My bachelor’s degree in Economics obviously hasn’t prepared me for what’s happening in the world’s financial markets right now. The meltdown taking place, as I understand it, is the inevitable collapse of a house of cards built on way too much money put into circulation through years of cheap, easy credit.
So what is the Fed doing to fix it?
Stocks rallied more than 3 percent on Tuesday, giving the S&P 500 its best advance since October 2002, after the Federal Reserve said it would add up to $200 billion to strained credit markets in a coordinated effort with other central banks.
Look, if you own stock, this may be your last chance to dump it before the whole thing goes kablooie. Because it is going kablooie.
Stock prices have risen (not values, prices — there is a difference) since the late ’80s because Alan Greenspan and Ben Bernanke have consistently erred on the side of mo’ money. Last spring, the Fed quit publishing the M3 Money Supply in order to conceal the smoke from overworked printing presses cranking out a tsunami of dollars to feed the world’s credit markets. Thanks to John Williams at ShadowStats.com, we know that the supply of dollars has been growing at an annual rate of 15% or better for about a year now.
Even a guy with a lowly B.S. in Econ knows that juicing the money supply means big-time inflation, and that financial institutions like Carlyle Capital that are leveraged at a 30+:1 ratio deserve to go belly-up. Saving these kleptocrats instead of letting them take their lumps only prolongs the misery because there is no incentive for them to play the game by sensible rules. Hey, when you’re gambling with someone else’s money, why not double down on that bet?
Sadly, the federal government may step in and craft a bailout for their friends in the world of high finance. Watch for select banks to be deemed “too big to fail”. American taxpayers, many of whom are trying to find new places to live after being sucked into this high stakes world of investment roulette, may wind up paying for their reckless greed. Again.