Monday, February 9, 2015

Pretend and Extend is the Name of the Game

They’re concerned with getting reelected, and so they don’t wanna do something that jeopardizes their reelection, and dealing with these problems would do that, because in order to effectively deal with these problems, you have to admit that there is a problem. You have to admit what the source is, and politicians don’t wanna do that, I mean, because they basically have to admit that they’ve been lying to the public for years, that all the things that the government has done to help the economy have actually made it worse and that the tough medicine that’s required now is a result of all the snake oil that the politicians have been spoon-feeding us over the years, which has allowed the problem to get worse. So, their own self-interest is to pretend that the problems don’t exist or to try to get the Fed to cover ‘em up.

And that’s what’s going to happen. You’re seeing this now. The oil market is going down and people are worrying, “Well, is this going to be a problem for the stock market?” It’s not that the oil price going down is the problem. It’s just indicative of the problem. Oil prices were propped up by the Fed. So were home prices. So were stock prices. And if the Fed is not gonna be there anymore, all the prices that were influenced by QE are gonna come down. And since the U.S. recovery was a function of inflated asset prices, as these asset prices deflate, then the recession is going to return. And, of course, what is the government’s response? It’s gonna be more QE, but the real issue is that the recession is part of the healing process. It’s part of what is necessary.

The reason we don’t have real economic growth, the reason that the poor are getting poorer, the divide between the rich and the poor are growing, the middle class is disappearing, people are reporting great dissatisfaction with the economy – look at the voters who voted Republican in the midterms, very upset about the direction of the economy – real incomes are falling. Household net worth is declining. Homeownership has plunged. The number of people living off the government has skyrocketed. Labor-force participation is only rising among older people who are coming out of retirement because they’re too broke to stay retired. Meanwhile, younger people, labor-force participation is plunging as young people can’t find jobs and they just go to grad school.

And student debt is skyrocketing, because so many people can’t find jobs if they’re just going to school, although a lot of the people that are borrowing money using college loans are just going to college so they can get the loans. They don’t even care about the education. They’re enrolling in online courses just so they can get government loans so they can pay their electric bills.

So, the reason that we’re having this real recession under this phony recovery is because the Fed won’t allow the recession to run its natural course, because the recession is kind of like a detox. It’s what’s necessary to make the economy healthy, to allow a restructuring that would facilitate legitimate economic growth. But instead of that happening, we just inflate financial bubbles. And superficially it looks like things are getting better, because the stock market goes up. The real estate market goes up, and there’s some increased spending as a result of all the extra borrowing, but all that is actually hurting the economy. But if we’re gonna allow the recession to run its course, then debt is gonna be defaulted on, because there’s no way around it.

I mean, if the government allowed the recession, banks would fail. People would default on their debts because they couldn’t pay the interest, let alone the principal, but that is more healthy. Allowing that natural, free-market restructuring, that process is healthier and more conducive to a return to legitimate growth than what the Fed is doing. Than trying to prevent that through inflation, through printing money and quantitative easing and zero-percent interest rates. But the Fed is going to continue to fight this battle until it loses the war, and that means the dollar collapses. And I think that’s ultimately where we’re headed.

- Source, Peter Schiff via Wall Street Daily