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Friday, June 27, 2008

"Why the Stock Market Had a Terrible Day"

I think the Fed made the right move at its last rate setting meeting when the target rate was held constant, but Robert Reich doesn't share that view. He wants action on both the monetary and fiscal policy fronts to prevent a downturn, rebuild infrastructure, and implement green technologies. I don't think we need the threat of a recession to justify spending more on infrastructure and the environment, so I'd support that in any case:

Why the Stock Market Had a Terrible Day, by Robert Reich: The big surprise is why anyone should be surprised the stock market dropped 3 percent today. The immediate trigger was the price of oil moving above $140 a barrel for the first time. A secondary trigger was yesterday's decision by the Fed not to reduce interest rates. (Some conservatives maintain it was the Fed's failure to RAISE them that caused today's ruckus on Wall Street... They're wrong. The recession is the biggest worry for everyone...) Another was the implosion of the US autos sector, and additional writedowns by major Wall Street banks.

But behind all of this is the one fundamental fact that economic analysts would rather not dwell on: American consumers are at the end of their ropes. High energy prices have contributed to it, as have high food prices. Consumer confidence is plunging. Housing prices are still dropping, which means the piggy banks of home equity and refinancing are closing.

But without consumers, there's no one to buy all the goods and services we create. Sure, big American companies are doing fine abroad, but foreign sales can't sustain them. Nor can exports. Hence, bond defaults by companies are up. Earnings are down.

What to do? Two things. We need an expansive fiscal policy that stimulates the economy with infrastructure spending -- especially mass transit, levees, and bridges, as well as investments in green technologies.

We also need a more progressive tax system that puts more money into the hands of the middle class and working class -- which will spend it. ...

    Posted by on Friday, June 27, 2008 at 12:33 AM in Economics, Financial System | Permalink  TrackBack (0)  Comments (36)

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