Wednesday, October 22, 2014

Slide Kelly, Slide!

No one talks about it much. Especially in the main stream media, as some call it. But the economy is sitting on a powder keg. We have seen the stock market on a roller coaster ride over the past few weeks. That is small change compared to what could happen.

How can that be you ask? Isn't the economy gaining strength? Well, the President brags about how strong he has made the economy. Isn't the unemployment rate down to 5.9%? Yes. But that is not the whole story. When they figure the unemployment rate, those people who have run out their unemployment benefits are no longer counted. To the government bean counters, they no longer exist. So the rate goes down. 

A more accurate way to gauge the employment picture is the Participation Rate. That is the percentage of people that could work, that are actually employed. That has gone down steadily and is now lower than when Jimmy Carter was President.

The President also says that he has created jobs. Well, Presidents don't create jobs. They create an atmosphere where private industry will hire. That certainly hasn't happened in the last six years. We lose more jobs, on average, than are created. Those that have been created tend toward part time and low paid service jobs. 

But isn't the stock market doing well? Yes. And now we are getting to the point that I wish to make. The one percenters have done well under Obama. The middle class and poor have not done well at all. In fact they have lost ground, and continue to suffer. Those who are elderly and those who are trying to save have been hit hard by low interest rates. Bank accounts do not grow under the Obama economy.

To be fair, it is not Barack Obama who has done this directly. It is the Fed that sets money policy. This Fed has gone where no Fed has gone before. They dove into uncharted territory to shore up the economy under Obama. They brought interest rates to historical lows to prevent inflation. An artificial construct that also stifles growth. They started printing dollars at an unconscionable rate and used those dollars to buy back bonds. They called it Quantitative Easing or QE for short.

Because of QE the banks are stuffed with dollars that they are afraid to loan because they fear the future. Money poured into the stock market because it was the only game in town. Stocks climbed while business languished. To keep profit levels up, businesses downsized. The Fed created a bubble. I have often referred to it as the Bernanke bubble because it was of his devising.

So now the Fed is trapped. If they try to change policies that must be changed, the bubble may blow up. Just as an aside here, the government is talking about renewing the home loan policies that blew up the housing market, just to make matters worse. But the Fed would dearly like to terminate QE. 

So I say, "slide Kelly, slide". Quietly and without fanfare ease out of easing. Slow down the presses. Purchase fewer bonds. Let interest rates move. It must be done. But if it is done badly, the explosion could be horrific. If it is not done, the dollar will suffer. They built this financial Golem. Now it holds them prisoner. So, "slide Kelly, slide".

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