DJIA as Predictor of November 2010 Elections

On August 27, 2010, the Dow Jones Industrial Average fell back once again below 10,000.  Since January 2010, the DJIA has spent roughly equal amounts of time above and below that benchmark, with a peak of 11,200 in April and a trough of 9.700 in June.  My public choice prediction is that a DJIA below 10,000 by end-October will result in both the House and the Senate turning Republican in November, and that a DJIA below 11,500 will result in the House turning Republican. If the DJIA is running below 10,000 early in 2011, Hillary Clinton will launch a primary challenge against Barack Obama for November 2012. So the DJIA is worth close scrutiny for political as well as economic reasons.

The DJIA is struggling precisely because  the economic policies of the Obama administration have failed to stimulate the economy. Worse, in my judgment, these policies are actively clamping down on market recovery.  If the President does not have a political death wish for himself and his Party, he simply has to change course radically.  He should lean on Bernanke to do the right thing for his country and return to the academy; and he should bring back Paul Volcker as Chairman of the Federal Reserve. He should replace Timothy Geithner with William A. Niskanen as Treasury Secretary.  He should replace Christina Romer with Gregory Mankiw and he should remove Lawrence Summers in favor of Walter Williams.  He should then spend a week or two in London consulting with Prime Minister David Cameron in order to learn how to  turn the tide economically for a  country bowed down with public and private debt and poor saving habits. He would then have a half-chance of pulling his own chestnuts out of the fire by November 2012.

Because President Obama is an ideologue and not a statesman, he will make no such adjustments. By his intransigence, he will take the economy downwards from recession to much worse. By the time that he is finished, Richard Posner will have become an accurate predictor of where we have drifted: DEPRESSION.

Tags: need for a new broom to sweep clean among economic advisers, need for a new broom to sweep clean at the Fed, need for a new broom to sweep clean at Treasury, US headed into depression with Obama at the wheel