One has to wonder after yesterday’s Fed statement and the screaming harpy nonsense out of the Democrat party.
First, let’s talk a bit more about that Fed Statement. The Federal Reserve has stated that their base case is now for zero to negative economic growth for the next two years. This is the only justification for zero interest rates; ergo, you just heard their forecast through their actions.
Next, you’re seeing the impact of fiscal consolidation in Greece. We had better learn from this as it’s coming here. Their “fiscal consolidation” is leading (temporarily) to lower revenue (taxes), exactly as one would expect. Why? Because when you make the necessary reforms you crimp profits which in turn crimps taxes, since taxes are assessed on earnings (either personally or corporately.) Therefore when you make the necessary changes to a bloated government that is deficit spending tax receipts always decline in the short term. Greece’s deficit widened as a consequence, and will for some time.
So will ours, if and when we take our necessary fiscal medicine.
Third, we better learn from Great Britain. Rioting has gone on now for four nights. Why? Price increases on necessary commodities coupled with the loss of legitimacy of government. The latter is extremely dangerous and it’s very real – including here. A new Rasmussen poll says that just 17% of likely US voters believe the federal government has the consent of the governed. This is down from 24% in May to the lowest level measured yet.
I don’t know what you can possibly say that’s positive about that. Further, only eight percent of Americans believe that their Congressman (or woman) listens to the voters as opposed to “party leaders.” And only six percent rate Congress’ job performance as “good” or “excellent.” These are numbers best-associated with monarchies or governments about to be beset by actual revolution, not functional representative republics.
Folks the fact is that we – collectively – blew it. Our representatives and other members of government listened to the “Captains of Wall Street” instead of their constituents – and mathematics. Instead of forcing those who did imprudent things – both borrowers and lenders – to eat their own cooking and blow up, we bailed them out and then went even further in that we did not force them to change their bad behavior. In fact we not only ratified that bad behavior we enhanced it by formally permitted “mark to fantasy” as a business practice on bank balance sheets.
This is a convenient fantasy but that’s all it is: A fantasy.
Eventually the cash flow always wins, because you can’t spend anything other than cash. This presents a huge problem in that the lack of real cash flow forces people to start kiting checks and otherwise scrounging in the couch cushions for pennies, along with pledging worthless assets for yet more lent money. Since the private economy has no real borrowing capacity left this ultimately winds up back on the sovereign balance sheet, which would be ok if there was tax revenue to support it.
But of course there’s not, because as unemployment goes up tax receipts go down.
This morning we’re back to insane volatility, this time downwards. Since the close yesterday we’ve seen a 30 handle range in the S&P 500 – a nearly 3% move. The Dow futures are down 200 after being up about 60 early in the evening last night.
The BS over in Europe hasn’t been fixed and can’t be without recognizing the frauds and resolving them. Unicredit and SocGen are again front-and-center and despite The Fed’s proclamation no government in the western world – not ours, not in Europe – has forced their banks to come clean and clear out their trash.
I hope you enjoy the markets over the coming weeks and months. You’ve already had your 401k and IRA trashed in the last two weeks and now we’re at it again – if you bought back into the huge ramp in the last hour of yesterday much of those gains are now gone and we’re headed for the toilet – again – this morning. Rumors will dominate and huge moves are now commonplace. This is unlikely to be over – not today, not next week, and not next month – until the stupidity by governments end.
Who knows where this ends, or if it ends before the people force it to end through either general strikes and destroying the government’s ability to collect taxes or even more-destructive acts.
All I do know is that there are times when one should step back and be prepared to fend for themselves rather than “believe”, and this is one of those times. We need leadership in Washington DC that will look at the fundamental mathematics and force those facts front and center into the debate, refusing to bend and demanding that all who come with any sort of solution or policy recommendation square them against the fundamental mathematical fact that debt cannot grow faster than productive output on a sustained basis.
There’s more than thirty years of hard mathematical fact that all economic policies of the last 30 years in this country, irrespective of party, has in fact devolved into an utter mathematical impossibility when one considers the longer-run future.
This organized fraud upon the public by both political parties and their minions must end right now.
We are in the end stages of this Ponzi Scheme and are teetering on the edge of full-on collapse. If immediate action is not taken to stop the accumulation of yet more debt and piling up of more leverage upon that which cannot be paid we will go down the toilet.
It may be too late even now, but this much is certain: The path we are on leads to CERTAIN disaster.