Tuesday, February 06, 2018

Stock market takes a hit. Blue region economies don't need red region strategy of stimulus. Parts of economy may already be overheated.

Stock market drop, February 5 2018. Trump and Republicans loose a talking point.

There's lots of different opinions as to why the market is dropping. I've got my take also.

People say the market is nervous about the threat of inflation. Inflation could mean interest rates would need to go up to curb inflation and that is often depressing news for stocks.

Yes, inflation is becoming more widespread, but us in "blue state," or more accurately "blue cities" America have known about inflation for a long time. Housing costs have been soaring in many of our metro areas. This creates pressure to raise wages; such as here in Washington State where minimum wage is now up to $11.50 per hour. After all, workers do need to be able to afford to live. What a concept. This does, however spread inflation farther. The cost of a burger and fries will go up as the employees, who serve it, get paid more. Maybe their wages will start to catch up with the cost of housing, healthcare and even college. It's like "what goes around, comes around." The blue cities have been dealing with inflation and prosperity for years.

Red State America is where most of the politicians come from and, for the most part, they don't even care or listen to what's happening in blue state America. The economy tends to be more stagnate in red regions so they still think we need to stimulate the economy. They push tax cuts.

Well, now we're dumping money into the private sector with tax cuts, but for the most part the economy is already booming. It's booming in the blue metros at least. Unemployment is down. Is this the time to be doing stimulus? Maybe not. Too much stimulus is inflationary.

Now investors have two big worries. Growing federal debt and an overheated inflationary economy. Interest rate hikes may be needed to keep a lid on things.

Liberals talk about stimulus also, but they usually talk about government spending on infrastructure for stimulus. When the economy gets rolling, then even writers, like Paul Krugman, do talk about cutting back on the stimulus.

I hate to oversimplify by saying liberals think this and red state people think that so bear with me. I know it's more complex, but this is a Facebook post (I first posted this on Facebook). How many bites do I have left?

Even though the economy is starting to boom and unemployment tends to be low, there is still trouble leading people to keep wanting stimulus. Stimulus like tax cuts or more government spending. It's sort of like we are an addict needing yet another "money fix." Reason for this problem is that even during prosperous times, many people can barely make ends meet. The income gap is leaving lots of folks behind in the dust of prosperity. In blue states, we tend to realize that inequality is a big problem. We need more than just prosperity, we need a more sustainable and fairer economy. In some cases maybe even more taxes for things like affordable housing and healthcare. A more balanced deal.

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