Site for Free Markets and Free People

Friday, January 30, 2009

In Face of "Stimulus" Bill, Why is Stock Market Falling?

In 2003, when the Bush Stimulus proposal began to take shape and was working its way through the House and Senate, the market began to rise. It then continued to rise after the legislation was signed in May. The economic data was still poor at the time but the market began to discount the effects of the tax cuts, so stock prices rose.

So the question is, why has the market been falling significantly this month even though the "stimulus" bill is becoming more and more likely? It's simple. While the economy is certainly in worse shape now than it was in 2003, the markets always look forward and discount the future. The fact is that investors in the stock market understand very well that this bill will not improve the economy. In fact, it will very likely harm the economy by spending such a massive sum on items that do nothing to stimulate the economy, leaving us deeper in the hole.

The market has been speaking to Congress quite clearly and unlike in 2003, it does not like this bill. If there are no dramatic changes, the GOP would be wise to allow Democrats to take full responsibility for this disaster.