The Cato Institute’s Richard Rahn explains why stock markets have been so volatile over the past two months:
Why do you think the stock and commodity markets have exhibited record volatility? It is largely because government officials, both in the United States and elsewhere, are disrupting the ability of markets to calculate what prices would bring supply and demand into balance.
The government actors have created additional huge risks and uncertainties for both businesspeople and investors, which are depressing the markets and causing the recession.
In addition to the normal business risks and market uncertainties, the government actors have now added increased uncertainty about: the value of currencies and interest rates; exchange rates; government subsidies and “bailouts”; international commodity cartels; major proposed tax increases; and proposals for very costly regulations.
(…)
he specific reasons for the current volatility are:
* Uncertainty over President-elect Barack Obama’s tax and regulatory plans.
* Continued confusion and uncertainty over Treasury’s bailout policies.
* Uncertainty over how much OPEC will reduce oil production.
* Questions about whether the risks of deflation or inflation are greater and what the Fed plans to do in either case.
* And how far the European and Japanese central banks will reduce interest rates to combat their respective recessions.
In other words, the markets have no idea what to expect next from government.
