How Can The Stock Market Go Up When Employment And Sales Are Down?
Did you ever tow another vehicle? The tension is tremendous
. Every noise or jerk of the vehicle sends sends your heart into your throat. You and the driver of the towed vehicle are both trying to keep the rope tight, but despite your best efforts, it tightens and loosens erratically, causing jerks and lunges in both vehicles.
Imagine what it would be like if the driver of the towed vehicle tried to do some of the stunts water skiers do. He'd almost certainly cause a wreck because his vehicle weighs almost as much as the tow vehicle and would jerk your car sideways causing you to lose control.
The economy is related to the Stock Market in a fashion similar to that of the tow vehicle to the towed vehicle. Every stock's real value is directly related to how the company it owns is doing in the economy. If the sales or potential sales are good, the company makes money, and the stock is worth more. If the sales and potential sales shrink, the stock loses value. The economy tows the Market.
The market, however, can act like the water skier, and make a lot of manuvers the economy doesn't, but eventually it has to follow the economy. If the skier or towed vehicle goes too fast slack develops and the towed one slows until it is taken up producing jerks. The severity of the jerks depends on how much slack was allowed to develop. That is similar to what happens in a recession, the market gets ahead of the economy, and slows until the economy catches up. Stock prices are exceed the value of the companies, and the the market drops until the value catches up.
A depression occurs when the prices rise to such a point that the correction jerks the economy off track. It is like the driver of the towed vehicle decided he didn't need to follow the tow vehicle and passes it going down a hill. While he may enjoy his increased speed for a while, he will cause serious jerking, and possibly a wreck. When the Stock Market gets to trying to make too much, they begin to ignore the real values of the stock and set themselves up for a collapse. It may well cause a total wreck.
To prevent the situation, one must carefully observe the economic situation of the company, and gently apply the brakes when a slight slowing is observed, releasing them as the slack is taken up. Unfortunately, there is a tendency to run free until the jerk is felt, and then apply the brakes, which makes the problem worse. In the stock market, the tendency is to buy because the prices are going up and sell when they are going down, rather than buying when the value is going up and selling when it goes down.
To further complicate matters, there is a second towed vehicle. It is Government. All real government money comes from the economy. They are powered by the taxes they collect. If a government becomes too big and demanding, it may begin to try to go it's own way, ignoring the economy as well. Spending may reach a point where it stalls or wrecks the economy.
Many Republicans fear that Government will reach that point, because history shows numerous times when it has occurred. Many Democrats, on the other hand, fear that government may enable business to wreck the economy by encouraging bad investing. History shows this to also be a valid fear.
The present claims that the recession is over are based on the idea that the stock market is rigidly hitched to the economy and control it. It is widely believed that the economy can be controlled by government. Judicious application of government policy can make the economy work more smoothly by reducing excessive loads on the economy such as lowering unneeded requirements and excessive spending, as well as by forcing the financial markets to restrict their movements.
We've always heard that money doesn't grow on trees, yet the economist I heard the other day said "The government is big enough they can finance what ever they want to. Either he thinks that money just appears, or that we can just print some more and it woill be okay. If that's true why do they collect taxes? It would really help the economy if they didn't. His proposal to move older workers to Social Security sooner in order to employ more younger workers ignores the fact that we already are paying out more than Social Security takes in.
Much of the current problem is a result of a failure to recognize that both the Economy and the Stock Market are powered by the economy rather than powering it.
by: Donald Fishgrab
Celebrities And Their Three Basic Elements In Advertising Techniques Colon Cancer Symptoms and Signs in Women How To Shop For Home Exercise Equipment Online Sipat (Semana Interna De Segurança Do Trabalho) Types of income that the Official Receiver can take for an Income Payments Agreement Opening The Vault On Women Seeking Men 5 Tips For Buying Home Exercise Equipment In Phoenix Essential Men's Suits For Summer I Have A Girlfriend But I Love My Ex - I'm Getting Angry Men's Outerwear Essentials For Winter Managing Wage Garnishment And Other Tax Relief Methods Outstanding Office Fashion For Men Men's Fashion Guide: Finding Your Perfect Shirt