We had a 200 point rally last Thursday, which again proves that the financial news media refuse to report the fact that the financial sector keeps two sets of books. This may explain why the financial sector is no longer leading the rally, and that the semiconductor sector can’t last for long. CNBC, like the rest of the financial media, won’t report the fact that financial dictator Ben Bernanke continues to indulge in the counterfeiting of money to artificially lift the stock market to unsustainable levels.
The financial media repeatedly fail to report that Bernanke’s endless printing of money is designed to buy his own treasuries. Bernanke lies by saying that it’s not us buying the treasuries, but France and the Canary Islands instead. CNBC goes along with the plan in order to create the illusion that wealth can be created in 401k’s. Because real estate has been destroyed, Americans don’t know where else to turn for wealth.
Creating the phony wealth effect is nothing new in this country. Greenspan and Bush did the same thing with housing after the 9/11 attacks, effectively kicking the can down the road. Secretary O’Neill was actually fired for opposing the plan, which was designed to inject liquidity into the housing market through easy credit. Bernanke is now using your 401k to create the same effect.
Stocks that rise on speculation instead of legitimate earnings or increased market share are doomed to fail. It’s only a matter of time before the market gives back all of its gains from February, 2009. When QE2 is withdrawn, the market could tumble all the way back to 6500, following the same perilous path as witnessed in the crash of 1937-1938.
Therefore, expect to see QE3 to keep the phony wealth effect alive. Without it, the economy and the stock market will collapse again. The only survivors would be gold, silver, copper, and a few select agricultural and technology stocks. Dictator Bernanke has boxed himself into a corner with no way out. His only tactic is to print money and to monetize debt. He had better hope our planet’s forests don’t run out of trees.
What CNBC doesn’t want you to know, and refuses to report, is that QE1 and QE2 have created terrible economic imbalances. Because of these programs, higher interest rates, net job creation, and a sustainable economic recovery have been severely delayed. You can’t have any measure of recovery when our government debt is 103% of GDP. What, are you nuts?
When government debt is 103% of GDP, a total effort has to be made toward servicing the debt; which doesn’t necessarily help GDP growth. Since QE2, GDP has fallen from a growth rate of 3% to 2%. With QE3, our GDP growth rate will slip to 1%-1.5%.
The financial media has also failed to expose those banks using two sets of books, where mark to market has been replaced with mark to model. This simple accounting trick allows the subprime mortgages held by the banks to appear greater in value than they really are, which is exactly what landed Enron’s Jeffrey Skilling in jail.
Not only is the fake wealth effect not working, as evidenced by high unemployment and falling home prices, there have been no meaningful spending cuts in Social Security, Medicare, or national defense. And don’t expect any, because typical of most bureaucrats, our politicians refuse to admit the problem. They would rather kick the can down the road to preserve their chances of re-election.
More pathetic is Obama’s refusal to accept the recommendations of a commission he appointed to reduce the deficit by $4 trillion over 4 years. If he would follow their recommendations, he could prevent the wheels from falling off this fragile economy.
For prosperity, a consumer economy must run on two important pistons. First is employment, which gives consumers more money to spend. The second is rising home prices, which help to increase a person’s net worth. Neither of those is firing at the moment. There are currently half a million fewer people with jobs than there were two years ago; and home prices are still falling. Dictator Bernanke and his phony wealth effect need to be removed immediately. Right after American Idol is over, of course.
America, let’s get our priorities back in order!