So think about this, people were so nervous that the S&P downgraded US Treasuries that they sold stocks in a big way. And what did they do with the money? They bought US Treasuries. Now think about that, the US Treasury market is seen as a safe haven from the US Treasury market! How crazy is that!
~Peter Schiff in a recent video blog.
The stock market gyrations of the past couple of weeks has the MSM flummoxed. They were so sure of a never-ending bull market that they were blind sided by the past few weeks. Despite over 3 years of terrible unemployment numbers, high inflation, low manufacturing output and general depression like characteristics, no one in the MSM thought it necessary to comment that the US economy has become so indebted and distorted that it has become increasingly difficult to know which companies are profitable and which ones aren’t. The market process of price discovery is no longer in operation. Taking its place is the government process of central planning. I don’t think it needs mentioning, but central planning leads to malinvestment, dislocation and weak economies.
On August 10, the Federal Reserve stated that for the next two years savers are screwed. They didn’t use that term of course, but by keeping interest rates at virtually zero per cent for the next two years, anyone trying to save money will continue to lose it (when inflation is factored in). More and more people will continue to gamble on the stock market in the hopes of increasing their retirement fund. They will be sorely disappointed.
Yes, the correction appears to finally be here. Three years ago, the government-inflated bubble burst. Rather than allowing the market process of liquidation of bad debt to occur, the Fed decided to kick the can down the road. Well we have now reached that can, it was only kicked three years away. What will happen next? I don’t think anyone knows to be honest. The Fed chairman himself may not know. He has said on numerous occasions that he would drop money from a helicopter to get the economy going again and so far, he has been true to his word.
Most commentators outside of the mainstream (and probably inside as well) believe QE3, or massive money printing 3, is coming. Adding more debt to debt is all central banks seemingly know how to do. However, I have come across a few interesting perspectives suggesting QE3 is not coming. I’ve read that since the Fed is now a political liability to the Obama administration, the president will have no choice but to reign it in. It will be a vain attempt at salvaging the president’s fledgeling campaign, but he’s a politician with one goal, re-election.
One of the pieces of holy scripture surrounding the Fed is that it is apolitical. Heck, the current Fed chairman (who was reappointed by a Democratic president) is a Republican. It is a vivid reminder, not of the apolitical nature of the Fed, but of the bipartisan destruction of the US economy through misguided (or worse) Fed policy. Both parties are guilty of massive bailouts and endless money printing for the domestic and military Keynesianism. So far it hasn’t worked and the can remains firmly at our feet.