IRONY; GOOD ECONOMY DRIVES STOCKS DOWN

THE STOCK MARKET TAKES A HIT. GOOD NEWS FOR WORKERS?

In the last few days (and maybe today too) the stock market has taken a big drop.  What happened?
All was going so well.  But what is good for the investors and big companies is often not so good for the average American worker and the economy in general and vice versa.

Over the last decade, since the Great Recession, the FED has kept interest rates near zero and with the weak economy jobs were scarce.  That was a great time for the investor class.  Profits soared for the big companies...wages were low, and borrowing money was cheap.  Good deal!

But with the Trump economy has come a new optimism.  People have been put back to work.  The recent job numbers are very good.  The Trump tax break had put an enormous amount of money back into the hands of workers.  The “crumbs” that Congresswoman Pelosi describes as a mere $1000 per worker annually...is an enormous amount of money entering the economy when you consider that there are 160 million workers.  A thousand bucks to each worker amounts to $160 billion dollars entering the economy and in the hands of every day worker folks who will spend every bit of it.  Not to be sneezed at.  That kind of distribution is in line with classical Keynesian economic theory.  So the economy is expected to grow. With a growing economy wages will go up too.  We have seen evidence of that even now...only a year into the Trump administration.  More jobs available means employers will have to pay more for labor to fill those jobs.  That is good for common folks and Main Street.

But with that growth comes the threat of “inflation”. When folks have more money in hand, the prices of goods and services goes up. Rising costs of goods and services in effect cheapens money.  Our dollars are worth less since they can buy less.  That is inflation.  The FED has seen to it that we have not experienced a hint of inflation for a good decade.  There was not enough money in the hands of common folk to create strong DEMAND for goods or services.  Therefore no inflation.  The FED had no reason to raise the cost of borrowing money—the prime interest rate. Borrowing money was cheap and good for the big guys.  But now in a better economy..the threat of inflation raises its scary head..again.  The mere hint of inflationary pressures suggests to investors that the FED—which is mandated to control inflation—will be more likely to RAISE INTEREST rates.  That makes their businesses less profitable.   Investors have been living in a low interest “la la land” for so long this seems very threatening to them.  Thus the jittery market.

Put those two factors together...businesses (and the investors) see the comfortable scenario of low wages and low interest rates evaporating in the new Trump economy. That is a threat to their profits.

Another factor is that the Trump market has risen so fast and to such heights...some opine that it might be a bit over priced.

These are the three factors that seem to be in play here.  They are not good for the investor class—though those folkwill continue to make plenty of money.  But it may mean a decent job and a better income for the common folk on Main Street.

It is ironic that a good economy, rising wages, higher demand for goods and services and a better life for workers and small businesses could be the cause of the jittery market, but that is what seems to be in play here.