http://bit.ly/4yaRuS - - - The first point we need to make about the broad US stockmarket rally of the past year is that it has been ABNORMAL and still only ranks as a bearmarket rally, rather like those that occurred in the early 30's. It certainly has not been been due to a return to anything like normal business conditions. For the most part it has simply been a bounceback relief rally from the oversold extremes resulting from the state of crisis that prevailed early last year, made possible by massive infusions of manufactured money and bailouts. The vaunted return to profitability, which was largely due to aggressive cost cutting measures rather than any broad-based recovery in demand, masks a continued state of debt-wracked atrophy across the economy. The rally has also been encouraged by a prolonged zero interest rate environment, which has discouraged saving and genuine investment and instead fuelled a massive dollar carry trade and a renewed speculative binge in commodities and stocks.
Because the United States is drowning in debt, at all levels - Federal, State, corporate and personal, rising interest rates are unthinkable and would cause immediate economic implosion. Policymakers are thus in a classic catch 22 situation, backed completely into a corner - raise interest rates to support the dollar and face economic implosion - or keep interest rates low and watch the currency and Treasury market collapse. Faced with this horrendous dilemma they are taking the only option open to them, which is to buy time. Thus they are engaged in widespread accounting fraud and obfuscation to whitewash the awful reality of the situation, and in sheer desperation are propping up the Treasury market by means of large scale monetization - and hoping that foreigners don't put 2 and 2 together. This monetisation requires the creation of money on a large scale out of nowhere and is thus highly inflationary, and represents a reckless attempt to keep the powerful deflationary forces that have been building for many years from doing their grim but necessary work of purging the economy of excesses. The wild card in this situation is that at some point they are going to lose control - to a large extent they have lost it already and are merely reacting to events. They are taking the inflationary / hyperinflationary route because that buys them the most time and enables them to keep interest rates at zero for as long as possible - but if they lose control of the ball and the market decides that IT is going to set real world interest rates, and set them considerably higher, then the jig is up. The moment the stockmarket, which has risen in large part because of the zero interest rate environment, gets the scent of higher interest rates, it will cave in, and we may have actually arrived at the point where policymakers WANT the commodity and stockmarkets to cave in, in order that they can sluice the outpouring of funds back into the dollar and the Treasury market. - - - Tick. Tock. - Publius -- "It ought never to be forgotten, that a firm union of this country, under an efficient government, will probably be an increasing object of jealousy to more than one nation of Europe; and that enterprises to subvert it will sometimes originate in the intrigues of foreign powers, and will seldom fail to be patronized and abetted by some of them. Its preservation, therefore ought in no case that can be avoided, to be committed to the guardianship of any but those whose situation will uniformly beget an immediate interest in the faithful and vigilant performance of the trust." [Federalist Papers #59] _______________________________________________ Post Messages to: [email protected] Subscription Maintenance: http://leafe.com/mailman/listinfo/profox OT-free version of this list: http://leafe.com/mailman/listinfo/profoxtech Searchable Archive: http://leafe.com/archives/search/profox This message: http://leafe.com/archives/byMID/profox/[email protected] ** All postings, unless explicitly stated otherwise, are the opinions of the author, and do not constitute legal or medical advice. This statement is added to the messages for those lawyers who are too stupid to see the obvious.
