Mr. Market Beats the Bailouts

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

The Daily Reckoning