12 August 2011

Blaming Stock Market Fall on US's Credit Rating Downgrade

Many people link the volatility and the sharp fall in the global stock markets with the US's losing its AAA rating on 5 August.

They are mistaken.

The volatility and the sharp fall in the global stock markets are a reflection of the fear and concern that the US will enter into a recession, and the realisation that there is neither political leadership nor political will to do the necessary to bring about strong economic growth — growth that will result in job creation and bring down unemployment, which will lead to increased demand for goods and services, which will lead to business investment and higher earnings for businesses and individuals, which will lead to higher taxable income with which to reduce the deficit and national debt.

The compromise that allowed the US debt ceiling to be raise will shrink entitlements and other government expenditure, but will not raise additional taxes on the wealthy.  Focusing on shrinking the deficit and the national debt when the recovery is lacklustre will ensure that the recovery remains lacklustre at best or sinks into a recession at worst.  It cannot work.  It won't work.

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