My co-workers are always predicting the next stock market crash. The listen to someone that they call The Shepard (or maybe his last name is Shepard, I’m not sure.) They always are telling me that the market will hit 6000 by Christmas. I have won that bet the last two years straight. Now they are saying that Bush, or someone in the federal government, is artificially pumping money into the stock market, so that it won’t crash until after Bush is re-elected. Once he is, he will pull the plug and the market will crash (because once he is re-elected, he won’t be able to run again and he won’t care.)
I of course don’t believe this, but hey, what do I know? Still, it seems that if this were true, the Democrats would certainly be shouting about this scandle. (They don’t scream because they do it when they are in office…)
Is there even a germ of truth to this, somewhere deep?
I’m going to get beaten by the tinfoil hat-haters, but look into the Plunge Protection Team, which may or may not be a group of speculators (possibly via the big brokerages) that gets federal money to do things like: throw money into strategic stocks to raise index values, short gold and silver futures to keep the price low and people from flooding to them as a safe haven investment, etc. A google search will net you a variety of articles, some slightly reliable, some completely out there.
The government does, of course, have a vested interest in keeping the stock market afloat as many argue that this drives the US economy (actually, it’s consumer spending which drives the economy), but it is the most accepted indicator of the American economy. Instruments like 401(k) and IRAs, etc. are designed (tinfoil hat again) to keep money in the stock market that’s not easy to withdraw. Others would point to other bizzare rules like the difficulty of short selling, buying on margin and mutual fund time requirements as the same. In this sense, the stock market is a positive-sum game.
A stock market crash is not necessarily a bad thing: only those who have investments in it would lose money and theoretically, it wouldn’t affect the way a business runs (i.e. even if the stock drops to $.01, they can still make cars, buy copier paper, employ people). The benefit of a crash is that stocks would be valued closer to what they’re actually worth and a lot of the “operation” that moves the markets would be eliminated, at least for a time.
Haven’t researched this but I think if you go back 30 years, you’ll find the Fed has been pretty accomodating ahead of elections. Eg increased money supply, not raising rates.
Remember the infamous “irrational exuberance” speech by Greenspan in IIRC Dec 97? He saw the internet bubble, tried to talk it down, and then didn’t tighten when the markets rocketed. I know that Russia meltdown and the Asian crisis were also factors in not tightening, but I think he screwed the pooch there.
What I do remember is late May of 2000 when Greenspan hiked them for the last time to 6.9%.Also remember screaming about it on a stock message board.
After a decline in the index Jan.2000 then another in March,I thought an increase in rates 2 and 4 mos.respectively after precipitous drops was completely out of hand.He never gave a chance for those corrections to play out without fooling with an interest rate.
I see him doing it again now.A rate hike IMO will only tank an already unstable market that hasn’t approached the highs of 'late '99 and is just now approaching that correction mark of early 2000.
IMO,this guy has way to much say over the money supply.No checks and balances at play here.It’s like the Supreme Court was only made up of the Chief Justice.
The fed artificially boosts the economy in the same way mom artifically boosts her kids…Ya gotta do it to get em rollin’. Once they seem to be on their feet you need to make em wonder if they can ever learn how to dance. etc etc etc. It is a balancing act. Clowns need not apply. You think you are doing poorly?..momma is here to help. You think you have outgrown your tighty whiteys?..the fed (and momma) will bring you down to size.
Bottom line…the fed and momma are like a highwire act. It’s all about balance.
The Fed’s target isn’t the stock market, it’s the economy. The stock market is just a barometer. Everytime the Fed adds liquidity during a financial crisis they could be said to be “propping” up the stockmarket although if the crisis is indeed one of short term liquidity then it’s a reasonable action. Unfortunately there are inherent motivations for keeping interest rates too low and for too long.