05/28/10 Paris, France – Well, the fans are getting their money’s worth. After staggering through the last four or five rounds, the Dow suddenly came back to life yesterday.
It got up off the mat. Straightened its shorts. Did a little dance. And then wham… By the time the bell sounded, it was up 284 points.
Gold ended the session almost unchanged.
So what do you think? Who’s gonna win this match? Mr. Market? Or the fixers?
We’ll tell you: Mr. Market.
We don’t know how. We don’t know when. But we know two important things:
First, the fixers don’t know what they’re doing.
Second, what MUST happen WILL happen.
Bernanke and Geithner tried to fix this fight. But the fix wouldn’t stay fixed. Each time they proclaimed victory, along came new evidence that Mr. Market wasn’t giving up. And for the last couple of weeks, Mr. Market seemed to have the fixers on the ropes.
The fixers tried all the usual tricks – cheap money, bailouts, and boondoggles. In fact, they used more tricks and fancy footwork than anyone ever had before. Still, the economy barely responded.
And now, the latest figures show that the ‘recovery’ isn’t developing as it was supposed to. Trillions of dollars’ worth of stimulus and there are still 11 million unemployed and 40 million people on food stamps.
An IMF economist says he thinks real estate prices are headed lower. Inventories of unsold houses remain extremely high. Foreclosure rates are at record levels.
The job picture is disappointing too. With the government spending so much money, you’d think we would see a big improvement. But, by and large, people who lost their jobs in the crisis of ’07-’09 are still out of work. Many of their jobs were not merely put on hold – they were eliminated forever. And the economy is not creating many new ones.
Economists believed that a falling dollar would help US exports…increasing employment in the US. But when Europe got into trouble, the dollar went up! Americans felt the warm glow of schadenfreude. But the falling euro is great for Europe and a disaster for the US. Germany was already one of the top exporters in the world. Now, Germany is exporting even more. And US employment is still sinking.
Consumers are ready to spend. They’re willing. But they don’t have any money. We reported yesterday that people are earning less of their money from the private sector than ever before. The rest of their spending money comes from the government. They’re called ‘transfer payments’ – money that is transferred from one person to another. You see the trouble right there. If you have to transfer the money from one citizen to another, there is no net gain.
In fact, there is a net loss. Anytime you take money away from people who’ve earned it…and give it to people who didn’t…you are asking for trouble. Don’t believe it? Try it in your neighborhood. Let us know how it works out.
Of course, the fixers have no idea what they are doing. All they have is a crackpot theory about the way an economy works. They stick with it despite the fact that it makes no sense in theory…and has never actually worked in practice.
In the real world, Mr. Market always wins. He always wins because he IS the real world.
You can’t fix fights in the real world of economics. You’re wasting your time trying.
Bill Bonner
for The Daily Reckoning
Bill Bonner
Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning. Dice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill’s daily reckonings from more than a decade: 1999-2010.
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Psst – Harry…
… psst – HARRY!
What’s GOOG at today?
An export boost due to a falling currency isn’t good for the economy; it’s bad for the economy. It produces a temporary boost in “activity” that shows up as GDP, but what is happening in reality is that the exporter is subsidizing his consumers with his capital, since the falling value of the currency makes his computations of profit and loss deceptive. Hence, he gets poorer, even while he believes he is making profit.
He gets poorer only if he is stupid. Or if his input (imported) costs are rising more than the currency devaluation offers him.
Mr. Market was the first one lobbying Congress for a Bailout and asking for special fixes… because Mr. Market and the Investment Bankers who work out in the Real World had made a big booboo of enourmous proportions… one which we are still paying for while they were wiley enough to slip out from under, very skilful at dumping a mess.. much less so at not creating one.