Wednesday, September 7, 2011
Stocks snap back
After an ugly start to the month and this week, we had a 276 point gain on the Dow today. Gold dropped dramatically as well, as money flowed out of the safe haven trade and back into stocks. Gold's recent activity appears to be signalling a top for the commodity. Obama's $300 billion stimulus package announcement certainly helped, although we will need to borrow any money to be spent on any stimulus package - money we certainly can't afford to borrow. The argument has always been that by stimulating the economy, and especially by adding jobs, economic activity will generate more tax revenues for the government. I agree, but the problem is that there is always a time-lag between the time you spend the money and the time the economy picks up steam. Further, we have already had a stimulus, the TARP program, and two rounds of Quantitative Easing (QE), and we haven't seen the positive results expected or needed to justify the massive borrowing it took to fund these initiatives. Will this package be THE ONE? In the big picture, $300 billion, unfortunately, is peanuts, so I doubt it will have a lasting impact, much like the Cash for Clunkers program, which stimulated car sales for a few months, but in the long-run, probably hurt the automakers by compressing future sales into a shorter period of time, without driving any real sales increases. I have yet to see the details of this proposed stimulus, but regardless of those details, any stimulus package will require borrowing, since we have no money. Sooner or later, and likely sooner, this massive bill is going to come due.