Thursday, March 05, 2009

Why the Stock Market is Crashing

As you know, I like to make economics simple, because frankly, that's how economics is.

It's not complicated.

It's not difficult.

It's simple.

And those that try to make it difficult or complicated are just trying to make it look like they're smart.

So let me explain to you why the stock market is collapsing.

Aside from Obama pursuing nothing short of a socialist agenda, there is an overall and more "overriding" reason the market is collapsing;

People and investors are starting to realize the true potential economic productivity of this nation and it's pathetic.

Now I don't know how many times I've explained why sociology degrees or liberal art degrees are worthless. I don't know how many times I've explained that if you want economic productivity you have to first incentive people to be productive by allowing them to keep the vast majority of the fruits of their labor. I don't know how many times I've explained how a critical mass of the population of the US has basically become spoiled, corrupted, individual labor units or cells of society akin to cancer to the point they produce nothing and will thus trigger organ failure. And I don't know how many times I've highlighted the risks of relying on increasing asset prices for retirement, especially if their underlying rents or profits do not keep pace. But it seems now the market is finally starting to realize this and the consequences are the near 60% drop in stock prices.

You see, stock prices are basically a barometer of people's expectations of the future. If the future looks bright, the economy is humming along, prospects look good, and people believe they will be free in the future, then profits will probably increase in the future, thus increasing stock prices. But if the future looks bleak, people lie around and expect to be taken care of, corporations are vilified and their profits are threatened to be taken away, and in short economic freedoms are taken away from both individuals and corporations, then not only do you disincentive people to start companies and pursue profit, but stocks drop in response because there it is unlikely the economy will produce anything of value or wealth in the future.

The second scenario is the case we face today. Nobody wants to work for a living anymore. People expect a hand out from the government. The concept that self-supportation is laughed at as the children (both of the adult and child variety) of this society not expect, but demand to be at minimum taken care of and paid for by the government. America has become so far removed from the principles of independence, individuality, rugged individualism, excellence, achievement and freedom that made it great and drove the stock market up to 14,000, that it is now suffering what can only be described as the natural consequences of pursuing the opposite and the economic reality of it is a Dow Jones trading at 6,500 (soon to be 5,000 by my estimates).

Now America does have a choice. We can go back to the roots of freedom, capitalism, independence, innovation and individuality to restart the massive economic engine that made America great, or continue going down the road of collectivism, parasiticism, conformity and totalitarianism which has TIME AND TIME AGAIN ruined nations before our very eyes. However, sadly this choice is really more of an "academic" one than one we will really have to make in that the cancerous masses have become so corrupted and so numerous that the choice has already been made.

Alas, until those masses get their heads out of their asses their 401k plans will still be worthless and a Dow Jones of 10,000 will be the stuff of social security and Obama's stimulus plan; a fairy tale.


roblaw said...

While my last post here obviously suggested I'm a latent socialist.. in fact, I agree completely with your comments above.. the problem being that the individual who truly wishes to stand on his own gets beat down from both ends - from the obligation to pander to the desire of those who don't wish to be responsible for their own needs from below, to the crushing weight of corporate abuse of the system from above..

Hence the credo on my own blog...

"..consider the paradox of a nation that has given so much to those who preach the glories of rugged individualism from the security of countless corporate sinecures, and so little to that diminishing band of yesterday's refugees who still practice it, day by day, in a tough, rootless and sometimes witless style that most of us have long since been weaned away from." - Hunter S. Thompson

Theocoid said...

I don't know about "worthless liberal arts" degrees. Many of the philosophy and literature majors I know are working in high tech and doing fairly well. If you mean those who can't take abstraction or reason and apply them in anything but a badly written paper (but sufficiently indecipherable lest someone realize it's actually badly written), then yes, I guess you'd be correct.

Tim P said...

Great post.
I agree with much of what you said. Good comments so far also.
I just want to add that you hit the nail on the head when you said...
"People and investors are starting to realize the true potential economic productivity of this nation and it's pathetic."

However, therein lies the great opportunity for us to re-establish our productive capacity through freeing the engines of economic creation. Providing incentive to people and corporations by, as you said, letting them keep the majority of their earnings and minimizing government regulation & interference.

Unfortunately, this administration and president are hell bent on driving our nation towards a socialist model and in the process driving our economy into the ground.

My only hope is that after four years of this idiocy, we can recover after we throw these bums out and get some adults back into positions of power.

I just hope that you are incorrect when you describe...
"a critical mass of the population of the US has basically become spoiled, corrupted, individual labor units or cells of society akin to cancer..."

I hope that it isn't a critical mass and I suspect that it isn't. Time will tell.

Cam said...

Does it follow that you think the Dow would be significanlt higher had are socialist in chief done nothing whatsoever?

Captain Capitalism said...

Hi Cam,

Yes, marginally higher in that if he implemented policies that would work like eliminating capital gains tax, eliminating corporate taxes, not crippling the nations finances, etc., that would lead to genuine hope there would be a recovery. but what he's doing now is just basically destorying the country.

Of course, that's what them majority of Americans are doing, obama is just accelerating the process.

So the Dow Jones would be (without BO) around say, maybe 7,500 today?

Anonymous said...

A comment about this statement:

"People and investors are starting to realize the true potential economic productivity of this nation and it's pathetic."

Doesn't investing in either foreign companies or in large multinationals largely isolate your portfolio from the future pathetic productivity of our nation?