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Friday, June 21, 2013

The Illusion Of US Economic Recovery Fades, Stock Market Comes Unglued

By Susan Duclos

Consider this analogy before reading the excerpted quotes from a Washington Post article explaining why stock markets are "freaking out."

You have a business, run badly, spending more than it takes in and is going broke. An investor comes to the rescue and pumps a million dollars into the business, but the underlying management problems that caused it's failure aren't addressed. The business keeps it's doors open, pays their employees and generally gives the illusion everything is fine...... until the money runs out and the investor decides to not keep throwing good money after bad, and the business fails yet again.

Consider America the business and the Federal Reserve the investor.

Now, over to the Wonk Blog attempting to explain why global markets are "freaking out."

This isn’t a crisis like the ones that struck the United States starting in 2008 or Europe in 2010. Rather, it is a byproduct of the world’s central banks, having intervened on vast scale to deal with the economic travails of the last several years, introducing uncertainty and even a little chaos as they start to contemplate how and when the era of easy money might end.

Over the last five years, the Federal Reserve has injected more than $2.7 trillion in newly created dollars into the financial system and is continuing to add to that total to the tune of $85 billion a month. But in a news conference Wednesday, chairman Ben S. Bernanke made clear that the central bank expects to start pulling back the throttle later this year and ending the purchases entirely, if the economy cooperates, next summer.

That was enough to spark a sell-off on bond markets, which drove the interest rate the U.S. government must pay to borrow money to rise to its highest level since October 2011. Those higher rates will soon translate to higher home mortgage rates for ordinary Americans, putting one of the support struts of the economy, the housing rebound, at risk.  Home builders’ stocks fell particularly steeply on Thursday.


The Fed’s actions — and now its potential unwinding of those actions — have had global ramifications, and Bernanke’s comments Wednesday triggered a flurry of activity in Asian markets overnight. As traders grappled with the possibility of a world less awash in dollars, borrowing costs skyrocketed across the globe, particularly in emerging markets. For example, the cost for the Indonesian government to borrow money for a decade rose more than half a percentage point, to 4.8 percent; similarly eye-popping interest rate increases occurred in countries including Brazil, Mexico, Turkey, Russia, and Poland.

America's economic "recovery", determined to be the weakest and feeblest in U.S history, has been an illusion. Between the Obama/Democrats' $830+ billion stimulus package and the Feds so-called quantitative easing, the Feds keep printing money and pumping into the economy to give the illusion that it is recovering.

[Update] A quick PS here- I am not an economist, I am an ordinary America with bills to pay who understands that I cannot continuously spend more money than is in the bank. Eventually credit cards will hit their limits and the choice will be, either tighten my belt (stop spending so much) or lose my utilities and roof over my head and food on my table.

Too bad Washington has forgotten what the words "balanced budget" means.