Why the Dow Is Plunging Right Now

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As of 1 p.m., Dow (INDEX: ^DJI) is down 1.3%. Political turmoil in Greece is beginning to call into question whether it will be able to make good on its austerity agreement in exchange for a bailout.

Hewlett-Packard (NYS: HPQ) , as well as macroeconomic bellwethers Bank of America (NYS: BAC) and Caterpillar (NYS: CAT) are down 2%-3%.

The trouble is that deficit-reduction across Europe has plunged the continent into a deeper recession, as lower government spending and higher taxes have stifled economic activity.


Germany, which has been misreading the Euro mess as a crisis of fiscal irresponsibility rather than an economic crisis, hasn't been keen to accept policies that might actually alleviate the problem, such as higher inflation targets or stimulus spending, opting instead for more cuts.

But Europeans are getting sick of all this failed austerity. France, Greece, and Holland have all seen electoral shakeups of their pro-austerity governments.

In the long term, that's probably a good thing. The strategy of cutting spending and raising taxes to boost economic growth was never going to work. The sooner it gets reversed, the better.

And not just for economic reasons -- economic crises are fodder for extremists. In Greece, a creepy black-T-shirted neo-Nazi party, whose chief platform is harassing immigrants, even received 7% of the vote.

Apparently years of 20% unemployment makes it difficult to repay debts and causes political upheaval. Who knew?

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At the time this article was published Ilan Moscovitz doesn't own shares of any company mentioned. You can follow him on Twitter @TMFDada. The Motley Fool owns shares of Bank of America. The Motley Fool has a disclosure policy.
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