Massive government injection of funds into the economy---at an annual rate of 36% of GDP---has stopped the slide into Depression dead in its tracks and has been actively pumping the stock and commodity markets higher since late February. There is no question whatsoever that this stock and commmodity rally has rebuilt consumer confidence in the economy. That part is working. Longer term, it's another disaster in the making.
This is Bubble Economics 101. Spend money you don't have (i.e., create a massive amont of debt and spread it around widely) and the economy will rise. Notice we didn't say "recover"---any recovery is a mirage. History tells us that the stock market will provide a dynamic force to stimulate the economy as stock prices rise. For instance, Mortgage Equity Withdrawals, a fancy name for turning home equity into debt, pushed stock prices up from the 2003 low and pushed the economy back into growth mode. That is, it did until the housing bubble burst. Then, all hell broke loose on the downside. Such is the ultimate end result to these attempts to leverage the economy via debt.
The Congressional Budget Office projects that the federal debt will reach 100% of GDP within five years. According to S&P, that's incompatible with a AAA credit rating, the loss of which will cause interest rates to soar, further slowing the economy. Don't expect S&P to downgrade the US Government, however, since that wouldn't be compatible with the bribes they receive. This is a bubble of government debt which is growing on a daily basis. In bailing out the Banksters, your government is creating a far larger bubble which will eventually explode in our faces, destroying the nation.
We now have a Government Debt Bubble which is leveraging the stock market and the economy in order to push them up the hill. It's not hard to see what will happen once the Government Debt Bubble bursts, just as all bubbles ultimately burst. This is government manipulation of markets at its worst because it's a bubble whose bursting has the direst consequences. The government has to continue pumping the bubble until it runs out of money. The hope in Washington is that the economy will eventually be able to grow on its own. The only problem with that goal is that the level of debt which the government has taken on can only be paid back by draconian tax increases---and those tax increases will crash the economy again. It's a no-win situation ultimately. The economy is literally living on borrowed time. There is no solution to this problem. The debt bomb is ticking and will eventually explode.
Moreover, by providing artifical demand in the economy now, prices of most commodities are being elevated. Oil is heading back toward $100/barrel and OPEC thinks it won't be long before last year's $150/barrel ceiling will become the new floor for oil prices. An economy on steroids, like this one, cannot handle high commodity prices. There is a limit to how much debt any government can handle and this government has already gone well beyond its ability to pay that debt back.
We are already getting a preview of the ultimate end game. No amount of stimulus has been able to save GM, which is going belly-up. The stock was trading at just 69¢ after the official NYSE close on Friday as hope for a save of GM has faded. Even the last minute buy program which sent the Dow up over a hundred points at the closing bell couldn't save GM. Down the tubes the largest automaker in the world goes. And the stock market celebrates? The shell game being played by the Plunge Protection Team has levitated the stock market, but Humpty-Dumpty can't be put back together again. This stopgap intervention is, in fact, making the ultimate outcome much worse. It's akin to fighting fire with fire---eventually, it becomes a firestorm.
The path GM is taking is the same path the country is following. The government has basically put all of its eggs in the basket of the Plunge Protection Team to provide band-aids to prop up the markets and improve consumer confidence enough to restart the economy. The media is being manipulated as a propaganda machine to press the case to the gullible public.
Look on this stock market rally as a wild party running on alcohol. The hangover tomorrow is coming and it won't be pretty.
In the meantime, the price of Oil hit a new high on Friday, threatening to Crush the Green Shoots.
And, here's Phil of Phil's Stock World, who says, Clearly there are people who will do anything for money.
The day when the inevitable oil price shock hits the world economy has been postponed due to the current depression. But, it's coming and if it hits, it will be a death blow to the global economy. Think how vulnerable the economy is with just-in-time management making the supply chain into a House of Cards which can be toppled at any point. In other words, housing wasn't the only House of Cards---there are many Houses of Cards which can result in further collapses ahead.
The Obama Administration is working furiously to develop alternative energy technology. That technology has lain dormant over the past three decades, lost or forgotten due to the simpletons in the Power Elites who put short term personal gains over societal progress. It's just an example of how the human race made no net progress during the Eighties, Nineties and Naughties.
Scientists have been working on alternative energy applications for the Energy Department during the month of May. Some of them may be getting funded this summer and will be able to start work on providing alternatives to the Big Oil/OPEC Conspiracy. If Obama is serious about change, we should see some action to develop some of these alternative sources of energy in the near future. The only question is whether or not it's already too late to avert that future meltdown of the economy that's heading our way.
Bilderberg Report
The annual meeting of the Bilderberg Group, a gathering of the Power Elites to decide what path world leaders should take, appears to have settled on a solution. This report makes it clear that the US Dollar will be sacrificed. That was a foregone conclusion. It's probably no accident that the dollar started crashing during that meeting and has continued ever since.
The US Dollar, after decades of a misguided Strong Dollar Policy, is extremely overvalued. The Power Elites have used the dollar as a tool for reshaping the world economy, choosing winners and losers based upon manipulation of the reserve currency. On a trade-weighted basis, the US Dollar is up 250% from the Seventies. It's only down about 20% from its all-time high in 2002. That makes the US Dollar extremely overvalued relative to our trading partners, a condition which has made it advantageous for exporting countries to sell their products into the US market, resulting in a virtuous cycle whereby those countries collect and then recycle their excess dollars buying our massive government debt.
From the US perspective, it has been only logical that manufacturers cut jobs, close factories and rebuild them in places where costs are much cheaper. We have been eating our seed corn due to the overvalued dollar. The only reason the economy looked healthy over the past three decades is due to successive bubbles of debt creation which have fabricated a facade over the crumbling economy and a declining standard of living. Underneath the surface, the economy has been rotting as the foundation crumbles away.
That game is ending. Those exporting countries are faced with the prospect of a much lower dollar in the future and are shying away from buying our debt because they know the only way it will ultimately be paid back is in much cheaper currency. Soaring interest rates and a falling dollar mean that the US consumer is going to be faced with a massive rise in the inflation rate. At the same time, the government is going to raise taxes---Bankster Taxes---to pay for the massive transfer of money out of the Treasury and into the banks. This combination is going to severely crimp the ability of the consumer to maintain their lifestyle. Since the consumer is 70% of the economy, that means a radical downshift in the standard of living of the average American.
Oh, inflation isn't coming soon---deflation is here for now to help hold the price level down. Once deflation is cured, look out for a soaring inflation rate. Maybe that's bullish, but how long can the economy grow when its main source of money is a soaring pile of government debt---debt that foreigners are increasingly uneasy buying?
The only way for the economy to continue recovering---and the stock market rising---is for the government to continue to sell new debt and pump it into the economy and the stock market. But, of course, that makes the Government Debt Bubble even larger, with the ultimate popping of that bubble all the more devastating to the country.
One thing is certain: the smart money is on the move. The Bilderbergers have pointed the way.
Perks of Power: Democrats Eliminating Republican Chrysler Dealerships
It's payback time for the Democrats and they are rewarding campaign contributors by killing off their Republican competitors. Politics as usual in the corruption capital of the planet, Washington, D.C.
Wall Street: Window Dressing or the Plunge Protection Team at Work?
