Seems like there is a river of money flowing and headed for the falls. Hundreds of billions for corporate welfare. Short term interest rates at record lows. Mortgage rates are still better than any time over the past 30 years.
But foreclosures keep rising and folks just keep going broke. Why should this be happening? Is it not true that cash is being pumped into the economy?
The money rain has been torrential but the banks built a dam and the level is rising dangerously. To be sure, there are some leaks here and there but the watchkeepers are sleeping through the alarms. When it finally breaks the overflow is going to be inflation that rivals developing nations. And it is going to go over a Niagara Falls into an abyss of future obligation.
Money, right now anyway, is not going anywhere. So cash flow and asset appreciation are dampened. And all the rest of the transactions that keep a capitalist economy oiled just are not happening. Ask Tom Persinger, who went from 60k a year at GM to 24k as a nurses aid. But he is one of the luckier ones. There is a 10 percent unemployment rate so one in ten people arent spending. Take that a step further. If you look at unemployment the way they did before the Clinton era voodoo, it is closer to 21% - sounds like the Great Depression. The loss of spending and thus income is staggering.
Even governments are squeezed. California is issuing IOUs and other states are shutting down for longer and longer periods to ease the pressure. Being a government employee just does not provide the security it once did.
The stock market has been head faking for quite a while. Just when you think a short rally foretells a recovery it dumps gains back to reality. Every other week you hear reports of the housing market leveling and coming back soon. To tell the truth, at scattered local levels that might be the case but overall the signs still are not solid.
Interestingly, some major European countries are beginning to recover more quickly than the USA. Though many reasons can be cited a salient point is that they did not jump as deeply into the stimulus pool. The irony is astonishing when you consider that most of them are, for now at least, a few darker shades of socialist than America. Bond professionals are saying that the cranked up money printing presses are being used to keep interest rates low which. Low rates, overabundance of money that is not accessible is guananteed to keep the economy underperforming.
So what do the bankers do? Well, it seems they have decided to keep the tax dollars given to crank up the economy and instead use them to buy other banks. Opportunity like that just does not come along very often for sure and when people don’t have jobs and assets are depreciating why not?
So they just stop up the supply so that nobody wins. But eventually everybody loses. Cash flow and asset depreciation lead to deflation. But what goes down in economics, must go up. When it does it will be because the dam is broke and when that river of cash finally starts flowing we will be swept away by inflation.
My Market Friend is Paul Kluskowskis’s blog. It is packedwith current financial, economic, and market news. He is a managing financial advisorat T/R Financial Management Group. He has been in the business for over 10 years and writes extensively with numerous articles and three ebooks to his credit. Paul also manages the PINGP Work Control Center Mgr at Xcel Energy. You can gethis financial advice and newletter at My Market Friend