Why are the markets down? | Arkansas Blog

Thursday, August 4, 2011

Why are the markets down?

Posted By on Thu, Aug 4, 2011 at 3:09 PM

The Dow closed down 500 points today. Ezra Klein of the Washington Post says it's because of factors Washington just doesn't understand. Instead of recovering from the economic crisis, we're settling into it, he says.

But the Dow Jones isn’t diving because spending has risen, deficits have grown or stimulus policy has changed. It’s diving because of forces Washington can’t control, and in many cases, doesn’t understand very well. How many members of Congress do you think could give a coherent account of what has happened to oil or steel prices over the last three years? Or what’s happening in the Eurozone? Or to the yuan?

A dramatic gap has opened between the economy as Washington sees it — and wants to intervene in it — and the economy that actually exists. Whatever weak recovery we might have hoped for is being hindered by global commodity prices, consumer deleveraging, fears of flagging demand in emerging markets, earthquakes in Asia, and much more. Globally, it’s been an almost uninterrupted run of crises and bad luck. Meanwhile, Washington just spent two months arguing over whether it would pay its bills or spark an unnecessary financial crisis.

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