Yesterday, at opening bell, stocks paused for a moment and then barfed all over themselves. After that, they did it again…and again. When it was over the DOW had plunged 512 points and Wall Street had fully freaked out.
Is this a sign of things to come or a fantastic opportunity to buy the dip? We’ll soon find out…
But we won’t dwell on it today. For we have bigger concerns on our mind than the stock market…like a fading economy. And the government’s proclivity to do something remarkably stupid to try and fix it.
Public faith in the government’s ability to control the economy is declining. And if it’s not, it should be…at least that’s what we think. The government, of course, will keep trying to prop things up until the tallest mast of the ship of state finally submerges underwater.
Nonetheless, we won’t know if the collective masses want more bailouts or not until the next economic decline. The government, no doubt, will be quick to act with stimulus and recovery acts and promises to save us from ourselves. The way things are going, we may soon get to see the unveiling of the next economic fix…
Curious Questions
On Tuesday, for example, we learned from the Commerce Department that consumer spending dropped 0.2 percent in June. Remember, consumer spending makes up 70 percent of the economy. When consumer spending contracts the entire economy generally contracts too.
Then, on Wednesday, we witnessed this little axiom of what happens when consumer spending decreases. According to the Institute for Supply Management’s Wednesday report, service businesses – like restaurants and hotels – grew at their slowest rate in 17 months in July. Today we’ll find out the job numbers for July…we don’t anticipate they’ll be anything but disappointing.
What gives? Didn’t the recession end two years ago? That’s what the National Bureau of Economic Research’s official declaration says.
But what if they’re wrong? What if the recession never ended? What if the economy was just artificially propped up with extraordinary amounts of government spending? What happens when their spending doesn’t do what it was supposed to do…what then?
Here at the Economic Prism we don’t ask these questions for fun or for amusement. Rather, we ask them because we are curious. We see a world around us that over the last two years of ‘recovery’ hasn’t added up. We’ve observed things that appear vastly at odds with what we’ve being told by politicians, the news media, and our broker.
When the Voters Get Whacked Again
When financial markets broke in the fall of 2008 the Fed was on the case like white on rice. Former Treasury Secretary Hank Paulson and Federal Reserve Chairman Ben Bernanke said the world as we knew it would end if the government didn’t do something – like spend massive amounts of money.
Once the people were wound up into a hysterical knot, Congress passed the big TARP bailout, and Paulson directed the cash to his buddies at the big banks via AIG. After TARP we got the American Recovery and Reinvestment Act and several rounds of quantitative easing.
But little good did any of these efforts do. They were doomed to failure from the beginning. For the bailouts and stimulus consumed capital; they didn’t produce it. On top of that, they accelerated the nation’s bankruptcy. And now it appears we are back to where we were just before the financial crisis.
The economy is screeching to a halt, risk is appearing like dark clouds on the horizon, and another round of quantitative easing may be just behind the dark clouds. New York University Professor Nouriel Roubini – i.e. Dr. Doom – is predicting QE3 on his twitter page. We think it won’t be long before Bernanke, Congress, and the President are screeching for more money printing.
Will the voters want bigger government and more government control of the economy? Or have they had enough of the meddling and failings of big government that have become increasingly evident in recent years?
We’d like to be optimistic of our fellows…but, for the moment, we’re not. They’ll likely want to try more big government solutions to the economic problem. But they’ll come around in good time, after they get whacked again.
Sincerely,
MN Gordon
for Economic Prism
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