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Accepted Assumptions that are Wrong: A Healthy Stock Market Means a Healthy Economy

In Economics on March 20, 2011 at 19:51

Nobel prize winning economist Joseph Stiglitz explains the disconnect between the stock market and greater good when he said on Anderson Cooper’s show, “If we give money to the banks, the stocks will go up. That’s not what we’re concerned about.” (link) Well Mr. Stiglitz, apparently that’s all some people are concerned with. Media talking heads and free market economists see that stocks are doing fine and see a healthy economy. What they ignore is unemployment rates and stagnant wages, increasing poverty and income inequality as well as the increasing number of part time workers that want to work full time.

Americans outside the brokerage and banking industries, outside of the Forbes 500 and their cronies in D.C, are suffering. The stock market doesn’t gage whether average people are doing well, it is a gage of what speculators think they can make from betting on, or against, a certain stock. It is a false indicator of prosperity, unless you look at the holders and manipulators of large stock portfolios. Stock markets tell us what investors think, can be a catalyst, of sorts, for an economic down turn, but seldom is a rise in stocks an indicator of recovery. Was it an increase stock prices that got the U.S. out of The Great Depression? Helped by the new deal and brought forth with the need for labor in WWII, it was near full employment that got us out of the great depression. It was not tax cuts; in fact, taxes went up in WWII to pay for the war effort that brought us out of the depression. It was employment.

Overproduction of goods after WWI and buying on margin (public debt) led to the great depression, and the stock market was a symptom of the unregulated credit and lack of a European markets for ever productive U.S. industries. Overproduction of houses and other goods, over extended credit (subprime mortgages) and a lack of a market for the overproduction of housing led to The Great Recession we are still going through. Neither tax cuts nor a revived stock market will bring us out of it. Cutting the deficit will not help us in the short term either. Only jobs will bring us out of our current recession, and the hope for those jobs is not on the horizon with the focus on deficits and budget cuts. And if you care about deficits, make the tax evading corporations pay their share, end the wars and cut the military budget.

Every NPR news day begins and ends with a stock report. Reports on the health of the economy begin with how the stock market is doing. The economic indicator that is at the top of the government’s assessment for the end or beginning of a recession is GNP followed closely by the stock market.

The media’s over-reliance on short-term fluctuations in stock prices to evaluate policy initiatives or the strength of the economy is a symptom of that kind of the mindless short-term thinking that Obama complained about. (Ibid)

On a daily basis we hear that investing in the stock market is a way to make money. What about the trillions of dollars that were lost in the latest market bubble, this time in housing stocks and mortgage backed securities?

When the Dotcom bubble burst, the stock market lost an estimated $8 trillion dollars. That money is still floating somewhere in cyberspace with the pets.com sock puppet.  (link)

Then in 2008, the world stock values world wide dropped $30 trillion from a high of $60.1 trillion. Now, the markets have recouped about $20 billion of its value. That means nothing to the typical citizen of the world. The rise in values was for corporate investors who benefitted from the bailouts of the large investment firms like Citigroup and Bank of America.  Workers have lost 30% of their market investments, or $2 trillion in the recession. And I was told you couldn’t lose investing in the market.

What of the recent upswing in the market? Has that helped retired investors recoup their losses? How solid is that gain? If the stock market shows a healthy economy, why is official unemployment still at 9%?

There is a myth perpetuated by the purveyors of Wall Street that most people have money in the stock market and that everyone benefits when stocks rise. The fact is, the top 1% own 42% of all financial wealth in the United States. Furthermore, 93% of the financial wealth is held by the wealthiest 10%. (link) So, when the stock market increases, the wealthy owners of the major media outlets, where we get a majority of our news, do benefit. And it’s news because the owners and their investors see it as great tidings. For the 15 million or more unemployed in the U.S, it does nothing to bring prosperity.

The stock market is not the answer, only more jobs, public and private, will end this recession.

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More Market myths.
http://www.bobwaldrop.net/?p=105

Peace,
Tex Shelters