We haven’t had too much fear in the market this year. However, if you bought in November, you might be feeling a little bit greedy. With the Fed saying it’s on hold until the end of 2014, a lot of folks queued up bets for a little more QE. It’s also an election year, and many are closely watching the polls.
Yesterday, the hopes and dreams of the QE players started to seep out of the market. From current polls, it looks like the Republicans will control the House and Senate and the Presidential race is going to be very close.
Because we haven’t exactly had a traditional recovery from our last recession, a lot of folks are fearful of what will happen when the Fed stops printing money and our government stops spending it. That is what is driving the latest sell offs of markets in Europe.
Short term, cutting government spending will not be accretive to GDP. Government spending is like heroin. Initially it feels good and doesn’t cost much. After awhile, you build up tolerance and you begin doing anything to get the drug to feel good again. Too much reliance on government spending, and eventually economies die. No one works. GDP shrivels.
In the long term cutting government spending is good for economic growth. Competition for growth capital between private industry and government ends. Government gets out of the business of running things and private industry takes over. Private companies are always more efficient and responsive than government. Always.
Of course, this assumes that the Republicans are serious about going forward with an economic agenda first, and not muddying the waters with a bunch of social issues stuff. Think of it as the difference between the way Paul Ryan speaks, and the way Rick Santorum speaks. Ryan leads with budget issues, and if you want to talk about social issues it’s in the back of his notes. Santorum leads with divisive social issues, and might get around to talking about real economics if pushed. When one is struggling to put food on the table, they don’t give a rats ass about social issues. That’s for elites.
Given the debacle that happened financially in the US from 2000-2012, I think most of the Republicans have their “financial” hat on. If they don’t, they will lose relevance as a political party.