Long term ramifications of market volatility
JEREMY HOBSON: So why this continued volatility in the stock market? Richard Dekaser is an economist with the Parthenon Group. He’s with us live from Boston as he is every Wednesday. Good morning, Richard.
RICHARD DEKASER: Good morning.
HOBSON: So what’s going on?
DEKASER: Well, there’s a couple things. One, the economy has been very sluggish. People are concerned about the rising probability of a recession going forward. But, number two, and perhaps more importantly, is that the policy-ship — that is economic policy looks a bit rudderless, at the moment. The Federal Reserve stepped up, told us they’d be keeping interest rates near zero for probably the next couple years and that’s the reason the Treasury yield, that you mentioned a moment ago, is as low as it is. And that will help. But fiscal policy is really the big issue. It’s what’s going to happen in respect to tax and spending, we had the commission legislate an extension just a couple of weeks ago. But, I don’t think there’s any confidence whatsoever that they’re going to meet their deadlines in an effective way — and that’s November and December of this year. And as long as that uncertainty’s hanging over the market, it seems to me it’s going to be very difficult to get some altitude.
HOBSON: Richard, what are the ramifications, long term, of all the volatility?
DEKASER: Well, individuals will be less wealthy. We’ve lost about $2 trillion in stock market wealth just in the past month. And when they are, they spend a little more conservatively. And also businesses raise funds. And when fund raising is more expensive, investment is a little bit more restrained, so if these levels are held, they’ll have an adverse impact on the economy.
HOBSON: Richard Dekaser, economist with the Parthenon Group, thanks so much.
DEKASER: My pleasure.
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