New Orleans, LA - Wall Street erupted into cheers Monday after the Dow Jones Industrials shot up nearly 500 points. It was the biggest point gain in more than four months. It was news Wall Street wanted and reacted to after the government announced its plan to help banks remove bad assets from their books.
On top of that news, the National Association of Realtors reported a surprising increase in existing home sales last month. It was the largest monthly jump since the summer of 2003.
However, Assistant Professor of Economics at Loyola, Daniel D'Amico said, not everyone is cheering and cautioned not to read into Monday's numbers. "To some extent markets going up to 1200 points in the last few months is going to be a direct consequence of this increased money supply," said D'Amico.
He said some sectors of the economy stand to benefit. They'll have cheap access to new dollars and lines of credit. Others, who won't have that access may be concerned according to D'Amico. He said those who are concerned are the people who recognize that increased inflation is going to lower the dollar value of their money basically people with long term 401k's and people who have been saving for long periods of time.
"They're money is going to get less bang for their buck when they go to convert it into consumable goods and services," said D'Amico.
Some New Orleans area banks say they want to lend, but demand to borrow has cooled off in the first quarter of this year, citing people are waiting on the sidelines and fearful to acquire new debt.
"We are seeing reasonable demand from small business, big mortgage re-financing demand and some commercial lending demand," said Gulf Coast Bank and Trust Company CEO, Guy Williams. He said since the New Orleans area didn't have the sub-prime "boom," its not experiencing the "bust."
In the meantime, Williams said the federal government is making moves that are counter-productive. "On the one hand they want banks to lend, which we are, but on the other hand every bank in america has FDIC insurance, and our premium is $50,000 more a month this year than it was last year. Banks pay for bank failures, not the taxpayer," said Williams.
Until the federal rules stabilize, some say it won't be business as usual in America. "You're not going to have reliable and consistent reinvestment in production until the dust settles of all this sort of regime changes and regime uncertainty that's being created," said D'Amico. He said, the longer we continue in an atmosphere where day in and day out something new is hitting the news, the longer it's going to take before we turnaround so to speak.
President Barack Obama will be making his budget pitch and answering questions about the economic rescue in a prime time news conference Tuesday. You can watch it live on Fox 8 at 7 p.m.
