Free Markets, Free People


Wall Street cool to Obama’s actions

“The principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale.” – Thomas Jefferson

Here is a look at the Dow Jones since January 20th, when Barack Obama assumed the presidency. I’m not saying this is all his fault, but it’s clear that his mortgage bailout plan and the “stimulus” package have been met with skepticism on Wall Street.

In fact, this is the worst January on record for a president in a century:

[F]rom Nov. 4, 2008 through Feb. 12, 2009, the DJI overall fell 18% — a larger drop than during the Sept-Oct plunge. In January, when the Obama plan, promising far greater deficits than the two much smaller “emergency stimulus” plans signed by Pres. George W. Bush in 2008, was unveiled, the market tanked – the worst January performance in 113 years.

More pointedly, key political victories for the Team Obama spending plan have not been viewed as buying opportunities on Wall Street. A string of negative market reactions began with the December 18 announcement of a stimulus bill of $700 billion (Dow down 2.5%), continued with the January 7 announcement that the actual plan would be “on the high side” (-2.7%) and continued with last week’s 61-36 Senate vote supporting the Administration’s fiscal plan. The White House victory and the new bank bail-out plan announced the following day by Treasury Secretary Geithner were met with a 5% wipe-out in the DJI, and a decline in Treasury bond yields, indicating a “flight to quality.”

Markets don’t react well to a president saying things like, “Potentially we’ve got trillion-dollar deficits for years to come.” Investors realize that deficits matter:

If historic U.S. budget deficits are any indication, the economy is already “stimulated.” The predicted 2009 federal deficit stood at 8.3% of GDP before Obama’s package sent it to about 12%. This is a stunning level of debt, double the previous post WWII high when Reagan’s 1983 budget deficit amounted to 6% of GDP.
[...]
We do, however, know the accounting trends: our government faces massive new spending increases as Baby Boomers retire and their Social Security and Medicare bills come due. Market investors are wary of new spending, guaranteeing either future tax increases or inflation, as a run-up to the demographically guaranteed spending spiral. The quest for “shovel-ready” projects makes one think, Where’s Senator Ted Stevens when we need him? In any event, this fiscal bridge to nowhere is not spurring markets.

Government deficits are nonetheless being sold as doctor’s orders, an elixir that – while it looks ugly and tastes bitter – will propel us back to economic health. Yet the best forecast currently on the table is the one made by investors risking their own money. They are shorting the “stimulus.”

As the CBO has already predicted and common sense would indicate, whenever you take a dollar out of the economy through spending or borrowing, it is one less dollar that can be invested. Economists call it “crowding out” because it lessen the money available to the private sector for investing and borrowing, which can result in higher interest rates if the deficit is large enough or inflation if the Federal Reserve is printing money to offset economic problems, which they are today, as Steven Entin noted in a presentation on Keynesian economics at the Cato Institute.

Sounds like the 70′s all over again.

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10 Responses to Wall Street cool to Obama’s actions

  • Get ready for Lightworker’s budget proposals.  In order to “slash” the deficit he’s created, his plan is to………..tax the wealthy and businesses.

    We’re pretty much boned, aren’t we?

  • I hate to say this, but when the Finance Ministers met in Europe earlier this month, they reported back to their respective governments that 1) Geithner was a lightweight, and 2) that they had lost all confidence that The Clown™ has any idea what he is doing. Of course, no one reported it except for a slip of the tongue from the BBC, which accidentally told people how not well Geithner and his “stimulus” and “bank assistance” was greeted. And this was in Europe, where women allegedly fainted as The Clown’s™ name.

    The Clown™ will be a one-termer. I only hope that we survive that one term. He is starting to make Jimmy Carter look good by comparison, a

  • I hate to say this, but when the Finance Ministers met in Europe earlier this month, they reported back to their respective governments that 1) Geithner was a lightweight, and 2) that they had lost all confidence that The Clown™ has any idea what he is doing. Of course, no one reported it except for a slip of the tongue from the BBC, which accidentally told people how not well Geithner and his “stimulus” and “bank assistance” was greeted. And this was in Europe, where women allegedly fainted as The Clown’s™ name.

    The Clown™ will be a one-termer. I only hope that we survive that one term. He is starting to make Jimmy Carter look good by comparison, and that is truly frightening having to go through THAT again.

  • The Clown™ will be a one-termer. I only hope that we survive that one term. He is starting to make Jimmy Carter look good by comparison, a

    I do not agree. By the time four years are up the Democrats will have millions of new voters, they will have redistricted several republicans out of office, they will have billions of dollars of taxpayer money flowing through the unions and Acorn in order to buy votes and fix elections.  No matter how bad he is he will still get 97% of all Black and most liberal voters. 

    I Don’t see Republicans coming back into office for a generation.  Even if you get an occasional Republican president with dem control of both houses, no reform is possible. We are headed to Euro style nanny state and I see no remedy.

  • kyle8 has a good point.  I think that the attempted fraud we saw in the last election was just the start.  The libs have done a lot to convince the American people that minority votes are ALWAYS supressed, that the voting system is inherently inaccurate, flawed, and in need of “reform”, and that the whole voting system just ain’t FAIR.  So, with the willing assistance of MiniTru, the filthy democrats have a good opportunity to fix things to their liking.

    But as for the market reaction to TAO and his band of idiots… Is it possible that they DON’T CARE?  Or that they even WANT this sort of thing to happen?  Libs regard the stock market as the sole province of fat cats in monocles and top hats, and a cornerstone of liberal policy is to punish such people; the assumption is that rich people have the money they do because they swindled, stole from, or otherwise cheated poor people and must be made to suffer for their “crimes”.  So, if the stock market tanks, that means that rich people are getting their comeuppance.
    Further, economic instability causes a crisis, and Rahm Emmanuel let the cat out of the bag on the dems’ (spit) attitude about crises: they represent opportunities for libs to “reform” the country in ways to their liking.

    Finally, it makes it easier for dems (spit) to undermine any suggestion of “privatizing” or in any other way changing the Ponzi Scheme called Social Security, which is one of their most powerful weapons to gain votes.  We’ve all watched our 401k accounts shrink over the past several months; it won’t be too hard to convince lots of people that Social Security is a much safer way to assure their retirements and that any talk of investing retirement funds in the stock market is a horrible idea put forth by Wall Street in a callous bid to steal more of Americans’ money.

  • We’ve all watched our 401k accounts shrink over the past several months; it won’t be too hard to convince lots of people that Social Security is a much safer way to assure their retirements and that any talk of investing retirement funds in the stock market is a horrible idea put forth by Wall Street in a callous bid to steal more of Americans’ money.

    Funny thing is if they keep demonizing wall street people will lose confidence in it and simply put all their savings into banks for a paltry few percent interest pretty much guaranteeing the people to never become wealthy.  The banks on the other hand will be making money hand over fist.

  • I’m getting less and less worried every week about a decade-long Democrat majority.

    I understand the redistricting claims and all, but consider the flip side. The claim is that despite a President who will be a laughing-stock and a Congress that is at 30% approval with no reason to believe it’s going to go back up anytime soon, the Democrats are going to build a “permanent” majority?

    It won’t matter how many things they can redistrict if nobody is actually willing to vote for them.

  • Barack Obama keeps saying that he inherited this mess.
    How can yanyone blame Obama for the acts of the last session of Congress when he was AWOL from most of the session ? You can blame him for not really representing the state of Illinois, but the guy has been campaigning and campaigning and campaigning.
    The man’s got to know his priorities .. Obama 1st, country 2nd.
    Remember that Obama (and the Dems) really didn’t want to deal with the mess leading to TARP .. they were ready to adjourn .. till a foolhardy John McCain suspended his campaign to perform his Senatorial duties .. something that Obama was hesitant to do .. for 2 years .. when he didn’t even vote “PRESENT” for all but a handfull of occasions.

  • By the way, the next Congressional off-year elections in 2010 will be using the current districts.
    It won’t be till the 2012 elections before the 2010 census results are used.

  • Currently, takers of TARP money have to surrender bonds to the federal government, in effect giving partial ownership to the federal government of their business.

    Will those who receive help with their mortgages be surrendering any part of the ownership of their homes to the federal government ?

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