The stock market is rightfully getting hammered today. Most of the corporate/banking earnings that have been reported over the last 2 1/2 years are derived from foreign currency exchange rate gains and the marking up of illiquid garbage positions sitting on bank balance sheets. Pure GAAP fantasy.
But there's a lot of fantasies being promoted in this country right now, including the idea that there was any real economic growth occurring since the trillions in Government stimulus and Fed money printing were initiated in late 2008. Although Obama has been gleefully reporting nominal GDP growth over the last 2 years, if you use a true price inflation measure, REAL GDP has actually continued to decline ("real GDP" is the actual number after adjusting for inflation). And if you undo the statistical damage being done to the employment report released monthly by the Government, and add back everyone who has actually stopped looking for a job into the defined "labor force," the unemployment rate in truth is probably closer 20% than the 9% reported by Obama.
How about the fantasy that this country can ever balance its spending budget? As of this year, the amount of money that the Government spends on just entitlement programs now exceeds the total amount of revenues received by the Government. Think about that for a second. That means that if you completely shut down defense spending, and all other non-entitlement waste, the Government is STILL operating a big budget deficit. Do the problems faced by Greece really seem so bad in comparison?
By now everyone knows that Obama is going to release 30 million barrels of oil from the Strategic Petroleum Reserve over the next 30 days in order to help alleviate the shortages caused by the Libya situation. But, as a good friend pointed out to me today, why did Obama wait until the price of oil had already fallen 22% from its recent high around $115 per barrel? How can there be a "shortage" if the price has already dropped like that without the SPR supply? It tells me that the Government wants commodities prices even lower in order to promote the appearance of no price inflation for the purpose of justifying the next round money printing.
If you don't think that QE3 is on deck soon, take a look at these remarks make by Bernanke yesterday:
We do have a number of ways of acting; none of them are without risks or costs. We could, for example, do more securities purchases or – and structure them in different ways. We could cut the interest on excess reserves that we pay to banks. And as was suggested by an earlier question — several earlier questions, actually, John’s question about giving guidance on the balance sheet or by perhaps even giving a fixed date, you know, to define extended period, those are ways that we could ease further, if needed. But, of course, all of these things are somewhat untested. They have their own costs. But we’d be prepared to take additional action, obviously, if — if conditions warranted LINKDoes that sound like comments coming from someone who is not already planning the next massive monetary injection into the system? It will be interesting to see if, and by how much, they can squash the price of gold and silver. I believe that the market is already pricing the possibility of another big market ambush similar to the one that was implemented by Henry Paulson in mid-July 2008. If that's the case and I'm right, we could well see a shocking move higher in the metals this summer as flight-to-safety seekers rush into the metals when they realize more paper dollars are coming their way and the price of precious metals is going to go a lot higher.
But ask yourself this: if the Government is trying to set the markets up for a big shocker followed by massive monetary stimulation to address that big shocker, like in 2008, what in the hell could possibly coming at us this time around? Hint: please understand that NONE of the systemic, fundamental problems that led to the de facto collapse of the financial system in 2008 have been fixed, other than the cosmetic application of transferring trillions from the public to the banking sector. In fact, the problems have become even bigger and more global....got gold?