Trying Their Best with What They Know

Who says the government doesn’t watch the stock market?

Some analysts found it surprising in last Friday’s Presidential Debate when President Bush commented on the stock market. The President said that six months before he took office, the stock market started its worst decline in 70 years.

Could this be why U.S. interest rates fell to a 46-year low… to stop the stock market from collapsing… to stop an outright panic by investors and consumers caught in the stock market? Likely.

But you can only put off a bear market for so long, even with government intervention. All that the government has done is put off the inevitable: The bear market in big-cap stocks. And this explains why, despite a 46-year-low interest rate, the Dow Jones Industrial Average was never able to break its January 2000 high of 11,722.

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Aside from collapsing interest rates, the government tried its best to make easy money. It even created its own new and huge debt to get jobs and the economy going and cut taxes to spur business. But guess what? The easy money only created another bubble, the real estate bubble, which Greenspan is now trying to cool by moving interest rates higher!

As for debt, the average household’s share of the government debt is about $470,000. That doesn’t include household mortgage and personal debt! And as for the tax cuts, they are not spurring business to spend. From what I can tell, businesses are not borrowing like they used to. In fact, companies are cutting down on borrowing and cleaning up their old debt. Maybe business senses slower consumer spending ahead.

This coming January 14, 2005 is the fifth anniversary of the high hit by the Dow Jones Industrial average back in 2000 of 11,722. In retrospect, would it have not been better to have the stock market (or should I say nature) run its course, so the bear market would have been over with by now, instead of just getting going?