❗Let's close the gap: We still need your help to raise $40,000 by April 1. Donate now
Fiscal Cliff

How the markets signal Washington

Dan Bobkoff Dec 28, 2012
HTML EMBED:
COPY
Fiscal Cliff

How the markets signal Washington

Dan Bobkoff Dec 28, 2012
HTML EMBED:
COPY

The markets have been trending down during the fiscal cliff debates in Congress, but so far, they haven’t exactly crashed.

When Congress initially failed to pass the Troubled Asset Relief Program during the 2008 economic crisis, the Dow fell nearly 800 points. 

“The panic in the market panicked the politicians, and they came back and passed TARP,” says Ed Yardeni, president of Yardeni Research. He also thinks the market’s reaction to the debt ceiling debacle last year got Congress to act. 

So, do we need a market sell-off now? 

“I think the politicians would probably get the message, but they should have gotten it by now without the markets stirring them to action,” Yardeni says. 

Some say it’s more complicated. 

“It’s easy to look at hey, the market is down 1000 points, that will spur congress to action, but that’s superficial and misleading,” says Barry Ritholtz, CEO of FusionIQ, a research and asset management firm. 

Ritholtz thinks the market is just a canary in a coal mine. The market goes down when the larger economy is struggling with unemployment, low profits, low spending and the like. But in his view it’s not the market’s gyrations that directly influence Congress. 

“It’s more accurate to say a variety of factors that are impacting the entire economy are what  ultimately what scare the bejesus out of Congress,” Ritholtz says. 

But we all know markets hate uncertainty. Yardeni thinks there’s a chance of a market dive if Congress can’t compromise on the fiscal cliff. But so far, Yardeni says: “Most of us watching the market have been pretty impressed by its resilience.”

Maybe Congress will have to act without a kick in the pants from Wall Street.

There’s a lot happening in the world.  Through it all, Marketplace is here for you. 

You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible. 

Your donation today powers the independent journalism that you rely on. For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you.