Stimulus won't save the economy(Read article summary)
Both gold bugs and stock market bulls are counting on the Fed to come through with another economic stimulus. And it probably will. But the money won't benefit those who really need it.
J. Scott Applewhite/AP
Â Waitinâ for ya
Â Prayinâ for ya
Not much follow through in the stock market yesterday. The Dow was upâŚbut only 46 points.
Meanwhile, gold fell $46.
We long for clarity. For a day of reckoning. But it seems far in the future. Yesterday, the world waited for Mr. Bernanke to reveal his intentions. Instead, he said he was keeping his options open.
That was good enough to keep some steam in the stock market. But not enough to keep gold going up.
Both gold bugs and stock market bulls are counting on the Fed to come through. And it probably will.
We saw yesterday how the 1% got to be so rich. The feds â aided and abetted by consumers and the financial industry â bubbled up the amount of cash and credit in the US by 50 times in the last 50 years.
âThat explosion of credit changed the world,â writes Richard Duncan in his new book, The New Depression.
YepâŚfor one thing it made the rich richer. That money didnât go to wage earners. It went into stocks and bonds â the assets owned by the 1%.
The stock market began its epic march up the mountain in 1982. Since then, itâs gone up 13 times (as measured by the Dow).
US GDP is up about 13 times too.
But much of the âgrowthâ in stocks and GDP in this period was phony. The tape measure, used to track growth, was calibrated in dollars. And the dollars â stretched by the feds â lied.
Just look at what has happened in the last ten years. From its low in the early 2000s, stocks are up about 50%. Investors might think they are ahead of the game.
But measure that increase in terms of goldâŚand the gains disappear. Instead, stocks are DOWN 16%. In terms of oil, stocks are down even more â 43%.
And now the feds tell us the economy is in ârecovery.â Yes, they admit, itâs not a great recovery. But the economy is growing. And if we wait long enough everything will be put right.
Oh yeah? At this rate the US will never reach full employment. Because, each month, more people are looking for work than finding it. Why? Because little of this âgrowthâ is real. Itâs just what you get when you put an extra $2 trillion of cash and credit into the system.
But investors donât seem to care whether the growth is real or not. Instead, theyâre waitinââŚprayinââŚhopinâ for another round of MONEY! They want that old elixirâŚmore cash and creditâŚthat Miracle-Gro that the feds use to turn the economy green.
Oh yes, dear reader, we are five years into the Great Correction crisisâŚand once again, the world (and especially Barack Obama) turns its weary eyes to Dr. Bernanke.
âTouch usâŚheal usâŚ Take away our pains. Lift us up to paradise.â
Or, at least put us back in the White House!
And word on the street is that Ben Bernanke is getting ready.
âFed considers more actionâŚâ says The Wall Street Journal.
âStocks rise on hopes of more stimulus,â reports The Financial Times.
âI believe that were we to go down the path to further accommodation at this juncture, we would not simply be pushing on a string but would be viewed as accomplice to the mischief that has become synonymous with Washington.â
Our guess is that Mr. Fisher will be left behind. If not nowâŚlater.
Matthew OâBrien, writing in The Atlantic, explains why.
Save Us, Ben Bernanke, Youâre Our Only Hope
Â By Matthew OâBrien
This may not be our darkest hour, but the disappointing May jobs report showed the US economy once again slowing towards stall speed. Itâs not just the anemic 69,000 jobs the economy added last month. More disconcerting were the sharp downward revisions to previous months. It looks like we could be in for an unwelcome rerun of the summer doldrums we have gotten to know all too well in 2010 and 2011.
Markets have a bad feeling about this. It isnât just about the deteriorating US outlook. Europe and China are turning to the dark side of growth too. The euro is continuing its game of SchrĂśdingerâs currency: At any moment it is both saved and doomed. Right now, itâs looking more and more doomed. Then thereâs the slowdown in China â along with India and Brazil. These economies powered global growth during the dark days of 2008 and 2009, but seem certifiably wobbly now.
The Fed is our last hope â and there isnât another. Republicans in Congress continue to block further fiscal stimulus, despite historically low borrowing costs and a clear need for better infrastructure. So that leaves Ben Bernanke & Co. as the last and only line of defense.
Will the Fed be an accomplice to Washingtonâs mischief? You bet. Because this is an economy that has depended on more cash and credit for at least 30 years. It canât stop now.
Hereâs another Fed governor, more in sync with the times. The Wall Street Journal has the report:
The Federal Reserve must stand ready to do more if the US growth outlook worsens, a top central banker said Wednesday.
If the outlook deteriorates such that the unemployment rate doesnât fall to levels consistent with the central bankâs mandate and if the medium-term outlook for inflation falls significantly below the Fedâs 2% target, âthen additional monetary accommodation would be warranted,â John Williams, president of the Federal Reserve Bank of San Francisco, said in prepared remarks to Seattle-area community leaders in Bellevue, Wash.
Mr. Williams is a voting member of the policy-setting Federal Open Market Committee.
You heard it here first, dear reader: Thereâs no reverse gear in this car. It wonât back up to correct its mistakes. Instead, it races along until it hits a brick wall.
Â for The Daily Reckoning