Friday, September 18, 2009

Federal Reserve Reports Americans Regained $2 Trillion In Wealth - On A Separate Note My Flight To The Planet Pluto Leaves In An Hour

This is the same voodoo which led people to believe they were rich in the technology bubble in 2000, the housing bubble in 2006, the commodities bubble in 2008 and again the many financial market bubbles of 2009. The majority of this "wealth" is from a rising equity market.

We have been remarking for years that the equity market is more expensive than it was in 1929 right before the Great Depression. That dynamic still exists today. What we now hear being used as support of renewed spending and economic vigor - asset price reflation - will fail. It has never, ever, ever worked in the history of finance. Ever. Did I say never? If anyone understands what really causes deflation they know what a fallacy this truly is. More on that later.

The Federal Reserve is making this crisis worse. When we were in all of these recent bubbles, it encouraged business, government and consumers to spend money they would not have spent were the bubbles not to have existed. In other words, perceived paper wealth led to unsustainable and irresponsible spending. That ultimately had the effect of reducing the true savings and wealth of society. Our brilliant leaders are doing the same doggone thing again. Not just with attempting to reflate financial markets but also by the auto stimulus program and the housing stimulus program. They are simply making the mess bigger. Oh well, how many times can we say this and keep our sanity? Apparently at least once more with this post.

Just like the good little servants they are, a dozen media sources, who understand nothing about anything, are today reporting how wonderful this development is. Enjoy the party.
posted by TimingLogic at 8:35 AM