The View From 1776
Thursday, October 03, 2013
Ignore Wall Street
The financial press and Wall Street stock market gurus confidently declare that the Republicans will be “brought to their senses” if the stock market continues to retrench in the face of uncertainty wrought by the government slim-down.
Members of Congress not committed to worship of the Democrat-Socialist Party’s collectivist control should ignore stock market speculators’ distress and look to the long-term welfare of the real America. Having gone thus far, Republicans should stick to their guns.
Unhappily, recent history gives stock market speculators reason to believe that Federal policy, particularly action by the Federal Reserve, will kowtow to the stock market, as if that were the real economic heart of the nation. Supposedly a prolonged market selloff would damage the economy. The truth, to the contrary, is that the stock market bubble of the past couple of years is to a major extent a creation of the Fed’s easy-money policies.
Beginning in the aftermath of the huge market selloff in October 1987, the Fed under Alan Greenspan, instituted what became known as the Greenspan put: stock market speculators became confident that the Fed would flood the market with low-interest-rate, fiat money to counter any weakness in the stock market.
Since then, and egregiously since the 2007-2008 meltdown of financial, housing, and subprime mortgage markets, the Fed’s only focal point has been levitating the stock and bond markets at whatever cost to the devaluation of the dollar.
Both Greenspan and his successor, Ben Bernanke, have consistently ignored the real deterioration of the economy, as measured by the inflation-induced decline in production of real goods and services and the fostering of low-cost, job-killing imports from China and Southeast Asia. Bernanke opined that higher stock market prices would somehow create new jobs. But it hasn’t worked, certainly not as predicted by Bernanke’s Keynesian economic theories.
Meanwhile only the denizens of Wall Street are again becoming fabulously wealthy, feasting on the Fed’s near zero-cost financing. The rest of the country struggles with high unemployment and family income that is steadily declining in purchasing power as a result of Fed-created inflation to bolster the stock market.