The September 2011 Market Crash
This week, the markets had a very significant decline. Every market in every country had huge down days. Not only stocks, but also gold, metals, commodities, currencies, oil, and everything else fell. You might ask, if everything fell, what was the fall measured against. Currencies are measured against the US$.
The US$ rose, and quite significantly. The US$ was the only thing that rose.
Why? Because people worldwide recognized that if there was a hope of recovery in the world economy, it would be led by the free market in the USA. Or …. if the world economy crumbled, the safest place to be was in the US$.
Now you would think, if you listened to all of the pundits, and all of the ‘safe haven’ theorists, that because the news was negative, that gold would rise. Yet gold fell the most.
So much for listening to the pundits.
Gold is a Dangerous Bet Right Now
Interestingly, last week I wrote a blog on the gamble of buying gold. The timing of that blog was fortuitous. Anyone that bought gold as a safe haven recently, got hammered.
The Ineptitude of Government
A while ago, we wrote a blog on Debt in China, commenting on how members of the communist party in suburban districts, would in all likelihood be reporting more stellar results than actual results. The reason being, that government employees are more interested in looking good, than in accomplishing results.
In the US there is a democratic system, yet in many respects, government employees feel the same way. The same goes for politicians.
When there is a problem, the media screams for ‘government to do something’, as if government were all-powerful and with the ability to accomplish anything.
Political Posturing
When an event occurs, government has this knee jerk reaction in answer to the media to appear as if they are being proactive and solving the problem. Yet, it is likely government action that exacerbates the problem.
The most obvious and insane recent government action, was to solve the debt crisis in 2008 and 2009 by giving banks and financial institutions enormous sums of money. The CEO’s of these recipient institutions promptly gave themselves enormous bonuses as a reward for screwing the taxpayers out of a trillion dollars.
The result of that insanity? – now the government of the US has a full blown debt crisis, because all of the money they gave away in a useless effort, is now owing and has to be repaid. The current debt crisis has brought the economy to its knees. The heights of government stupidity never fail to astound me.
Laissez Faire
If you believe that the economic system known as capitalism works, then you have to shake your head at the actions of government which distort capitalism.
We maintain that the bailout was crafted stupidly, that the money was essentially wasted, that the economy would have righted itself as it always does in due course, and that a proper stimulus package would be restricted to encouraging consumers.
We have the stark reality of Japan as an example. They tried in vain year after year, for the last 20 years to stimulate their economy. The result is one of the highest debts per capita in the world – double the US debt, and an economy that has stagnated. Quite an example – that we are ignoring.
We also maintain, that the current malaise, is due in a large part to the stupidity of the actions taken by politicians over the last 3 years.
Now We Have a New Insanity
In a misguided effort to stimulate the economy, the Fed has announced a new policy of selling short term debt and buying long term debt. The policy was intended to help business recover and the stock markets turn positive.
The reaction of the financial markets was immediate. The markets crashed.
What Really Resulted From the Fed Action
When the Fed throws the $400 billion “Operation Twist” money at longer duration Treasuries, the yield curve is going to get flat, which means banks will not be able to borrow at lower short-term rates and lend at higher long-term rates.
There is little hope that an attempt to bring down long-term interest rates is going to do anything other than spread the pain out. Long-term interest rates are already at historically low levels and it has done nothing to stimulate the housing market, which was the aim of the Fed to begin with. It has done nothing because it’s the wrong medicine.
Sooner or Later These Government Geniuses Will Either Destroy the World Economy, or Get Thrown Out of Their Positions of Authority.
The views expressed in this blog are opinions only and are not investment advice. Persons investing should seek the advice of a licensed professional to guide them and should not rely on the opinions expressed herein. This blog is not a solicitation for investment and we do not accept unsolicited investment funds.
