Quote:
Originally Posted by Broadsword2004
I wish the media would stop wording it like that and I wish the general populace would realize that, the Presidency does not "manage" the economy. The economy manages itself for the most part. All the government can really do is sit back and watch. The only things the President can do is, if taxes and regulations are very high, they can lower them (as Reagan did), essentially taking the government's boot off the throat of the economy, or if taxes are low and regulations low (as they are now), they can increase them, which tends to screw things up. The President also needs to work to keep spending in check so as not to run chronic deficits.
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I disagree with that and I will give you one recent example of a President using his office to totally screw up the markets. Back in the late 90's I was a NASDAQ market maker. At the time stocks traded on both the exchange and the NASDAQ traded in fractions not decimals.
In those days the spread between the bid (what buyers were willing to pay) and the ask (what they were willing to sell for) was typically an 1/8 or $0.125. With really liquid stocks it might be as low as a 1/16 or as high as several dollars on thinly traded issues. The spread between the bid and ask was a function of efficient markets. The more risk assumed by the person committing capital the bigger the spread. The less risk obviously the smaller the spread. When it operates perfectly the risk of capital is offset by the opportunity to make a profit. If either one of those two gets altered the market no longer is efficient and bad things happen.
So along comes Bill Clinton and his boot licking Secretary of the Treasury Robert Rubin. They see that the investment banks are making a killing (what today would be called windfall profits) in the capital markets and decide that it is unfair to the working man. Using the power of the Presidency through the treasury they managed to strong arm the change over to decimals. Now that wouldn't have been the end of the world if they didn't also demand that the change over be in increments of $0.01.
Firms that used to commit millions of dollars of capital daily now suddenly found that after clearing charges that they were either breaking even or losing money on 70-80% of the trades they processed daily, and only making pennies on their profitable trades. So what do you think happened next? They stopped committing capital like they did before the change over. There was no longer the balance between profit and risk and the unbalanced markets began to behave as any inefficient market would. There were wild swings in the intra daily price of stocks. It wasn't uncommon to see the price of a stock swing as much a $70 in one day. It was ugly as many working class people who had invested heavily in the market lost billions of dollars in equity in the span of six months.
So yes the President can really screw up the economy what he can't do is improve it. All he can do is ensure that his administration doesn't tamper with the natural order of things.