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Stock jump after storm damage is less than feared

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August 29, 2011 – Comments (2)

This is the reason given for the advance on Wall Street today:

 Stock jump after storm damage is less than feared

Color me confused, but in a world of Keynesians, shouldn't that be cause for a stock decline?  After all, a devestating storm that causes hundreds of billions of dollars in damage would create huge demand.  We're talking contractors, tv's, appliances, insulation, etc.  This is the very basis of Keynesian economics, that demand will drive growth.

If fact this formula is a widely taught by Keynesian professors: D + I = G

That's Damage + Insurance costs = Growth

Some of the best ways of increasing economic growth are as follows:
1) Hurricanes
2) Tornados
3) Arson
4) Nuclear war
5) Conventional war

But do not be confused as I was earlier.  Here is the TRUE reason why the market is advancing today:
It Ain't Over Yet

2 Comments – Post Your Own

#1) On August 29, 2011 at 3:25 PM, Frankydontfailme (28.06) wrote:

"Nonetheless, we must ask about the economic aftershocks from Tuesday’s horror.These aftershocks need not be major. Ghastly as it may seem to say this, the terror attack -- like the original day of infamy, which brought an end to the Great Depression -- could even do some economic good."

Paul Krugman after 9/11

(Even though it's a bit a out of context... no context justifies using this type of thinking.) 

 

P.S the market is rallying because of the 'Bernanke Put' or (as a cnbc analyst called it) the Bernanky Blanky to come in September. Low volume rally, should collapse. 

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#2) On August 30, 2011 at 2:54 PM, rfaramir (29.28) wrote:

Keynesians may believe the broken window fallacy, but real people know that vandalism, war, and natural disasters destroy wealth and do not create it.

To the extent that future spending, which would have happened anyway but would have been additions to our wealth, is pulled into the present in order to rebuild what was lost, that is the exact extent to which we were impoverished by the disaster. The disaster destroys some wealth, and our reaction is to spend our savings to rebuild. What is lost is our savings, which represents saved up time, which is brought into the present from the future where we had planned to spend it.

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