Why would the stock market drop 1,000 points in a week after the government decided to cut its deficits by $2+trillion?
Because the government decided to spend $2 trillion+ less dollars.
Pretty easy calculus here.
Let's look at the "booming" economy of 2005-07 -- what did the average everyday person making $50K as a family do?
1) Spent $75,000 a year
2) Borrowed $25,0000 a year on the house
3) If things got tight, refinanced the house at a lower rate and took out more money.
I had people calling me at home wondering if I wanted to borrow $20,000 on my house so I could "build a deck or go on vacation..."
In 2008, people could no longer spend the $25K+ that they did not have. No one would lend it to them. That was a good idea, and it made a lot of sense not to make foolish loans, but it took 20,000,000 families and reduced their available spending by a total of $500 BILLION PER YEAR!!! They stopped buying $500B worth of shit. The economy as we know it -- collapsed.
So now the government has told us that over the next 10 years it will spend $230 billion less per year. In other words, the money available to buy shit -- gonna be reduced by about half of what was necessary to cause the last crash. And the market says............well shit, that isn't good. We were pretending that things were going to some day get back to 2005-07. They never will, will they? No effing way the Dow should be at 12,000.
So there you go. You wanted less government spending -- you got it.