The markets didn’t take well to the realization that the Republicans are now in a position to completely tank the economy but the markets did recover on the announcement from the Federal Reserve that they will indeed print 600 billion in new money and hand it out free to rich people. The idea being that it will encourage investors to buy something besides US Treasury bonds because with the Fed buying them it will make them more expensive and the interest that bonds pay lower. The problem is that the interest on bonds is already less than one percent, people aren’t buying them for the high return but because they will hold their value in the face of deflation.
So the Fed has to convince everybody that we will have inflation instead of deflation otherwise the big corporations and Wall Street banks will continue to sit on all this free money. Even if they can force investors out of bonds and into equities or commodities that does nothing for the economy. Even if the middle class see their 401(k)s increase in size they aren’t seeing any income rise and so they aren’t going to spend more. The reality is that rising commodity prices don’t stimulate business, they just make fuel costs go up.
The Fed is betting that this new money in the markets will trigger an inflationary spiral and business will be forced to invest in something that will generate income and this will boost GDP. Unfortunately big business has become accustomed to making money by devouring their weaker competitors and by pushing worthless paper around. So it’s becoming doubtful they are even capable of producing any real growth anymore, we‘ll need to import that from China.
With Speaker Boner in charge of all government spending there will be no help from the government and if he doesn’t raise the debt ceiling as one of his first acts then there will be a government shut down to further cripple the economy. Of course the Republicans aren’t really concerned with deficits as they know the ignorant voters will blame Obama no matter what.
When President Clinton began running surpluses for the first time in US history, the 3/4 of Republicans polled believed Clinton was still increasing the deficit or at best holding even. Sadly, fully a third of Democrats at the time thought that too. The biggest talking points of yesterday’s election was the record 1.4 trillion deficit for budget year 2009 that they blamed on Obama not even considering the date. You see fiscal year 2009 started in October 2008 and Obama wasn’t even elected yet.
So we find ourselves in a position where the only thing between us and the depression to end all depressions and perhaps civilization itself is a bunch of rich bankers that are printing money and giving it to themselves. We either get inflation and no growth or we get deflation and a plunge off the cliff. The outlook is indeed bleak. www.prairie2.com