Stock market roller coaster continues:panic selling on gloomy headlines and iffy logic

The Dow-Jones industrial average fell by just under 420 points reversing gains made over the past few days of trading apparently driven by negative headlines in the U.S. and Europe about unexpected weakness in the monthly manufacturing survey conducted by the Reserve Bank of Philadelphia, a continued weakness in the housing market, a larger than expected rise in the number of jobless claims to 408,000 and the on going unresolved difficulties in the European sovereign debt crisis. As a consequence sell orders multiplied as hedge funds and institutional investors fled equities, including many blue chip stocks for the safety of treasury bills and the supposed but frankly mythical safety of gold at the bubble price of $ 1843. The yield for short term American treasuries at one point during the day dipped below 2 % and the 10 year U.S. bond ended the day at 2.03 %. So far this evening the sell off continued in the Asian markets and Dow futures were also negative. Commodity prices for oil and wheat were also down .This is happening at a time when corporate profits are very high and while the risk of a double dip recession is greater than before there is no certainty of this and the economy may well muddle through and even surprise at this point in the business cycle. In these circumstances the views of one Wall street analyst that ”no one can figure out what to do with their money” ought to be considered the final word on rational markets theory. Monetary velocity has also slowed which reflects the liquidity trap nature of the circumstances that now prevail.A fiscal stimulus that soaked up these underutilized cash balances and offered partial tax incentives for purchasers of the bonds who also created jobs would be an effective employment program at this juncture.

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About haroldchorneyeconomist

I am Professor of political economy at Concordia university in Montréal, Québec, Canada. I received my B.A.Hons (econ.&poli sci) from the University of Manitoba. I also completed my M.A. degree in economics there. Went on to spend two years at the London School of Economics as a Ph.D. student in economics and then completed my Ph.D. in political economy at the University of Toronto. Was named a John W.Dafoe fellow, a CMHC fellow and a Canada Council fellow. I also was named a Woodrow Wilson fellow in 1968 after completing my first class honours undergraduate degree. Worked as an economist in the area of education, labour economics and as the senior economist with the Manitoba Housing and Renewal Corporation for the Government of Manitoba from 1972 to 1978. I also have worked as an economic consultant for MDT socio-economic consultants and have been consulted on urban planning, health policy, linguistic duality and public sector finance questions by the governments of Manitoba, Saskatchewan,the cities of Regina and Saskatoon, Ontario and the Federal government of Canada. I have also been consulted by senior leaders of the British Labour party, MPs from the Progressive Conservative party, the Liberal party and the New Democrats on economic policy questions. Members of the Government of France under the Presidency of Francois Mitterand discussed my work on public sector deficits. I have also run for elected office at the municipal level. I first began to write about quantitative easing as a useful policy option during the early 1980s.
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