Monday was a disappointment. Tuesday too. The Dow rose 26 points yesterday.
After last week, we were hoping for more. A hard rain…a cleansing wash…a flood that would flush the trash out of this market.
We’re ready for the next chapters in the story — chapters 7 and 11…!
Hey, wait…you’re probably thinking — “How heartless can this man be?”
Well, we can be a whole lot more heartless. Just give us some widows and orphans to evict! Give us some malingering employees to fire! Show us a man who is down…we’ll give him a kick!
But…shucks…you know we’re kidding. We are such a softie; we can’t fire or evict anyone. And kick a man when he is down? We wouldn’t think of it…unless he is a world improver.
Yes, dear reader…can’t anyone rid of these pesky meddlers?
The reason we want a collapse on Wall Street is that it’s only way for the economy to get back on its feet.
Birds gotta fly. Fish gotta swim. And a Great Correction has to correct.
It has to clean up the mistakes. It has to sweep out the debris. It has to un-screw up the economy.
Who screwed it up? The fixers…the world improvers…the meddlers…the democrats and republicans…
Now, stocks have to fall. Banks need to go out of business. Companies need to go broke…and households need to default…
Asset prices need to go down. Unemployment needs to go up.
The pieces have to fall…or you can never pick them up.
If the feds would just leave well enough alone Mr. Market would have handled the whole thing. And we’d be out of this Great Correction by now. He would have knocked down almost all of Wall Street. He would have put dozens of our leading companies into Chapter 11…blown up trillions of dollars in derivatives…and forced thousands of bankers, brokers, businessmen and hedge fund managers into early retirement.
That problem of unequal distribution of wealth…the rich getting richer, and all? He would have taken care of it!
And he would have done it all in a few short weeks in late 2008. By now, we’d have full employment again. And people building real wealth.
In other words, if the feds had not poured trillions of dollars down so many rat-holes…good money after bad…the whole thing would be over by now. We’d have a growing economy. We’d have real businesses producing real stuff…and paying real wages to real workers.
But the feds are on the job. And the job they’re on is to protect their voters…and their campaign donors…from Mr. Market.
Of course, all they can do is delay the fix. They can make the problem worse. They can make the losses bigger. But they can’t fix anything.
Fixing requires pain. And the feds try to avoid pain at all costs….especially when they are the ones who will feel it.
So, they borrow and spend…and then print and spend…until the whole thing blows up.
And here comes another world improver, Larry Summers.
“What is to be done,” he asks.
The question reveals the conceit. Why is it any of his business? Left alone, people generally get what they have coming — at least in the world of economics. Why not give markets a chance?
Ah…but then Mr. World Improver would not be such a very big shot, would he?
What if Mr. Summers could only throw his weight around in his own home…in his own businesses…at his own club? Imagine how lucky his family would be, with all that problem-solving brainpower focused on such a small enterprise.
Instead, his fixit energies are dispersed all over the world. Solve China’s problems one day…Japan’s the next…and America’s the day after. So what if it’s Saturday? There’s work to be done!
So, instead of minding his own business, Mr. Summers has come to the aid of a world suffering from a Japan-like slump.
“The question is not whether the current policy path is acceptable. The question is what should be done?” he asks again in the same article.
“Rather than focusing on lowering already epically low rates, governments that enjoy such low borrowing costs can improve their creditworthiness by borrowing more not less.”
Hey…spend more…buy more stuff. Then, people will want to lend you more money!
How does that work, again? Well, the idea is an old one. You spend more money…the economy gets revved up…and you pay off your debts out of the greater flow of revenue. Perhaps Mr. Summers hasn’t noticed. But that formula has worked less and less well ever since WWII. This time the feds borrowed and spent more than ever before…and they got the weakest, palest, saddest excuse for a recovery on record.
Mr. Summers is right about one thing. When some fool is willing to lend you money at negative real interest rates, you should generally take it. Dear Readers will recognize this as essentially Japan’s strategy for the last 2 decades. The lumps want to lend you money. They don’t want anything in return. So you take their money.
You can use it to build roads, sports facilities…any damned thing you want. Are they worth the resources? Who’s to know? Government improvement projects are never marked to market.
“It would be amazing if there were not many public investment projects with certain equivalent real returns well above zero,” writes Summers.
But how could you tell? Maybe if you put in a toll bridge, or something like that. Otherwise, you’d never find out…and our strong hunch is that the net return on these government “investments” would be well below zero.
The Japan solution…which is also Mr. Summers’…is a solution to a non-problem. A Great Correction brings a lack of demand, as consumers and businesses cut back spending. The lack of demand lowers prices…which makes assets attractive, labor affordable and investment projects profitable again. That’s how a correction works. Without a lack of demand you can have no correction.
But the meddlers think they have to make up for a lack of real demand by substituting an ersatz demand from government. The result? Ersatz “growth.” You get an economy that seems to be functioning more or less well, but which is really digging a deeper hole for itself. Government debt increases…while real production is pushed aside in favor of boondoggles, bailouts and bunkum.
Bill Bonnerfor The Daily Reckoning
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.
They’ll kick the can down the road right up until the second they can’t.
If economies were people, this would be a skank with a pus oozing yeast infection.
Perhaps the banksters can’t control the world with monetary policy.
They have over estimated their control of the economy.
Their wealth and power is genuinely at risk.
Why not kick their a-ses back into the old world from whence they came.
At this point, isn’t default inevitable? If so, what does it matter if the default is $5 trillion or 10 or 20? The U.S. is basically expanding its military using money borrowed from the Chinese, while the Chinese are upgrading their military using dollars from American consumers. Both nations are preparing for an inevitable confrontation…they are just financing it in different ways. When the conflict comes, American citizens will wave the flags in support of the politicians who tell them that the U.S. defaulting on the debt owed to the Chinese is the patriotic thing to do.
This seems unreal but it sure is a great time to be alive. Thanks for shedding the light on what’s going on!
i wonder if there isn’t a mirage in the desert called “recovery by monetary acton”…with kinder conditions on new credit in each consumer’s pocket, we all go to buy a drink at the well, but so do all the well drillers, and faucet installers, why there isn’t anyone who would prefer to dig in the dirt to improve things around there, so there might still be just one well…and with so many thirsty big spenders…how much will even one drop cost!
Go on strike and stop the engine of the world.
IT IS TIME TO WAKE UP!
Time to look at the MACRO picture not the MICRO!
What we have is Fascist Globalism. The US political system has been totally usurped by the people running the FED whose owners are the worlds elite.
These are the people who connived “Free Trade” and all the other accords.
These Fascist Elites now control the UN and NATO along with the EU.
These elitist are bent on a Feudalistic World Government. In the process they are in the midst of destroying ant small nation that stands in their way including Iraq, Afhanistan, Libya,Syria and Iran.
These fascits also control mainstream media and feed the people a steady diet of lies and misinformtion.
What you have to realise is these fascist
do not care about fixing the economy. They have been knowingly taking it down to force people to accept World Government! That’s why there is FEMA camps all over America.
But these people are smart. They have not taken America down quickly. It is a slow bleed.
AND THIS IS WHY “Mr. Market” has NO CHANCE TO FIX THINGS! BECAUSE “Mr. Market” WAS KILLED OFF!!!
WHAT WE HAVE NO IS “Mr. Rigged” THE IMPOSTER. ALL THE MARKETS ARE RIGGED!
QE3 will come if it is needed to keep the system up until the FAscist Elite are ready to pull the plug!
As George Carlin said… “You know why they call it THE AMERICAN DREAM? Because you have to be asleep to believe it!”
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