign of economic recovery but is the final savaging of Americans’ wealth by a few investment banks and their Washington friends. Goldman Sachs, rolling in profits, announced six figure bonuses to employees.

The Great Robbery is almost complete.

[Warpy]

5. He's missing another point or two

The Great Commercial Real Estate Crash of 2009 is not materializing because the dollar is in the dumper and foreign investors are starting to snap up surplus properties. Foreign investors are also picking up stocks since their currencies are now at an advantage. In addition, we still have 401K plans and the remaining pension plans throwing money at the market, the latter two keeping it stable, at least.

The "government spending is way up" line is the giveaway that this is just more conservative economic cant. The truth is that most of the stimulus money has not been spent and that the TARP money is starting to be repaid. Cash for clunkers was chump change in the larger economic picture.

We're still living in interesting times, though. Reich might have it all wrong about why the Dow is up, but he's right about one thing: we're not safely out of the disaster yet because trickle down is not dead yet.

Until Republican economic policy is completely overturned and sanity is restored, we'll still be living with a lot more risk than any of us ever wants to live with.

All the money in Europe and Asia flooding into the Dow and buying up assets won't change that fact.