Artificially low interest rates and massive expansion of the money supply are ignored. Wall Street is prospering. We should "feel" rich.
This is another bubble, blown, in this case, mostly by the Fed's buying of government debt instruments with money that does not exist. Eighty-five billion a month is going to keep the government churning and the economy at a standstill. Despite their best efforts, bonds rose over the last week. Here's the chart from Yahoo as mid-afternoon on 11/12/13:
Debt service is still manageable, but if you want to look at it this way, you could say that about half of the deficit is a result of the interest payments. That means the higher the rate goes, the higher the deficit goes, and the faster we accumulate new debt that has to be serviced.
Just for fun:
Predictions are never right. I predicted skyrocketing inflation for March 2011. It didn't happen as dramatically as I expected because, I suppose, the overall weakness of the economy and the high unemployment rate. But we have had significant food inflation both in terms of the actual prices and in quantity reduction -- smaller packages costing as much or more than the larger sizes available previously.
So I'll make another ridiculous and undoubtedly wrong prediction: there will be a correction in the markets in January 2014. Initially I think the Dow drops back under 14,000 and the S&P goes under 1600 early in the year, rebounds a little going into summer and crashes more significantly to start the fall. This is not investment advice and should be ignored by anyone seeking to actually make money. Keep listening to the experts and ignore cranks like me. I know nothing. I'm just writing this down now, so I can look back in a few months and mock my own naiveté.
Market predictions are always just that, however you do have to wonder how long the fundimentals of rational economics can be abused without ill effect. Personally, I hope the USA and the world economy recovers. It would be nice to have some basis for that hope in however!
ReplyDeleteYou and I have a basis for hope because we know our source is not the economy. I think there is some reason to hope in the economic system as well, though. I'm confident that the central bankers -- Federal Reserve, Bank of England, Bank of Japan, and the ECB -- are well aware of what they are doing. They have been making decisions based on political rather than economical realities. At some point, they know that has to change, and the governments won't be able to do much about it.
ReplyDeletePolitical reality -- that's one of those oxymorons.
Letting a market crash linger for a while may be one of the first signs that the central bankers are ready to come back to the real world.