Simon Constable to Moneynews: ‘Staggering’ Poverty Creates Disconnect Between Stocks, Real Economy

Wednesday, 10 Apr 2013 09:10 AM

By Glenn J. Kalinoski and David Nelson

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“Free money” being printed by the Federal Reserve has led to a disconect between soaring stocks and the real economy, according to author and TV host Simon Constable.

“I look at the tremendous poverty that we have,” Constable told Newsmax TV in an exclusive interview. “We have about 50 million people on food stamps,” he said, describing the number as "staggering."

The host of The Wall Street Journal’s News Hub was asked about the wealth effect created by the stock market.

Watch our exclusive video. Story continues below.



“The wealth effect only works if you believe it is permanent,” he said.

Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown

“If you believe a permanent increase in your wealth has adjusted your standard of living, you can spend some of that. However, if you don’t believe it is permanent, you won’t change that. I think people are gun shy about what happened in the stock market.”

Going forward, Constable also mentioned that the Fed has said it will take away “the punch bowl eventually,” bringing an end to near-zero interest rates and the purchase of $85 billion of Treasurys and mortgage-backed securities each month.

Looking back, the author of “The Wall Street Journal’s Guide to the 50 Economic Indicators That Really Matter” also mentioned the dot-com bubble and the credit crunch.

“People now know stocks can go down as well as up,” he said.

Constable said he doesn’t believe the U.S. can be considered an entitlement-based society.

“I don’t think that we’re here yet,” he said. “I worry we get to that. When I think about Britain in the 1970s where people were basically pretending to work. I think about the Soviet Union where the joke was they pretend to pay us [and] we pretend to work. We don’t want to get to that.”

Another period that was discussed was the 1990s.

“It was pretty good for markets, but it was also pretty good for the economy,” he said. “In one quarter you had an annualized 7 percent growth and it has been a very long time since we have had that and we’re stuck in this … sub-1 percent at times.”

“Creative destruction” was mentioned as part of the process in bringing back a much higher growth rate.

“It’s OK for companies to fail,” he said. “You pull them apart and you put them back together. If you got a dead tree in the garden, you’re not going to say, ‘We can’t possibly remove it.’ You get rid of it. You get a new one and that’s OK.”

Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown


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