Reality based… meltdown?

The stock market is usually regarded as a “leading indicator” of economic activity, to wit, the traders and speculators who dominate it are usually placing bets on economic activity in the short and intermediate term futures… which makes it all the more worrisome as the market reacts by tanking (around 280 points in the Dow) to the priorities of the Federal Reserve re: “fighting inflation” in response to the current sub-prime mortgage and housing woes. Apparently, the seeming record decline in U.S. home prices — which overwhelmingly impacts those who are not super-rich– is less of a problem than inflation which might, of course, impact those beloved coupon-cutters (code for people whose income is derived from bond interest, rather than thrifty super-market goers).
That’s a bit of an oversimplification– the Fed (and presumably our government?) must concern itself with a myriad of problems, and right now, one of those problems is that it would rather not admit its own complicity in having helped marginal homeowners (many or most of whom should never have gotten such loans in the first place) acquire their risky variable rate mortgages, and then assisted as many of those same people (and many, many others) borrowed against their home equities to finance consumer spending (or other spending)… in short, the principal driver of economic activity in a country with a minimal or non-existent savings rate.
We’ll see where this all goes; if the economic ship of our nation starts to run aground… we have to note that it is a much bigger ship, these days. Further, there are many, many fewer lifeboats (bankruptcy “reform”, welfare “reform” and so forth) for those likely to be thrown overboard first.
But at least, the top marginal tax rate, and tax rates on investment interest and inheritances are lower. Those should help… those who least need it.

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