Monday, August 8, 2011

So the Market Dropped 634 Points. What's For Dinner?

It isn't surprising the Dow dropped 634 points (5.55%) today. Since the 2008 financial crisis, governmental action has been the largest force behind the economic recovery. But European efforts to stabilize the EU sovereign debt crisis have repeatedly stumbled. And America's recent debt ceiling debacle more vividly than ever demonstrates federal dysfunction. The revival of organic economic activity has been limited, and corporations remain very cautious about expanding and hiring. The financial markets need government spending and bailouts. Consequently, political instability translates into market volatility. When government is ineffective, the markets will pout and throw a hissy fit.

Better get used to volatility, because it may well become part of our daily routine. There's no prospect of true economic recovery anywhere on the horizon. The markets will continue to look to politicians for succor, and nothing is as unpredictable as politics. You'd never want to bet your hard earned savings on political action. But the truth is the balance in your 401(k) now depends on how well mouth-foaming Tea Partiers, wailing liberals and befuddled moderates interact with each other. Keep saving, because this isn't exactly a safe bet.

Just about the entire world is now slyly pretending they aren't glancing at the Federal Reserve. Almost surely, Chairman Ben Bernanke is on the verge of ordering his troops to mount up and the regimental band to play "Garry Owen." The command to charge will come soon. Let's hope that, against the odds, Bernanke succeeds, because he's not leading a regiment of cavalry, he's leading an entire nation's economy.

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