Interest rate fears drove a major selloff on Wall Street Monday, with the Dow Jones industrial average closing below 10,000 for the first time since Dec. 10 and all three major indexes dropping to their lows for the year.According to the radio news this afternoon, stocks dropped again on Tuesday.
The dread that has sent stocks tumbling over the past four weeks intensified in response to Friday's employment report from the Labor Department that the U.S. gained 288,000 new jobs in April. Investors feared the news would prompt the Federal Reserve to raise rates as early as next month, and selling spread around the globe Monday before sending Wall Street skidding as well.
But the economy is recovering! Jobs are up and Karl Rove is grinning! In fact, the figures for March were revised upward to 377,000 new jobs! So why the hey is Wall Street grumbling and fumbling?
Because, friends, our economy is a zero-sum game and what's good for us (jobs) is bad for the fat cats. Because jobs mean more competition to get workers. And that means - oh the horror! - possible wage hikes and a (possibly) better life for the greater number of us. And that in turn means - oh the horror! - "inflationary pressures." And banks hate inflation because it reduces the real value of repaid loans (since you borrow current, that is, present-day dollars, but pay back with inflated, that is, lower real value, dollars).
And since the Fed is nothing if not protective of the banks, at the first sign of "inflationary pressures" it can be counted on to raise interest rates, slowing economic growth by increasing the cost of borrowing (and thus of financing expansion), constricting corporate profits (and thus the value of stock, reflected in the selloff of late), reducing the demand for workers, keeping unemployment well above 5% - but helping the banks.
Bottom line: What's good for you is bad for the banks and corporate America. And vice-versa. And don't let anyone ever tell you any different.
Posts
No comments:
Post a Comment