Watching the rapid destruction of our economy has left me wondering if our entire nation has just escaped into a land of fantastic whimsy so removed from reality that reason has been replaced with gum drops and spiraling candy canes. After a week of strong DOW rallying spurred by an announcement from CITI that itself made little sense and a sudden embrace by the Obama administration of positive thinking, after months of forecasting an apocalypse, the market returned to a decline for most of the day yesterday. Then, yet another round of government spending was announced, this time $1.2 Trillion to buy back securities and buy assets was announced by the Treasury, the markets rebounded and once again sugar plums and gum drops. While I love seeing the DOW go up I am, as always, reminded of that simple law of physics that the higher something soars the further it must fall.
Here is another cold dose of reality for you, the government doesn’t have the money it announced yesterday to buy back its debt. It will, instead, pursue going into more debt to buy back the debt it already has, smoke and mirrors to move money around in an aimless search for the right “kind of debt” the government can take ownership of to spur the private sector and keep the public sector growing (more programs, more control).
Think about it this way, you have a credit card, that credit card has a 20% interest rate and is maxed out, you don’t know what to do. So the solution seems simple, open another line of credit, one with a 5% interest rate and transfer the cash to that card. Now you have alleviated some of your suffering, you have a lower interest rate, the minimum payments are smaller, life is good. Oh, wait it isn’t.
Imagine six months ago you took out not one, not two, not three but a hundred other credit cards and maxed those out as well. Only you did not max them out buying real things like, say, a big screen TV and some flooring, sure you bought some of that but largely you just took the money out of an ATM and threw it into the air with no accounting of where it went. So when the credit card companies come calling you have nothing to pay them with and you did not purchase anything of value you can sell to raise capital. Now some of the people took the money you threw off the street and bought nice things with it, but you cannot go grab it from them and the government cannot just rip up the roads that were paid for. Likewise the government is now looking at places like AIG, whom it gave money to with the notion that it would take silent ownership in exchange for and it is trying to figure out how it can get money already paid back. You could do the same by going to an apartment of someone who took your thrown money and threatening them, but how well do you think that will work?
So you have nothing. This, is where the government is.
So you turn to your friends and family and tell them you got into a jam. You need to pay off that 5% credit card so you need to borrow cash; you do of course neglect to mention the other hundred cards. No problem, that is what your wealthy family is there for, to pay your bills. Of course, you now have so much debt that even if you turned to every single one of those wealthy family members, even if they gave you every cent they made this year that wouldn’t equate to enough cash to pay off the debt you owe plus interest. You have a wife, children, dogs, cats, fish, a lot of people depending on you, mouths that you’ve promised to pay the mortgage and the electricity for each month, to feed and cloth.
People are getting suspicious, asking questions, noticing you never seem to have cash. They don’t want to loan more money to you, they don’t want to come over to your house, everything is falling apart.
How do you deal with it? Simple, you announce you are taking EVERYONE, friends, family EVERYONE who has lent you cash to Hawaii for an all expense paid trip. They wonder how you got the cash but everyone is so happy about the Hawaii trip don’t care, that is your problem.
Yesterday the Treasury announced a free trip to Hawaii and the stock market decided it cared more about the infusion of cash than where it would come from. Average people who were jumping out of the market are getting back in, retirement plans are reinvesting, AIG which was being ripped to shreds on the Hill actually went up yesterday; don’t worry that there was no sign of actual changes to their business plans or evidence that Congress’ big talk about responsibility would ever lead to action.
We built a market in the 90′s & 2000′s largely based on lies. Enron, Worldcom, Adelphia, housing, swaps, zero-interest, variable-interest, no-money-down, so many companies were innovating and growing but they were doing so at a steady pace. That wasn’t enough, companies lied, cheated and stole and our Congress pushed them to do more and wrote laws that made it worse. Now those same Congressmen, Dodd, Frank and the like are pointing fingers at everyone but themselves.
We will not rebuild our economy and solve our problems by repeating our failures. We must be honest about where we are and where we are going. Our government is lying when it says it will do projects like the one announced yesterday. It is hiding the true costs and worse the Obama administration keeps promising more, Health Care, environmental spending, welfare all on the hope that people will return to their bad habits and the economy will inflate again. It will inflate all right and we will push it once again to the stress limit and watch as it explodes.
I believe in a free market but it must be free of mass corruption, exploitation and lies. Without a solid foundation the market will simply collapse. The same is true of government, when our Representatives distort reality and promise more than they can support the results devastate the lives of Americans. Our government is making promises it cannot keep and meddling in a marketplace it does not understand. It is attempting to control the uncontrollable and unfortunately many in business and many purchasing stocks are becoming as reliant on government handouts as welfare recipients. This is a recipe for disaster.
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