Thursday, 5 December 2013

Stimulus More Important than Economic Growth

The S&P 500 index shed 7.78 points (0.43%) today as, according to CNBC,
U.S. stocks closed lower on Thursday, with the Dow industrials and S&P 500 extending losses into a fifth day, after data had the economy growing more rapidly than expected, adding to thoughts that the Federal Reserve would begin to reduce stimulus sooner than speculated. 
I take CNBC's word for it. As I wrote early this summer, there is something fundamentally wrong in an economy when the stock market cherishes Fed stimulus, but despises any sign the economy might be growing. Pro-stimulus economists should pay attention to this, in no uncertain terms, contradiction that the stock market prefers a weak economy (and strong stimulus) rather than a solid economy.

By ending the stimulus mania, the stock market can go back to serve it's real purpose which is allocating capital through rewarding and punishing real operating results and prospects not fueled by artificially low interest rates and undue increases in money supply.

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