The Fed creates a pretty fantasy...
Nothing comes from nothing, nothing ever could
鈥� The Sound of Music
Expect a miracle. Or a fraud.
It is impossible for printed money 鈥� money created out of thin air 鈥� to bring real wealth. It鈥檚 just paper. Or not even paper. These days it鈥檚 nothing more than the wispy imagination of the Internet.
A clerk types in a number. Presto! A bank a thousand miles away has a billion dollars.
Is the world one jot richer? Of course not. Same buildings. Same businesses. Same output. Same purchasing power.
But wait鈥� What then, do those billion dollars really do?
Ah鈥hat鈥ell, they look like real money. They act like real money. And they buy things 鈥� just like real money.
So, wouldn鈥檛 you know it, people think they ARE real money.
They feel richer. They spend. They invest. They speculate. Just as if they had more real money. But it would be a miracle if this phony money created a real boom. But that seems to be what investors are betting on.
The Dow held about steady yesterday. Gold lost a little ground. Nothing big either way.
But the Dow rose over 11,000 last week. The S&P 500 is selling at a p/e ratio 50% higher than the long-term average. Investors must think that corporations are going to grow 50% faster than they did during most of the 20th century.
Huh?
Let鈥檚 see鈥�
鈥e鈥檙e in the early stages of a Great Correction鈥�
鈥here is about $20 trillion worth of bad credit still to be eliminated鈥�
鈥nemployment is at levels not seen since the Great Depression鈥�
鈥o many houses are headed to foreclosure that banks have had to stop taking them back鈥�
鈥hat little 鈥済rowth鈥� there has been seems to all have come from the government. And now the government itself is headed for a debt crisis鈥�
Hey鈥nd our president tells us that things are getting better every month. Which just proves that he has no idea of what is going on.
Things are not getting better. The US government is so deep in the hole it may never be able to get out. It borrows a dollar for every dollar it receives in taxes. So, it鈥檚 still digging the hole deeper.
And in early November, the Fed is expected to announce that it will join the QE party. That is what has investors鈥� attention. That is what they鈥檙e betting on 鈥� more hot money from the Fed.
鈥淭he job of the Fed is to take away the punch bowl鈥� when the party gets out of hand, said Fed chief William McChesney Martin. Instead, the Fed is pouring in more alcohol and handing out car keys.
Investors are convinced that it will announce a new round of quantitative easing in November. They think the number will be between $100 billion and $1.5 trillion. A big number, in other words.
Why? Because the economy is not improving. Because it is a Great Correction. And because the Fed believes it can add money and boost Americans鈥� 鈥渁nimal spirits.鈥� And because they are really a bunch of dumbkopfs.
If you believe you can really improve the situation by adding phony money, why not add a lot more of it? Ha ha鈥� never mind.
You鈥檙e just counting on a miracle鈥r a fraud. We wouldn鈥檛 count on a miracle. But we wouldn鈥檛 bet against the fraud. Adding phony money can鈥檛 create real prosperity. Nothing comes from nothing. But it can create a boom鈥nd a bubble鈥n speculative assets. That is, it can work as a fraud. Speculators take the hot new money and bid for gold, copper, platinum. China shares. Everything goes up as the hot money gets passed from hand to hand. And then鈥t burns someone.
Right now, we鈥檇 be a little concerned that investors have already bought the rumor of more QEII. So, if the Fed comes out with the predicted announcement, investors are likely to sell the news. The only thing that would push prices higher is if the Fed did MORE than was already anticipated鈥hat is, if it went ALL OUT in its fight with the slump.
Then, you鈥檇 really see some accidents!
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