The United State’s Keynesian Economic System May Collapse Again
The Fed is pumping the US dollar out of existence. Our entire economy is being propped up by the Federal Reserve. Anyone who took Intro to Finance knows when the Fed pumps, the unemployment SHOULD DROP and inflation should rise. Yet, today, unemployment has remained at the same levels and only inflation has risen.
The yuan is surging. Economists are shortening the forecast for China to overtake the US as the largest economy in the world. Gold had the worst month in decades. Investors are scrambling. The market has a weak showing today despite the announcement for more stimulus.
Is the US economy at rock bottom?
This chart, showing what’s happened to U.S. household income in the 21st century, is reality. The stock market–not so much:
Markets are supposed to be measures of risk. With the Fed buying equity indices hand-over-fist, and with high frequency algos representing the vast majority of trading volume, markets haven’t been accurate measures of risk for a few years now. After all, on any given day, the market will likely rise. Why? Because markets tend to rise slowly and evenly over time, until the crash in calamitous, unpredictable events. That’s how markets work.
Here’s the reality, if the Fed were to announce that it was no longer creating eighty-five billion dollars a month, and pumping it into the TBTF banks while tramping down the interest rates, the market would collapse. If the Fed dumped the more than 2.8 trillion in impaired MBS, that it bought from the TBTF banks a full face value, back on the market, the massive wave of home foreclosures that would follow, would cause a housing market price crash, as a flood of inventory turned today’s supply and demand ratio upside down. If the TBTF banks were forced back into using mark to model accounting of assets, instead of mark to madoff, bank stocks would plummet. If the Federal Government cut off food stamps to the more than forty-seven billion people who have become dependent upon them, there would be riots in the street, and food prices would tank.
So reality is that a relatively tiny handful of highly leveraged quant boys and their algorithms control the market, and that another flash crash could happen at any time, if the stock market speculators stop ignoring the reality of an economy in which the number of structurally unemployed Americans has reached a record ninety billion. The future is not bright, and even the stock prices of US companies that operate internationally are not reflecting that reality.
“People Not In Labor Force Soar By 663,000 To 90 Million, Labor Force Participation Rate At 1979 Levels”
“47.8 MILLION AMERICANS ON FOOD STAMPS”
Meanwhile in Europe and other parts of the world..Unemployment numbers in Spain not seen since the great depression, Germany, Ireland, France PMI numbers dropping faster then Hale’s credibility …a whole country **pooF** Bankrupt (Cyprus)…the U.S in debt to the tune of 16.8 TRILLION dollars and rising and unemployment in the U.S at 11+%…and all this 5 years after it all started after the crash in 2008 and things are getting worse and not better.
Roubini Sees 2-Year Rally for Stocks, Bonds, Then Disaster
The Fed is “creating massive fraud,” Roubini said. While “in the short term it’s great for assets, … at some point there’s a levitational problem.”
The current slowdown in global economic growth should be pushing stocks, commodities and bond yields lower, he noted.
When things do come back down to earth, the economy will suffer a depression, rather than a recession, Roubini maintained.
In the meantime, Europe’s debt crisis and economic stagnation stand as the biggest threat to continued gains by stocks, he explained.
The Fed’s easing also is destabilizing the housing market, said Edward Pinto, who was the chief credit officer at Fannie Mae from 1987 to 1989.
Margin debt hitting levels only seen ONE other time in history!
Goldman Confirms Global Slowdown Is Deepening
First Euphoria Then Reality
We are also witnessing, I believe, the effects of reality and not what the fantasy accounting of all of the governments on Earth would lead us to believe. America may say that the unemployment rate is 7.7% but the reality is 11.6% and so the 33% differential means far less buying power in the economy which is beginning to be recognized. In Europe we can point to the uncounted liabilities in their sovereign debt numbers and then the reality there that just because liabilities are not counted does not mean that they must eventually get paid. Then the confiscation of assets in Ireland, Greece and Cyprus and the unpaid bills in these countries and in Spain, Portugal et al finally must be reckoned with so that large chunks of money leave the economy when eventuality wanders into the present. The falsification of data has taken some time to become realized but I think we are now at a moment when the truth of all of this has found roots.
Many banks in Europe are also beginning to suffer. They have pledged assets at the ECB which have deteriorated and the ECB will not be taking the hit I can assure you so that additional demands for collateral have been made. Some are just the responsibility of a given bank but some securitizations are guaranteed by the sovereign and so one or the other will have to foot the bill. I expect quite severe pressure on the balance sheets of many of the European banks during the next year as further collateral demands are made by the ECB and as these securitizations mature.
One possibility for the markets to reverse has always been some grand event but another is just the economic deterioration that wears away at the markets as current levels cannot be rationally supported. It is not just the Law of Diminishing Returns which is coming into play as the central banks create more money but the effects on the consumer of seriously declining available cash to be used to purchase goods and services.
We have been subject to a massive amount of monetary printing and an unconscionable manipulation of data but the affects ofreality cannot be ignored forever because reality forces the consequences as the fantasy gives way over time.
“Reality is that which, when you stop believing in it, doesn’t go away.”
-Philip K. Dick
ALBERT EDWARDS: The Party Is Over, The US Is Just One Recession Away From Japan-Style Doom