August 5, 2011

The 401K Cost of Gridlock

By now you know that major stock indices around the world showed significant losses yesterday.  The reason?  The inability of our leaders to come to agreement on how to balance our country's budget.  That was enough to worry our creditors, which resulted in what I hope to be only temporary contagion. 

Let's put a price tag on the gridlock.  For example, the S&P index fell by 4% yesterday.  That loss, which might sound inconsequential, amounted to nearly $410 billion in lost market capitalization.  That effect will be seen in your pension funds, Taft Hartley plans, mutual funds and other investments. 

And that only considers the nation's exposure to the 500 stock issuing companies that comprise the S&P index.  The total financial losses, including real estate, the value of privately held companies, bonds and other assets, was probably double the S&P loss alone.  Is this extraordinary?  Not at all.  I once heard an economist say that the loss in shareholder wealth that occurred during the mortgage debacle--which, by the way, was caused at least in part by the Fed's incredibly short-sighted monetary policy--was $7 trillion.  That doesn't even include equity losses on real estate.

Here's something to think about: While our national leaders kibbitz, we've already lost hundreds of billions of dollars in personal wealth.  Calculate the impact on your 401K yesterday and see if it gets your blood boiling.

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