Market Machinations
So the market suffered a pretty serious decline at the beginning of this week. And once again, the Fed used their all-powerful control over interest rates to balance the drop. I understand that a balancing force like the Fed does encourage investment by reducing the risk to investors of a sudden drop like the one that triggered the Great Depression. However, it also tends to mask the underlying issues behind market declines like we saw this week. Chief among these is the fact that the US dollar continues to fall compared to foreign currencies, which may be a sign of a weakening economy. This devaluation of our currency also hurts our buying power in the world market. Of course, it also means we may finally start balancing our trade deficit by exporting more. And that could be a very good thing for portions of the market.
Still, I can’t help but think that the optimism of some on Wall Street about the market’s ability to rebound is a bit unrealistic when you look at government fiscal policy. As we continue to run up our national debt by borrowing money to fund foreign activities and domestic welfare programs, our national fiscal crisis becomes ever more dire. While this may not seriously affect the marketplace right now, I do not think it bodes well for the future. Our national debt is currently over $9 trillion and growing, and one must wonder how the government will ever pay this off. I can think of a few possibilities, only one of which could benefit the economy.
