Sunday, February 22, 2009

Worst January stock market in 113 years

So say Professors Bittlingmayer and Hazlett in The Market Is Shorting Obama's 'Stimulus' over at Real Clear Markets. Importantly:
. . . key political victories for the Team Obama spending plan have not been viewed as buying opportunities on Wall Street. A string of negative market reactions began with the December 18 announcement of a stimulus bill of $700 billion (Dow down 2.5%), continued with the January 7 announcement that the actual plan would be “on the high side” (-2.7%) and continued with last week’s 61-36 Senate vote supporting the Administration’s fiscal plan. The White House victory and the new bank bail-out plan announced the following day by Treasury Secretary Geithner were met with a 5% wipe-out in the DJI, and a decline in Treasury bond yields, indicating a “flight to quality.”
Is more spending really the solution? Under President Reagan, a time when unemployment passed 10%, deficit spending reached 6% of GDP. Before the American Reinvestment and Recovery Act the deficit was projected at 9% of GDP, now it's shaping up at 12%. So will the recovery be twice as big as under Reagan? Or will it arrive in half the time? Or were other Reagan-era policies actually the key to recovery?

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