Thursday, October 9, 2008

Dow 6000

With another steep drop in the DOW Jones Industrial Average today it is clear that Wall Street has finally realized what Main Street has known for years. The Republican Bush/Cheney Economic Policies have been a failure. The Economic Policies of the so called "Conservative" Movement of the Republican Party preaches "free market" economics. What they mean by "free markets" are markets that remove all regulatory oversight, the result of removing regulatory oversight is the current economic crisis. Senator McCain throughout his career has often referred to himself as a "deregulator" along with his other self proclaimed title of "maverick". The result of maverick deregulation has arrived for all to experience.

The Dow will seek its own level, a level that will be based on a realistic investment ratio. The traders, speculators and money mangers who have for years disregarded the fundamentals of investing must now recondition themselves to invest in a practical way. Throughout the years whenever the price earnings ratios of publicly traded stocks have been in excess, the markets corrects to brings those ratios down to a realistic level. The news reports and the man on the street interviews seem to be amazed that the Dow has fallen from a high of 14,000 to its current level below 9,000. It really is not amazing, it is practical. The real value of the Dow Jones Industrial Average based on trailing earrings is probably around 7500 - 8000, but because the pendulum swings too far in both directions it will not be surprising to see the Dow fall as low as 6000 before reality sets in and it seeks its proper level at 8000. Between 6000 and 8000 there will be multiple bounces back and forth between those numbers until the markets settle down to be in line with actual earnings and not projected earnings.

There are many reason that markets correct, this market has corrected because of the excesses that are now surfacing because of shoddy oversight and the deregulation of the banking and insurance industries. The financial industries treated the American people as a never ending source of revenue that was kept alive by offering excessive credit without regard to stagnant wages. All of the deregulation will now have to be reversed so that Banks and Insurance Companies are again required to keep their assets safe and not gamble them in the casino called Wall Street.

The Republicans will have to realize that an Economy is not grow from the top down, but rather it is nurtured from the roots. The key to a fundamentally strong economy is to maintain an hourly wage base that will afford the hourly wage earner the ability to be a consumer. The hourly wage worker is the consumer that fertilizes the roots of the economy, as they spend, they create demand, demand creates jobs, jobs create demand and so on. Allowing the wealthy to park their money and speculate on made up derivatives does not benefit the real economy in any way. It creates games that only the rich can play. Now they have played and they have lost. It is a clear indication that the policies of the "conservative" Republican Economic theories are a fallacy that cannot work. The key to a good economy is a well paid working class, and a growing middle class. If you starve the working class and cast the middle class into poverty, the result is an economy that produces little, consumes less and stops growing.

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