Thursday, September 19, 2013

Fed Pumps More Air Into The Bubble

On Wednesday of this week, the Fed, in a moment of irrational delusion decided that they had to maintain the irrational illusion. So in a fit of realpolitik, they announced they would keep creating money from nothing and continue to buy $85 billion a month in bonds. The size of the Bernanke Bubble has just increased dramatically. And if I may mix metaphors, this action spurred the big money in the stock market to add some gasoline to their little campfire. The big banks and the stock market just love their buddy Ben.  For now.                                                                                      
The Fed's claim is that they must do this to sustain the recovery. They say that the economy is growing moderately and labor market conditions have shown improvement. What? If this is moderate recovery, how in the world would they define slow. When the economy is growing so slowly that it cannot sustain the population, which is where we are at right now, it is sheer deceit to try to convince Americans that that it is moderate growth. To make the analogy very simple, so even politicians can understand, if you are in a car going 100 miles per hour, and I am behind you doing 90, I cannot claim that I am catching up.

As far as the labor market goes, we are in an even worse condition. You cannot go by the unemployment rate. Those numbers are fiddled. That is why the administration quotes them so often. Judge unemployment by the percentage of population that is employed. Today, that number is lower than it has been since the good old days under Jimmy Carter. The reason the unemployment rate doesn't show this is that a lot of people are just leaving the labor force entirely and are no longer included in the statistics. As far as the administration's claim of new jobs created, two thirds of them are part time jobs. For all of their talk about people needing a living wage, they are the major obstruction to that happening.

They also conclude that rising mortgage rates are restraining growth. Really? The Fed has artificially forced interest rates so low for so long, it has become the new normal. It isn't normal. I bought my first house in 1965. My mortgage was 5.6%. That was a great rate in those days. I thought that I would never see rates that low again. I refinanced about ten years later to do an addition and redo the interior. My rate was 7.5%. I considered that a fair rate. In the Carter years rates went up as high as 18%. Those rates were murderous. But through these times the housing market grew like weeds in a cow pasture. So I just cannot accept that rates hovering around 4% are stifling the housing economy. I guess excuses come where ever you can find them. The real reason is that a lot of people aren't working, and many of those that are working are in fear of losing their jobs.

The Fed is playing a political game. They are covering for the Obama failed economy. The economy was down when he came into office. He drove it even lower. It is still bouncing along the bottom of dismal swamp. But after the election most likely will be when the Fed stops meddling and starts tapering, the Bernanke Bubble will blow up and the legs will come out from under the stock market. It's like having surgery. It is best to excise the tumor early before it has a chance to grow. The Bernanke Bubble has grown far to long. When it blows up it could be the second "shot heard round the world". 

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