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Is the Dow Crashing?

Following last Friday’s big 665.75 point decline, Dow Jones Industrial Average then plummeted another 1175 points yesterday. At the opening bell this morning it fell another 600 points but is already up 30 points as I’m writing this. I don’t expect this decline to be an indication of a repeat of 2008. It’s just going through some adjustments, that’s all. Nothing to worry about.

For what it’s worth, 2015 was the worst year since 2008, up to December 2015. In July 2015, the DJIA was at 17,568, in August it went down to 15,781, in November back up to 17,910, in January 2016 back down to 15,944, and in April 2016 back up to 17,900 and it has continued to mainly go up since then. You can look at any number of interactive charts to see the numbers over these recent years.

But what’s going on now? Some say it’s technological issues, although there are other factors. I don’t know if Donald Trump’s State of the Onion last week had anything to do with it, or the release on Friday of the Republican FISA memo.

But it is clear that the Trump tax cuts, without any significant cuts in government spending, will have a variety of effects on things. The government is completely out of control, spending like drunken sailors, and Donald Trump is clueless about that. And the Federal Reserve also plays a role.

Last Friday, Robert Wenzel wrote this on his economic policy blog:

As I have pointed out ad nauseam here at EPJ, President Trump’s tax cut is a scam.

If government spending isn’t cut along with the tax cut, the money will be taken out of the economy by the government in some other fashion. Today, we had a chance to observe how the money grab is going to occur.

The Dow Jones Industrial Average closed down 2.25% or 665.75 points. This follows a decline of 363 points on Tuesday.

Here is what is going down. Interest rates are climbing. They are driven by the fact that the U.S. Treasury is going to borrow a lot more money because government spending wasn’t cut along with the tax cuts.

In order to borrow more money, the Treasury must offer a higher interest rate then the current market to divert resources from other bond issuers and stock market investors. And voila the benchmark 10-year Treasury yield hit its highest level in four years today as traders prepare for the Treasury bond onslaught. When the funds are diverted to the bond market from the equities market stocks fall. Today is a teaser as to what lies ahead under bizarre Trump economics.

I hasten to add, the evil role played by the Fed in all this with their money printing and suddenly slowed money pumping. This always makes a mess of things.

So we have a manipulative Fed, where Trump just named a clueless lawyer to takeover, coupled with a never-ending borrowing Treasury.

Richard Ebeling writes that a significant problem is the government’s national debt, in which the Big Spenders (of other people’s money) want to just do away with the “debt ceiling” altogether. The problem is government spending.

So there’s an air of uncertainty. But, as Congress continues to kick the can down the road, I think that regardless of the uncertainty and this temporary decline, things will get better probably even more quickly than following the decline of 2015-2016. I hope.

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