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The real status of the economy has been noted on this site for some time. The fact that the percentage of Americans employed is the same place it was when Disco and bell bottoms were in style is extraordinary. Add to that the dropping wages and increasingly numbers of people working part time and you have an economy in big trouble. This should not be surprising to most Americans but it is. Sparsely reported, the facts behind the headlines are barely known but to the few who go out of their way to know such things.
The common refrain one hears in response to reports the economy is in poor shape is if things are so bad why is the stock market so good. The recent rally that happened after Bernanke announced his continuation of stimulus money printing and the corresponding drop when he said the FED might soon be pulling back tells the tail. As Tobias Blattner of Daiwa Capital Markets said on Reuters, the markets are “purely liquidity driven” and “not by fundamentals.” What Ben Bernanke has called economic growth is merely an illusion created by Federal Reserve cash. Like a poor impoverish soul who gets a stipend of food and clothing from a benefactor, the markets shutter whenever there’s a threat the charity might end. The Markets know what America does not, the economic fundamentals are in very bad shape. Something that is not just true in America but the world as a whole.
There has never really been a U.S. recovery, just a mirage of movement bankrolled by the Federal Reserve. Housing may seem to be growing but is driven partly by investors and wholly on the back of Federal Reserve subsidized interest rates. The stock market is in midst of a bubble created by a loose monetary policy and starvation interest rates everywhere else. Despite the cheap cash manufacturing is flat and economic growth nearly so. The only real exception to the bad news seems to be the oil and gas industry that is experiencing a technology driven boom.
It is the specter of the stock bubble bursting that has the markets spooked. The main stock indexes have all shown growth far out pacing that of economy for some time. Cranmer of MSNBC pointed out the fact the S&P has broken a record for consecutive Tuesday gains, a record ominously set in 1927.
The Federal Reserve has been using security purchases to paper over the rotten walls of the economy for some time but that has not kept the termites from doing their work. Low interest rates and security purchases are no substitute for solid economic fundamentals, something the U.S. and much of the world is lacking.
The fact is a year and half ago the Federal Reserve Chairman told Congress that he can’t fix the economy, that they had to go to work. Advice that was ignored. Amazingly, not one serious pro growth policy or serious investment incentive has been initiated since the recession hit in 2009! Instead the congress and the President have been busy beating down the economy with regulation clubs and tax bats. The FED in turn has been trying to prop it up by manipulating the money supply. The problem is the FED cannot undo bad economic policy, only cover it up so it festers out of sight. Actions that in of themselves can eventually add to the woes when sores outgrow the bandages. Something that is likely to happen sooner than later. Market Watch is predicting a possible crash by August and others a recession by fall. Next year could even be worse. Chicken little talk? Maybe, but if you hear a forecast for falling sky’s you’ve been warned.
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