What Happens If We Go Off the Fiscal Cliff? Stocks Will Plunge, and Here's Why That Should Freak You Out


So much of our economy is influenced by a vibrant stock market. In recent years, executives affiliated with the stock market have been vilified because of the acts of a select few. Hence, when the market falls some ill-informed people cheer. The fact is that higher stock prices positively affect all Americans.

It is possible that some among do not appreciate the scope of the stock market and its impact on our lifestyles. Here are 7 reasons why we should all be excited and happy when the stock market is up, and why we should be concerned when domestic, world, and political events cause it to fall.

1. Half of us have stocks. 54% of Americans say they own individual stocks and stock in mutual funds, 401(k)s, and Individual Retirement Accounts. This percent is down in recent years, yet it represents a wide swath of people in the country representing every socioeconomic group.

2. The economy needs to stock market to grow. Corporations need to access equity capital to grow, increase marketing, build facilities, etc. Expansion means new jobs, more opportunities, and higher pay. Half way through November this year, equity offerings totaled nearly $200 billion.

3. We make long-term investments in the market. Parents invest in stock while saving to pay for their children’s educations. As of September 30, 2011, “529” College Savings Plans totaled $133 billion.

4. Americans invest in stock to build a nest egg for their retirement. As of December 31, 2010, retirement accounts totaled $17.5 trillion. Consider what the impact of a small movement in stock prices will have on the total value of these retirement accounts.

5. The stock market helps us buy big-ticket items. Many people invest in stock hoping that profits will enable them to buy homes, cars, and other large items. Lower stock prices always have a material impact on these purchases. Recent Federal Reserve stimulus is expected to improve all of the capital markets, and indirectly, the housing market.

6. NGOs make money here. Not-for-profit organizations invest in stock and use profits to pay for expenses and expenditures related to their mission. In 2010, public charities reported $2.7 trillion in total assets.

7. A flow of cash for entrepreneurs. The stock market often provides money for entrepreneurs who create so many products that make our lives easier and more entertaining. In the first three quarters of 2012, venture capital firms invested $20 billion. Many of these companies will be looking to the stock market to fund future growth and compensate venture capitalists for the risks they assumed.

As you can see, many companies, organizations, and ordinary Americans are dependent upon an efficient stock market. Its success in providing capital to new and existing companies cannot be overstated.

The Dow Jones Industrial Average, the generally accepted standard for stock market performance, rose 7.54% this year to 13,139. The low and high points of the Dow were 12,035 and 13,662. The ongoing performance of the Dow and the other indices will be greatly affected by the resolution of the fiscal cliff crisis and the impending debt-ceiling crisis. The amount of money at risk to stock investors is enormous so that movements of the indices in either direction will affect almost every American to a certain degree.