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Stock market plunge

08/05/2011 @ 1:31pm

The stock market has taken a historic plunge after reaching a high of 12,749 on September futures July 22. The market plunged to below 11,300 by August 5. Initially, nervousness came over concerns of the government's inability to solve a debt ceiling crises. A bill was passed on August 1, which the president signed. Yet, the market continued its downward plunge. The stock market could be viewed as a collective vote of economic confidence. It may also be suggesting it does not like the climate in Washington. There is a growing disbelief that the right philosophy to revive the economy is in place.

As investors flee, that drives stock prices lower. Ultimately, that means less capital gains taxes for the government to collect, unsure investors and a shaky business climate. Increased government spending is simply draining the economy. The business world, as well as the population in general, is beginning to wake up to this reality. One only has to look to Europe if you want a snapshot of what the United States could look like very shortly if spending is not curbed. This country struggles with saying no to spending money it does not have. It all starts at the local level.

It is this author’s opinion that federal money being spent by local municipalities is somehow viewed as free money. Community leaders argue that, unless they spend allocated dollars, they will lose these funds. As an example, in Milwaukee, a city with a $50 million dollar budget deficit, city leaders voted to spend $66 million of federal money on a train whose usefulness is highly debatable. As a whole, the economy needs to have confidence that the government is taking appropriate action. We have heard one business executive after another suggest they will remain on the sideline due to uncertainty and will not reinvest into their business until a better climate exists. The biggest concern is that a continued push for tax increases will create an even less favorable business climate, and therefore those who are doing the hiring, won’t. A government cannot tax and spend its way to prosperity. The Keynesian economic model may have some merit, yet is on the verge of proving it a disastrous theory.

Those who take risk, whether a business owner or a farmer, need to have confidence that their government is supporting them. Increased taxes, regulations, and wealth distribution are not supportive variables for risk takers to succeed. Without confidence, risk takers and investors take themselves out of the game. It is time Washington understood this message. The plunge in the stock market this week is a signal that our legislators should not ignore.

If you have questions or comments, please contact Bryan Doherty at 1-800-TOP-FARM ext. 129. Futures trading is not for everyone. The risk of loss in trading is substantial. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Past performance is not necessarily indicative of future results.

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