Monday, February 25, 2013
Wealthy investors felt that the 14,000 level of the DOW was worrisome, even dangerous because it might be the result of the money the Federal Reserve has put into the financial system. They worried that it was not supported by corporate fundamentals. These heavy hitters feared that another financial crisis could lead to deflation, destroying stability and stock values of dividend paying investments. In the last quarter of 2012, growth contracted in the developed world. The 34 member countries gave the world a sign of how the global economy had weakened. Growth vanished in the developed economies. This recent weakness has not generated counter cyclical support from governments and many of the countries where the economy weakened. What they did came late in the crisis. The United States economy did better because fixed private capital investment was still rising. Government investment was down but the US gain is caused entirely by the private sector. Historically, it was very unusual for government Investment in the United States to decline. Austerity has become the byword in many countries, with the heaviest burden falling on the working class and those living at or below the poverty level. Despite the significant contraction of government spending, a protracted fight over the cuts in government spending is likely to last for a long period. If one side wins the first proposal, counter proposals will keep the issue alive for a political generation but only to decide how much and where to cut government programs The social needs of the underprivileged classes will receive far less attention from the drive for the broadest budget cuts. For lack of money, most of the proposals in the President's State of the Union Address are likely to be unfulfilled along with the social economic and moral needs of the nation.