The U.S. Economy has not healed itself. The politicians purportedly running this dog and pony show have not done anything to speed the correction of the fundamental structural problems underlying our present economic crisis. Indeed, they have completely retarded the correction process. They left more battles to the future, and the next one is coming soon to a theater near you. No later than September 5th, says I.
The real problem with making politicians the masters of the economy is short-run thinking. Keynes is famous for stating "In the long run we are all dead" meaning that it is only the short run that counts. Our lives are composed of a bunch of short terms between now and death. Ergo, we have to fix things right now.
I wish the politicians understood the real way to apply this saying. If they did they would allow all the stupid financial firms (such as Fannie Mae, Freddie Mac, AIG, etc) to die an orderly death. The buffoon morons who created this havoc would then suffer the same fate as Lehman Brothers. Yes, this would create cataclysmic pain for 3 to 5 years. On the other side of the rainbow, we would have a healthy system again. The alternative is to suffer 3-5 years of not so cataclysmic pain, and stay in a poor, unhealthy, dysfunctional economy. You may not like those choices, but those are the choices. Accept one.
The Fed is not allowing natural selection to destroy the weak/bad firms and select the health and good firms. If they had permited nature to take its course, several major banks would now be dead, and people would be scurring to small Credit Unions, who would reap the natural benefits of their wisdom and good practices.
The U.S. Federal Government is pursuing a policy very close to that of the Japanese Government in 1990s. We are propping up a bunch of dysfunctional zombie banks. These banks cannot survive on their own, if left to flounder, many would default and be taken over by the FDIC. These bad institutions cannot function as real banks right now. So we feed them life-support capital and keep them alive & dysfunctional. They lead an undead existence.
Why are we doing what the Japanese did? Because politicians think short term; as short as the next election. They do not think long term. Quite frankly, no U.S. Representative cares what will happen 5 years from now. They will fight that battle in 5 years. They are drowning now. They need to get re-elected in less than 15 months, and it is not looking so good right now. These politicians are going to pump any number of deficit bucks necessary into the system to provide us with some sort of illusion of recovery by November 2011.
It doesn't matter if every last shred of this program is bad policy. Congressmen are committed to doing whatever it takes to stay in office. Just win baby. Raider rule #1: Cheating is encouraged. If your not cheating, your not trying. The politicians invented this scheme. They know it, they love it, they live it.
The problem is that the market likes to get even. The real money men, the real investors who run this world, know the situation really isn't getting better. The good news you heard for the last two months is a bunch of horse-shit. Further, they know the long term prospects are bad. We do not have the guts to go through the short term pain we need to experience to guarantee the future.
We want to loose weight to avoid a heart attack and stroke, but we can't stop eating those Double Quarter Pounders.
Ergo we are going to have that first heart attack soon... or maybe the second. Most of these guys are bracing themselves, and taking a defensive position for another downward spiral.
If you are surprised by the low price Dale Rosenbloom fetches for the Rams, understand I warned you about the state of the economy and what Billionaires are doing these days. The fact that his buyers know he has tax problems, and that this is a distressed sale does not help his cause either.
So what am I prophesying? I think we're going to loose 1,500 points off the Dow by September. Expect it to bust down to 7,000 or lower by September 30th. Expect it to finish around 6,500 for the year. Expect oil to bust down to $35 again. There is a glut in supply 10,000 miles wide. OPEC can't keep building reserves like this. They are going to have to dump supply. This is good for most of us. It is going to be a financial catastrophe for those invested in oil.
So why the hell would you say a thing like that? Do you have any specific info to share with us? Let me respond this way: Did you read the news today? Have you read the reports leading up to the news today? If you had, you would not be to surprised I am posting this blog today. Have a look at some these links:
