There’s been a lot of volatility in the markets since April; investors and economists are nervous about an impending “double dip” that will send America and the world into another economic gloom.
In my opinion, President Obama should turn his attention towards the stability of the global economic system. Granted, the President seems to be responding to the fact that upcoming election(s) will be based on anger. But as The Economist has commented recently, anger without new ideas is impotent. This is especially true as economists are questioning the potential for continued recovery. What will happen if Europe’s debt crisis drags us into Great Recession #2? Whose ass can we kick then? Anger will quickly turn to fear, a fear that the President must be competent to address. The U.S. hasn’t really been involved in the Eurozone’s troubles so far, beyond asking Europe to spend more on stimulus. Maybe it’s time to for the President to take more of a public leadership role and calm the markets, rather than just sending out Bernanke to make vague comments.
In other news, CNBC reports that one group is happy about the recent downturn – short sellers.
Generally, investment makes one want things to go well. Investors hope that the economy improves, that consumers are not taxed too much and have money to spend, that companies succeed and make the things that consumers want to buy, that consumers are employed, etc.
But when you buy gold (which gains value when people trade in their stocks for its relative safety) or short stocks, you make your money when the market falls. As a short seller, you lose money when stock prices rise. If the stock’s price goes down, you earn money. When markets crash, you earn lots and lots of money. This creates a situation where you sit around praying for the sky to fall, for war and political turmoil, for consumers and be unemployed, for companies to go bankrupt and Greece to default on its debts. Same goes with gold speculation, basically. I know someone who’s invested in gold and pretty much hopes for a double dip. Now that’s moral hazard.
*Just to clarify – I’m not proposing to should ban shorts altogether (Note: Germany has banned only the “naked” speculative kind), because some investors buy these instruments (in addition to stocks) to hedge against a potential market drop that they don’t hope for.
Image Credit: Flickr (Peyri Herrera)
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