"The stock market doesn't really care about the 'debt' & 'deficit,' because just letting this kick in would do a lot to draw down the debt & deficit & the market would reflect this.
Instead, how is the stock market reacting, they are not happy, because they know if the cuts kick in austerity will bring more unemployment & another recession."
hi clo,
interpreting the vagaries of the stock market is something i do only with great trepidation!
but i have a point other than caution with respect to your above comment. the stock market is not a proxy for decisions which will benefit the economy. it simply describes the perception of benefits and costs to large companies.
so setting aside the current politics and permitting a hypothetical scenario, let's say an increase in corporation taxes may benefit the economy (reduced deficit) and harm public companies (lower profits). in this case, if one is concerned by budget deficits, a stock market decline reflects an economic good.
similar hypothetical - in some circumstances loosening the money supply will destabilise a currency. but a stock market may see the extra money sloshing its way and so stock prices increase. an economic harm, a stock market good.
now each case is arguable on the merits. this is why i have enclosed them in hypotheses controlled by myself.
but removing myself from hypothetical land, the point is, stock market and economic interests sometimes conflict. this much is, i think, non-controversial.
so using it as a gauge of whether an economic policy is a good idea or a bad idea is not necessarily wise. even if the underlying point you are making may be true. but the reaction of the stock market is neither here nor there on this sort of issue, in my view.
| 