Back in late January, we provided some commentary on why the path forward for our country and our economy is so clear. Given the recent drop in the market and today's unemployment report, we though it was worthwhile to revisit our original post and provide some additional insight into where we are today.
We are seeing signs that economic activity is slowing and many are concerned about results during the second half of the year. We are hearing terms like "double dip" that suggest we may be headed back into a recession. Folks, this could not be more misleading. Every dollar of "growth" that we have seen over the last three years has been completely manufactured by artificial stimulus from our government and Federal Reserve. The amount of resources they have pumped into the world economy is staggering, and is unlike anything the world has even seen in its history. We are not talking about token tax cuts or policy changes. We are talking about a flood of liquidity via 0% interest rates, QE1, QE2, and billions in federal stimulus dollars. All of these efforts created "false growth" and the illusion that things were getting better.
What we are now facing is the scenario that we discussed in our original post in January (see bold section below). Talks of QE3 are beginning to take place, which is no surprise to us. This is only the beginning of what will eventually turn into QE4, QE5, and on and on. None of this will help our economy heal, it will only create more illusions of prosperity and drive our currency lower.
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ORIGINAL POST - JANUARY 26, 2011
Well, another Fed decision is in the books, and as expected they will continue to throw money at the problem in an effort to stimulate growth in the U.S. and across the globe. We have said many times that this path forward is extremely predictable, however it is important to revisit why that is the case.
We are seeing signs that economic activity is slowing and many are concerned about results during the second half of the year. We are hearing terms like "double dip" that suggest we may be headed back into a recession. Folks, this could not be more misleading. Every dollar of "growth" that we have seen over the last three years has been completely manufactured by artificial stimulus from our government and Federal Reserve. The amount of resources they have pumped into the world economy is staggering, and is unlike anything the world has even seen in its history. We are not talking about token tax cuts or policy changes. We are talking about a flood of liquidity via 0% interest rates, QE1, QE2, and billions in federal stimulus dollars. All of these efforts created "false growth" and the illusion that things were getting better.
What we are now facing is the scenario that we discussed in our original post in January (see bold section below). Talks of QE3 are beginning to take place, which is no surprise to us. This is only the beginning of what will eventually turn into QE4, QE5, and on and on. None of this will help our economy heal, it will only create more illusions of prosperity and drive our currency lower.
_____________________________________________________
ORIGINAL POST - JANUARY 26, 2011
Well, another Fed decision is in the books, and as expected they will continue to throw money at the problem in an effort to stimulate growth in the U.S. and across the globe. We have said many times that this path forward is extremely predictable, however it is important to revisit why that is the case.
We need to step way back and look at how this system is setup. Our entire society is based on short-term results. Whether it is companies that focus on quarterly earnings, investors that move stock prices based on short-term news events, or politicians that are only in office four years before facing re-election, in every case those in power must focus on short term results, or they will be replaced with someone that will. The inherent problem with this system is that decisions made to benefit our society and economy in the short term often have long term consequences. However, that is of very little concern to those in power, as they are forced to show progress or make improvements to appease voters in the short term. A politician who tells the voters that there will be no funding for improvements in the short term, because we cannot risk our country's future, will not be a politician for long. He/she will be replaced with someone that will show results now. You can see how the end game is a government filled with “short timers” focused solely on the here and now.
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