This is a picture of the stock market scaring the crap out of itself
Above, a chart depicting the Dow Jones Industrial Average from start to close on September 17th, 2015. The Dow opened more or less flat. Then, for a while, it jiggled up and down in tiny nervous increments. There was a reason for that.
Janet Yellen, Chair of the Board of Governors of the Federal Reserve System, was about to make an announcement. The announcement would pertain to the Fed’s interest rates, which had been hovering only a gnat’s hair above zero, since the Feds took action to help stave off a market crash. The market crash was brought on by deregulation of banking, which gave bankers free rein to treat the U.S. economy like a casino in which they had been gambling with their depositors’ money.
A frisson of jangly nerves
Stock investors had a right, sort of, kind of, to be nervous. If interest rates rise, people tend to take at least some of their money out of stocks, which are risky, and put them into bonds which are safer, and into banks, which we all know are too big to fail. That would drive stock prices down. (There's an exception for bank stocks, since banks would profit from higher interest rates.)
But to everybody’s surprise, Yellen instead announced that the Fed would not raise interest rates after all just now, not because of the U.S. economy, but because the global economy is messy. Interest rates will probably rise later this year, Yellen said, but not today.
So you’d think “the market," except for investors in banks, would breathe a sigh of relief. That seems to be what happened briefly just before 3 p.m. The Dow began to shoot higher. But then, “the market” spooked itself and plunged to 61 points below where it was at the opening, and well over 200 points below where it was at the day’s high.
In short, it acted overall like a pot-smoking drunk tooling down the highway while tapping the accelerator with one foot and the brake pedal with another in tune to a Rolling Stones performance of “I can’t get no satisfaction.”
Struggles, stopped clocks, and
the synthetic wisdom of Reuters
Reuters, whose writers have to say something that sounds intelligent at least on the surface, reported that the market was leaving skid marks because, “investors struggled to interpret the Federal Reserve's decision to hold off on raising interest rates.”
Why the struggle? Or should I ask, What struggle? The news was perfectly straightforward. It meant what it said. The Fed’s gonna raise interest rates eventually. But not by much. And not now. And meanwhile, frozen near-zero interest rates continue to make things better than investors expected at the dawn of the day. Except for people who invest in banks. Period.
The market’s performance made no sense because markets themselves make no sense. Contrary to conservative belief, markets have no wisdom. Let me haul out a proverb that’s getting kind of weary and remind you that even a stopped clock is right twice a day. Markets are a collection of people buying and selling stuff, sometimes out of greed, sometimes in panic, sometimes rationally, sometimes irrationally, and at mutual cross purposes. So what?
Bury my knee in
Ayn Rand's gizzard
What it all comes down to is that completely free markets are either disasters waiting to happen or disasters that are already happening. Oh, and while I’m sounding off on this, Ayn Rand was an economic idiot (as well as a second-rate writer).
Markets function best when there’s a cop around to keep the ripoff artists at bay. But scratch a Republican presidential candidate and he’ll bleed free market hosannas. Which is why you’re out of your mind to vote for any of ‘em.