The Dow ended the week below 12,000 for the first time since March. This is the sixth straight week of downs for the Dow. It's almost as bad over at the Nasdaq. All the gains racked up in 2011 have now been erased.
What's going on?
The real economy is catching up with the financial economy, as it always does eventually. Wall Street is built on smoke and mirrors, while the real economy is based on jobs and wages. Smoke and mirrors can only take you so far -- as we learned so painfully three years ago.
Jobs and wages stink, if you haven't noticed. They've been bad for months, even before this week's data made it fairly clear the recovery has stalled.
Stock prices had been rising nonetheless. That was partly because big corporations were enjoying big sales and fat profits from their foreign operations. But foreign sales are slowing. Chalk that up to the European debt crisis, Europe's insane austerity measures, Japan's tragedy and China's concerns about inflation.
Meanwhile, other companies have been busy restocking inventories in the hope American consumers will be in a mood to buy. But that hope is coming to an end, as the reality dawns that American consumers can't and won't buy very much, given their shrinking home values, high debts and job worries.
Stock prices were also rising because of Wall Street's certitude that it can make loads of money from the gullibility of millions of small investors. Here's where the smoke and mirrors come in.
Over the past year, the Street lured small investors back into the market on the smoky promises that the worst is over and stock prices are bound to rise. The lure became a self-fulfilling prophesy. As investors reentered the market, they bid up stock prices. Hence, the mirror.
Insiders on the Street are always the first to bail when they sense they've been overselling, as they started to do a few weeks ago. This gives them a second opportunity to make money off small investors -- by selling short.
The nation's second-largest financial redistribution in history (the largest, on a percentage basis, occurred in 1929) came in 2007 and 2008 -- from small investors and their pension funds to the Street's savvy traders who shorted them. Now it's been repeated, although on a smaller scale.
And Washington? Completely clueless. Our representatives in the nation's capital continue to obsess about future budget deficits and games of chicken over raising the debt ceiling -- neither of which has anything at all to do with the stalled recovery and the carnage on the Street.
Otherwise, the airwaves are filled with Weiner's tweets, Gingrich's implosion and Palin's emails. When times are tough, we look for entertainment.
Robert Reich is the author of Aftershock: The Next Economy and America's Future, now in bookstores. This post originally appeared at RobertReich.org.
Follow Robert Reich on Twitter: www.twitter.com/RBReich
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I don't believe that the stock market has been pushed up and now down by professional traders, but instead by the fed. The fed has been trying to create a wealth effect via the stock market similar to the one we saw at the end of Bush 1's term. Mr. Bernanke stated that he was "targeting" the stock market to go higher. This idea of the wealth effect and people spending that money has not worked this time around mostly because people pulled their money out at the bottom because people like Cramer were on television screaming to get out near the bottom.
I don't know a single person that has added to their portfolios in a major way. Sure they may have added to their 401k's and IRAs, but not their lump sum huge investment. Lucky for them.
No one wants to invest in a stock market that is manipulated. Everyone knows the fed is behind the stock market move higher. No one wants to be holding the bag when the fed and the banks sell.
Aren't credit card balances going down? Savings up - even slightly? The borrowing binge of the last 20 years has certainly ended, and I can't see people running up credit card debt now except out of necessity (of which I'm sure there is plenty). The trend, however, if for debt to decrease as we become fearful of the future.
That means, in the short run, less spending, living within our means. Being frugal doesn't really spell the end of the economy, but rather a more judicious approach to spending that realistically assesses our ability to pay.
How happy for you that your savings are so large that you could pay off your mortgage! I would say that you are the exception rather than the rule. With stagnant salaries and new jobs at probably a fraction of what people were getting before, many are able to barely cover the basic costs of life: food, transportation, shelter, and the costs of shelter - utilities, phone, etc.
It's not that being frugal isn't a good thing, but the real issue is not so much "living within our means" as it is getting decent enough salaries in the first place in order to make it possible that we don't fall further behind. Falling behind, i.e. having a vast population who is trying to make do at less than current living wage levels, will be what ultimately "spells the end of the economy".
Not to be intentionally pessimistic, however, I see no evidence of any Political or ruling class effort to move the national conversation in a different direction.
Carrying on the way things are is encouraging disaster, it cannot be otherwise.
Should not everyone wary of all the trillions of cash sitting idle?
As the housing market is done and equities are down that cash is going to go somewhere for purposes of speculation and quick profits.
Oil, Food, commodities ..... ?
F & F'd
If anyone doesn't believe me, just think of that "short sell" scenario, and do the usual -- follow the money. It'll be great if you're in a position of insider knowledge or have available "leverage" of OPK's. And if you're not a protected ownership classholder, you'll be fubar'd. Yep, that's a realistic scenario that can play out. Much to the chagrin of citizens. Voters won't notice, they're being dumbed down every second, that's why I distinquish between a citizen and a voter. Not all people wake up equal.
I suspect we will all be learning more about sustainable living as we are living unsustainable lifestyles at the time. Sustainable living is one thing that scares Wall St. They prefer to see people enslaved to credit and careless, uninformed spending. Trying to sell their BS to anyone who is enlightened to real logic and ethics and who has a keen sense and appreciation for quality is a challenge for them.
As this American capitalism slowly winds down, we must exercise logic, ethics, and focus on quality. The next American Industrial Revolution is just beginning. Sustainable and Renewable POWER will be the core driver. It will involve government and many new social programs. Until the money flows in the paychecks, study how to fish. We can hardly rely on business leaders, TEA/GOP, or the international financial community at this time. They are not the Captains they once were.
Take your business to a reputable, ethical company that has a total quality management system. Capital will respond.
Wall Street will fail again and very soon. Blame the little people for not supporting the big greedy people.
'There is no sheriff in town.'
;(
When the laws are not enforced, even the weak ones we have now, then there are no speed limits, etc.
They can now pull their money out of the market, pay off their zero intrest loans and still make a considerable profit.
Without any rules all but the very rich will become homeless eventually.
ff
I dare say we're on our own again. Our new lords have bought and paid for the white house, the congress and the senate and some of the Supreme Court Justices. They are hawking them out like pimps to the higest bidder.
We're just a tide of one cell organisms who's only interest is Dancing with The Stars and cell phones.
The French had it right the first time. The enemy of the U.S. is not just Afghanistan it's here in our own land in our own board rooms, in our own churches, living amoung us, eating at fine restaraunts, sitting at coveted elite seats of baseball and basketball venues. They get the best of everything and sell out their neighbors for a cut of the pie.
The enemy of the people isn't just Al Quieda.
We're at war with ourselves and the 2nd set of casualites are the middle class. Who will the third casualty be ? Your children and your future.
Viva La Liberte !!
Eventually we'll have nothing to lose by advanced organized civil disobedience marching through the streets against established institutions. If they can't help us and wont help us why would we care if they fail ? Too big to fail is
"Advanced organized civil disobedience marching through the streets" is all fine and good, but everything will depend on whether we receive active support for our actions from the police and military as the Egyptians did (military only) or whether the enforcers of power continue to side with the wealthy elite. Everything will depend on how discredited those "new lords" become.
Today we are facing the greatest threat to our way of living, threat for our kids’ future. The banks, together with our government brought America to its knees and we have to stand up together and demand justice! There is one Register of Deeds in MA who is fighting MERS, BofA and the rest of them on his own - John O'Brien needs our help: http://tinyurl.com/3qsu87x
Attorney General Miller, you can tell us the truth, we're ready for it! Wall Street made sure that Americans can't be surprised any lonterg:http://tinyurl.com/3h5kfy9