The stock market continues to set new record highs despite all efforts by the un-elected Fascist Kenyan Socialist in the WHITE House here to destroy America. Housing prices are rising rapidly, consumer confidence is way up, and durable goods manufacturing is up nicely. All rigged numbers from the lib-rall gub-er-ment, of course.
Of course the truth is that things are not as they appear. The right wing pundits are just plain wrong, but to give Obama credit for anything other than just keeping us from going off the cliff wouldn't be correct either.
The rightwing is sure that it's just because Obama (actually the Federal Reserve) is printing $85t a month in new money that is driving up the stock market. They explain that because bond interest is so low that people are looking for higher returns. Actually no small investor is buying stocks. The buying is partly from retirement funds who have no choice because stock investments is what they offer, and hey it's not their money, they get paid even if you lose all yours. Then there are the high speed traders that don't hold any stock for more than a few seconds, but mostly from the companies themselves.
That's right, the stock market is way up because the companies listed on the market are pumping up their own stock price with massive stock buy back programs. The executives who get paid in stock pay half the normal tax rate when they sell their stock, so you can see the advantage to keeping the price of their company's stock as high as possible.
So where does the trillions that the Fed has been printing go to? Well, it goes to rich people and big banks who are selling bonds on the open market that they have been holding. The Fed buys them from bankers at a premium price. The idea of Quantitative easing is that the 'cash hoarders' will then need to invest in something else, loan money to home buyers for example. The premium price for bonds is the carrot, the promise of inflation by printing just a little too much money thus creating 2% inflation is the stick. In a zero interest, zero inflation environment the rich tend to hoard cash waiting for deflation to kick in. If you can buy real wealth for ten cents on the dollar after an asset crash that beats any return on your investment short of visiting banks wearing a mask, or if you can swing it, wearing an expensive suit.
Oh, and another place that rich people are putting money is into corporate bonds, that's the main reason that corporations have trillions in cash on hand, that and tax evasion.
So there is constant talk of 'bubbles', you know, prices are rising too fast, the Fed is printing too much money, Wiemar Republic, wheelbarrows of money to buy bread, Hitler, Hitler, buy Glenn Beck's gold, there's a shortage of gold don't you know. (heh heh heh)
The fact is that the economy is going to collapse, no ifs, ands, or buts. It will be in the next four years or less. We have no trade policy, flat wages, no manufacturing policy, continued cash hoarding by the rich, and too big to fail banks run by too big to jail bankers. The one caveat is that the Dems could win the 2014 election, actually fund Dodd-Frank along with some other things that are already in place, and Obama might morph into 'Barry' Truman. A New Deal could bring back the American Dream. That could happen, no really, it could. Well, no promises. Twitter @BruceEnberg Or tell me in person on the bread line.