Tuesday, August 02, 2011

Media wrong on effect of raising the debt limit

The media displayed its gross ignorance of economics again this past week by predicting stock market Armageddon would be avoided if the debt limit was increased and a dooms day scenario if it wasn’t.  Well, the Happy Days are Here Again scenario did not result from the debt limit increase as the media expected.  Just the opposite occurred.   They got caught up in the liberal hype and forgot all about reality.

Even FOX News doesn’t get it, with their ignorant headline “Wall Street Continues Slump Despite Debt Deal”  It SHOULD read “Wall Street Continues Slump BECAUSE OF Debt Deal.”

The reality is the markets are more concerned about raising the debt celling to unsustainable levels  than it is with cutting the Federal budget.  The market was reasonably happy as long as there was hope that a rare flash of Washington sanity would provoke significant budget cuts.  But when it learned it was not to be, and instead approved another 2.4 trillion dollar line of credit the US can ill afford, the market tanked.

There might be some mild contrarian bargain hunting in the next day or two that reverses some losses, but the trend will be lower as the market slowly adapts to reality.  In spite of its short term memory lapses, the market cannot avoid the ultimate reality of the corporate bottom line.  And the bottom line ain’t lookin’ so good with federal fiscal irresponsibility running rampant.

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