As I’ve watched the markets claw their way back from the brink of disaster I’ve begun to wonder what’s causing the market to rise. As I posted yesterday, the true US unemployment rate may be as high as 20%, the credit markets are almost non-existent, mortgage defaults increasing and (although I think it’s a great personal decision) savings rate has gone up. With people spending less, what’s going to stimulate the economy?
A Quick Summary
Just yesterday I read an article on the Huffington Post called Why the Dow is hitting 10,000 and it really gave me a great summary of the current market conditions. With personal spending way down, the government seems to be making up the difference (and more) with cash-for-clunkers, bank bailouts, mortgage bailouts and a cool trillion on “stimulus spending.” The only problem is that the money just doesn’t seem to be trickling down to the public.
The only problem is that the article seems to be a little short on the so what? factor. What happens when the government can’t spend any more but the people haven’t paid off all of their debts and continue to save? All of a sudden all these gains may seem like another painful memory.