THE BLOG

Of Course The Stock Market Tanked

08/08/2011 10:51 am ET | Updated Oct 08, 2011

Yes, the unemployment numbers are bleak and yes the overseas markets are in a state of turmoil. Both of these facts have surely had a negative effect on the New York Stock Exchange.

I fear this is not the only factor. The brutal ugliness of the entire debt ceiling negotiations was nothing short of a fiasco. Investors have seemingly come to the conclusion that our leaders in Washington are worried about something entirely different than what truly matters in today's economy.

I will let you in on a little secret. Investors and big business absolutely love Democratic economic policy. Almost as much as they love Republican tax policy.

They realize that there is no historical data whatsoever to suggest that trickle down economics will create jobs. They also know there is plenty of data to suggest that Keynesian economics does work.

With the signing of the debt deal it is now apparent that we have abandoned Keynesian policy and are now taking serious austerity measures.

We are looking at trillions of dollars in spending cuts over the next two years. When you cut government spending you necessarily have to deal with job losses. Job losses further reduces demand.

Due to the constraints imposed on the administration by the debt ceiling deal, it is now seemingly impossible for government to play a role in stimulating the economy. Now we are faced with waiting and hoping that market forces will come into play.

With the lack of demand which is now further worsened by austerity measures there is virtually no incentive for corporations to invest any additional funds in the U.S. economy. We are broke. We can not buy what they are selling.

Instability caused by the debt ceiling deal, high gas prices, fear of future hostage tactics, and many more government workers filing for unemployment are definitely on the minds of investors.

Economic instability will once again encourage consumers to leave their wallets in their pockets. We have reentered that circular process where each bit of bad news creates more fear and that fear decreases the likelihood that people will do exactly what is necessary... buy stuff.

It seems that business has overplayed its hand with the Tea Party. The Tea Party has actually done one heck of a job in implementing their policy objectives. They have stopped any additional revenues through tax increases and they are beginning to cut to the bone programs which benefit the economy.

The current political environment is toxic to any idea which promotes job growth through government stimulus. There is little chance of a jobs bill. Little chance of an infrastructure spending bill.

The question investors are asking is "what the hell are we going to do now?"

The answer they came up with... sell, sell, sell.