For the last week or so the economic news from around the world has been all bad. A large part of Europe is in recession and here at home our GDP can’t even make 2%. The slow down in Europe and in the US is affecting negatively the growth rates in China, India and, Brazil. predictably, the result was that stock markets around the world all took a bath. So, WTH happened yesterday? Stock markets everywhere went up big time. Here the Dow-Jones was up nearly 287 points. Did you hear any good news in the last two days to explain this sudden surge in stock prices? Nope. There wasn’t a peep that could explain what happened. AZ Leader at Inform the Pundits claims that is precisely why the markets surged. There wasn’t any more bad news and that was taken as good news. AZ discounts what other pundits are saying that it is rumors that the central banks of Europe and the US are planning more monetary easing (a euphemism for turning on the printing presses). Me, I’m inclined to go along with the other pundits.. Let’s take a quick look at what is going on in the worlds two biggest economies.
European Union
For two years now it seems as the news is dominated by the latest crisis to threaten the unity if the European Union. There always seems to be one or more PIIGS (Portugal, Ireland, Italy, Greece and, Spain) in trouble. Spain, with their troubled banks, is the one in the spotlight right now. Trying to follow what is going on in the EU can be confusing with all their alphabet soup os institutions and funds. All the different schemes being tossed around by TPTB in the EU amount simply to this: socialize (redistribute) the debt from the insolvent to the solvent and socialize (redistribute) the wealth from the rich member countries to the not-so-rich member countries. Why would the prudent rich countries of Europe agree to such nonsense? It’s insane! Why would disciplined Germans agree to work until age 67 just so Greeks can retire at 50? It’s insane! But, my guess is that some form of the proposed insanity will prevail. The insanity will continue until reality decides to give them the final smack down. When will that happen? Nobody knows. Reality is sometimes slow to make its stand.
United States
The recession in Europe is undoubtedly having a negative effect on our economy , in as much as 25% of our exports are destined for Europe. But, the turmoil in Europe also has a positive impact on the US economy. Because Europe is in worse shape than we are, our dollar, in spite of previous Quantitative Easing by the Federal Reserve, is staying strong relatively speaking. And, more importantly, our bonds remain the only safe haven and that means our government can borrow more money at very low interest rates. But that is the only good news on our economic scene. The much manipulated unemployment rate is now up to 8.2%. Our GDP is below 2%. Our workforce participation rate keeps falling. The housing market keeps sinking. (BTW, has anybody heard what is happening with our commercial real estate bubble? I haven’t heard a thing. There has to be a lot of banks sitting on piles of troubled assets.)
So, what have our boys and girls in the two houses of Congress been doing? A whole lot of nothing mostly. That’s a good thing. Because when they do something, it usually cost us either our money or our freedoms. But, the Executive Branch, under the tutelage of our world-class Community Organizer, Barack Obama, never rests. We know that the Obamites are doing everything possible to drive up our cost for electricity by forcing utilities to use more and more so-called renewable energy. We know that the Obamites are causing the shut down of coal-fired power plants and coal mines themselves. They are even molesting a small company like Gibson Guitars. The Obamites at the Labor Department are getting ready to issue an edict compelling government contractors to adapt a 7 percent hiring quota for disabled job applicants. We know that the Obamites are planning to spend $1.4 billion to buy private land and conserve it for “future” generations. Here is one you will like. Animal rights activist have gotten a bill introduced in the Senate which would require them to phase out conventional cages for egg-laying hens and transition to a system called “enriched colony cages” by 2029, at a cost to U.S. egg producers ranging between $4 billion to $10 billion . You don’t mind paying twice as much for eggs, do you? (You also might be interested in seeing what the animal rights folks are up to in that most insane state of California.)
Okay. Here’s my point. An increasingly bad economy is working against Obama’s reelection chances. And yet, he continues to do things that can only hurt the economy more. This is pure unadulterated insanity. INSANITY RULES! I don’t know when reality will step up to the plate in Europe; but. I am sure hoping reality shows up here in the US this coming November.
Well, that’s what I’m thinking. What are your thoughts?
Asylum Watch 
Almost always the stock market rises prior to a Presidential election. The pump is primed one way or another to insure a “better” economy in time for the election. That or a good new war should do the trick. Thanks for the linky!
The Fed is supposed to be independent but Bernanke seems to be part of Team Obama
A couple tidbits from Fed Chairman Ben Bernanke’s joint House-Senate testimony today.
I don’t know if this is true, but during the questioning period it was pointed out that The Fed is buying up 70% of U.S. Treasury bonds. Bernanke did not dispute that figure.
In other words, bonds yields are at historic lows because we (The Fed) are buying treasury securities from ourselves (the federal government). That not only finance our out-of-control spending but to makes it affordable ta boot!
It is one of the ways The Fed is using to maintain “price stability”, one half of its dual mandate set by Congress.
How long does anyone think that is sustainable?
On the exports front Bernanke said “the demand for U.S. exports has held up well” despite the crisis in Europe.
On the mortgage front Bernanke said “The depressed housing market has also been an important drag on the recovery.” Commercial real estate was not addressed.
On household front Bernanke said “increases in household spending have been relatively well sustained”.
For the record:
The point of my article is that the markets skyrocketed yesterday for no good reason at all.
That only benefits speculators. When speculators win, the rest of us and the overall economy looses! The technical term I use to describe that scenario is: “That’s Bad!”
AZ, is the Fed buyig 70% of our bonds because China and Japan have had enough or is there some other reason?
BTW, I understand and agree with the point of your post. The speculators are driving the market.
A great question… I do not know for sure. I do know this…
As of March 2012 foreign countries owned about $5.1 trillion in US debt. That slightly more than 1/2 the total sovereign debt outstanding. I suspect The Fed owns most of the rest.
http://www.treasury.gov/resource-center/data-chart-center/tic/Documents/mfh.txt
As you can see from the link foreign countries bought only about $18 billion in US debt in the month of March.
In March sovereign debt went up $124 billion. (Set Debt-to-the-Penny Report for that)
If The Fed bought all the rest, which is likely, then the Fed bought over 85% of U.S. sovereign debt that month.
Scary, isn’t it?
The fed is buying up 30 year bonds to keep the 10 year low. Called a “Twist”. In other words a total fraud perpertrated by the fed. No one would even think of buying 30 year.
I had not thought of it, but you may be right about this being part of “Twist”. If so, because of historic low rates that could be very, very smart long-term fiscal strategy.
If so, that has to be Bernanke’s doing. Geithner isn’t smart enough to be that clever. lol!!!
Fortunately, Geithner will be gone next year.
Obama is a citizen of the world, that’s how he was raised. He doesn’t even acknowledge or give a crap about the economy of the US. All he cares about is “following orders” from the international banking syndicate. When you follow the money, that’s the conclusion you come to. Oh, and Mitt is paid for by the same people.
It’s aproblem with American politics. No one can get elected president without taking money from the banking institutions. At least it seems that way.
It is insanity.
Liberalism is a mental disorder
— Michael Savage
Yes, but can it be cured?
Good post, Jim, right on the money.
Among many entertaining [and truthful] jewels I like “when they [Congress] do something, it usually cost us either our money or our freedoms.”
The problem with “one of the good things” of Treasuries being bought by foreigners and pushing down interest rates is that it is “hot money”. It will leave as fast as it came in and may blow a hole in the value of treasuries and push the interest rate up. The only way we can take advantage of this is if Treasury Dept. starts switching all short term due notes for long terms ones, but I have no knowledge that they are doing it.
The treasury market may come under intense pressure by the end of the year if nothing is done about extending capital gains and dividend tax rates due to expire in Dec. 31, specially if the European crisis abates by then.
·The problem with “one of the good things” of Treasuries being bought by foreigners and pushing down interest rates is that it is “hot money”. It will leave as fast as it came in and may blow a hole in the value of treasuries and push the interest rate up.”
Ordinarily I would agree. But, as AZ points out below, the Fed is buying 70% of our Treasurys. How does that affect your outlook?
The worst thing that could happen to Treasurys is for the EU to have a real recovery, don’t you think?
Jim, I totally agree with, “The worst thing that could happen to Treasuries is for the EU to have a real recovery, don’t you think?”. But I already said so in my last paragraph in my above comment, “The treasury market may come under intense pressure . . . . . specially if the European crisis abates by then.” These is the core element of my piece about the catch-22 presently in the American economy.
As for the Treasure Dept buying 70% of the market does not affect the marginal price which is what moves prices and interest rates up or down because these are mostly roll-overs. That is why I say that the real advantage of the present negative interest rates of Treasuries would be if we change these roll-overs from short term to long term treasuries.
Correction: You pointed to AZ’s assertion that “the Fed is buying 70% of our Treasurys” which is not possible. The Fed presently only owns 9% of the total treasuries issued. The main holders of Treasuries are Foreign Entities with 47% and Domestic private holders with 36%.
The roll-overs are executed by the treasure Dept.
“But, the Executive Branch, under the tutelage of our world-class Community Organizer, Barack Obama, never rests.”
Truth.
This administration’s modus operandi is always a political form of chaos theory: The more chaos they can create, the less we on the Right can deal with it.
They want us to believe it is chaos, KS, but they know exactly what they are doing, don’t they?
Our Dear Leader will not be satisfied until we are powering our homes with bog turf and pixie farts.
As for the chickens, well I did have some free-range chicken the other day and it did taste happier.
Ah, yes. Ther is nothing like eating a happy dead chicken, is there?
I prefer fresh and happy road kill. They never knew what hit them!
Yeah, except when you have to scrape them off your car grill with all of those dead bugs. 🙂
I think that obama knows his time is running out and he wants to do as much damage as he can while he still can. Either that or he’s really nuts.
As usual, I am late to the party. That was a great post, and I agree with most of your insight. Especially your observation, “Because when they do something, it usually cost us either our money or our freedoms. “.
I loved those wonderful years of the Clinton/Gingrich gridlock. Because of those two huge egos in powerful offices, we had some good years. Plus, the baby boomers were reaching the peak in their earning years, and Clinton could not get out of the way of the ensuing prosperity.
I do disagree, sort of, about the market. The market moves with news, which shows up pretty much randomly. That is because people react to news. The intrinsic value of an enterprise does not necessarily react to that news, but the emotional values of investors who make emotional and uninformed decisions, daily.
“The intrinsic value of an enterprise does not necessarily react to that news, but the emotional values of investors who make emotional and uninformed decisions, daily.”
I agree; but what news was there? Was it the win by Walker in Wisconsin? Hmmm…
Jim, I may have put myself on a merry-go-round. Maybe no news IS good news.