Pricking Balloon

Saturday, April 4, 2015 – 10:30 a.m.

Remember last October, when the Federal Reserve ended the tapering down of its $85 billion a month bond-buying program?

I wondered what would happen when this magnitude of stimulus to the economy disappeared.

Through its various “Quantitative Easing” programs, the Fed injected more than $4 trillion into the economy and banking system. It was the primary driver that has rocketed the stock market to those current record highs.

I never thought the Fed would go that far. But they did.

It’s dangerous to support a floor under the economy of that magnitude. Rather than let the air run out of the balloon, back in 2008, the Fed re-inflated it, just to have it burst sometime in the future.

Now with all the artificial stimulus, save low interest rates, gone, and the Fed now allowing those trillions in bond holdings to roll off its balance sheet over a long period of time, things look a little bit uncertain.

Let’s see;

  • The so-called great job growth, which has mainly consisting of low wage retail and service sector jobs, is slowing.
  • The real unemployment rate is at least at 10.9%.
  • Easy credit, in the form of credit cards, car loans and stated-income loans, is once again available at a financial institution near you.
  • With interest rates still at record lows, and stock markets at, or near, record highs, corporate profit growth is slowing, and in some cases it’s falling.
  • For stocks, it’s been an almost seven-year climb without one single 20% pull back.
  • Wages are essentially stagnant, up 2.2% in the past twelve months.
  • The workforce participation rate of 62.7% is dismal. That’s 93,175,000 people currently out of the work.
  • About 45 million Americans are currently on food stamps.
  • Real inflation, not the phony government “basket of goods and services” number, is squeezing pocketbooks across the country. Anyone who goes grocery shopping and has half a brain can figure this out. Just look at the price of beef.
  • Growth estimates for the last quarter have been reduced to essentially a big fat zero.

The House of Cards, no not the series, phraseology comes to mind.