Where does the Dow Index go after 10,000?
Written by Michael Vass
Earlier today I had an interesting conversation with a former colleague of mine. In the past we had both been stockbrokers, and my colleague wanted to find my opinion on the economy. Specifically it was the likely outcome of the Dow Jones Index dropping below 10,000.
It’s not new to hear that many analysts state that the 10,000 level on the Dow holds no importance on trading levels or investor confidence. But I disagree. There is a psychological connection to targets like 10,000. It’s a landmark number, a value that implies importance and significance. It’s so important that the markets fought for days to stay above, and will likely try for a rally tomorrow to get back over.
But with the breaking of the 10,000 mark what is next?
As I stated in my contribution to the Central New York Business Journal Financial Quarterly edition of May 14, 2010
“Today there is little better that I can see coming in the months ahead. Unemployment continues to exceed 9% nationally, and regionally. Many of the short-term benefits of the 2009 Obama Stimulus have come and gone, with jobs like the Census soon to come to an end, further impacting the unemployment rate… I believe that a return to levels around 8500 is probable.”
3 months after the fact I see no reason to change my opinion. Unemployment is at 9.6%, 40% of those on unemployment have been so for over a year. Half of the 1.3 million homeowners that tried to get help from the Government on their mortgage have fallen out of the $75 billion program without any help. Mortgage defaults and foreclosures are higher today than at the peak of problems in 2008 or 2009.
The solutions being offered by the Federal and State Governments are to increase taxation while increasing spending. In 19 months this has not worked. The current plan is to continue this process, even to double down. Those of us that understand any level of economics in the real world and not academics realize that if there was going to be a positive effect it would have happened in the first 6 - 9 months and be done by this point.
In speaking with my former colleague I was asked what then would I do to change things.
Cut taxes and stop spending. Simple and direct. Also unpleasant on a political and real world level. Because it will not be a good expereince for anyone.
There is some $421 billion of the Obama Stimulus that has not been spent yet. It should be placed against the national debt and otherwise be unused. It has not helped to improve the economy, and at best it has only drawn out and extened the timeframe in which the nation will languish in this recession. Continuing on this path by using these funds will only extend the problems for additional years, with the potential of passing on an even worse trap for future generations than what is being experienced now.
The 60%+ of funds from the TARP that have been repaid need to go to the deficit. These funds are not a slush fund for Congress to cherry-pick pet projects to fund. The purpose was to save banks that should have been allowed to fail. The banks are no better off as foclosures hare more prevalent today than in 2008, with losses mounting daily. Banks have failed by the dozens in the past 2 years. Businesses small and large have continued to be denied loans.
These are just 2 examples of spending that needs to end.
In New York higher taxes have been rampant at every level of government, without any lessening of the State debt. Jobs in the State are being lost almost proportionately to the tax increases. Not good indications of a positive outlook from one of the largest and most prosperous States in the nation.
The Health Care Reform has already caused insurance rates to rocket 20% across the nation, 3 years before the law becomes active. Already firms have stated that future jobs are in danger as companies plan for the higher costs the law demands. Already individuals are redoing their budgets as they are preparing to pay higher taxes for the health insurance they currently have. Jobs aren’t being created, therefore the economy will not improve.
The perhaps biggest example of the depth of the problem for the average American? The fact that tens of millions are realizing that the cost of bank fees exceed the interest in thier bank accounts. Bank fees that have increased in part due to the intervention of Government in the banking industry.
Ben Franklin once stated that the definition of insanity is doing the same thing over and expecting a different outcome. Everyday economics has proven that spending money that doesn’t exist is counter-productive. Therefore following this path can only be concluded as the path to greater debt, instability, and continued unemployment.
By cutting taxes, at the individual and corporate level benefits can be had. Companies can gain some confidence in highering employees. Individuals can have some confidence in spending money. Tax revenue based on volume provides more than higher taxes on an ever diminishing base.
Some things are simple. If what you do does not work, change what you are doing. It’s a concept that 5th graders can understand. Perhaps Congress and the obama Administration just need to go back to 5th grade.
