It is believed that Wall Street likes Mitt Romney for his pro-business views and for advocating lower taxes on capital gains and dividends. However, investors in the markets should be aware that Romney’s economic policy calls for substantial cuts in spending to lower the budget deficit. These cuts will adversely affect business revenues and profits. That is a recipe for disaster on Wall Street.
In addition, he is against Federal Reserve policy of keeping interest rates low. If he were to lean hard on the Fed, which is independent, to stop its accommodating policy, it will choke the recovery of housing which is the backbone of the economy.
His tax reform program, by eliminating all kinds of deductions such as home mortgage interest, child care, college tax credits and many more, will hurt family income. That will potentially lead to lower consumer spending on goods and services produced by the American companies.
The stock market is said to be a forecaster of future economic activities. The Dow Jones Industrial Average was down 195 points on Friday and analysts were pointing to poor earnings reports from Google and Microsoft companies. The fact is that stock analysts have expected lower earnings all year long but the stock markets have been going up. Financial analysts always incorporate the macro headwinds into their earnings estimates well in advance. So, earnings misses cannot be the sole reason for the selloff on Wall Street. The truth is that the Wall Street is afraid of Romney’s proposed reckless spending cuts, his tax reform and his attitude toward current monetary policy.
After the first debate, polls have shown that the race is tightening and Romney may have a chance of becoming president. That is why the stock market has been going down. Those who are cheering Romney to the victory line should be careful what they wish for. Rich people may be able to weather the loss on their investment but middle class will be hurt the most when the markets crash.
The middle class will suffer on two fronts; lower stock markets will lower the value of their pensions and 401ks. In addition, a deep recession and possibly a depression will lead to very long and severe job losses for the middle class. Of course when unemployment benefits run out, Mitt Romney would say no extension, go get a job, and you are on your own.