Good Night, the Party’s Over…

Posted: December 16, 2010 in Commentary, Economics, Politics
Tags: , , , , , , ,

This week a great entertainer from my childhood passed away – Dandy Don Meredith.  The man responsible for the longest pass play to date in Dallas Cowboys history, and the comedian of the hot new Monday Night Football broadcasts still looms large in my memory.  I can still hear him singing near the end of a game that had gotten out of hand with one team thumping the other, “Good night the party’s over…”  I can only assume that right before he died he was singing the same tune to the US government, the Europeans, and the Federal Reserve. The market was thumping the governments, central banks, and Wall Street elitists.    

When Ben Bernanke announced QE2 after the November elections many hailed it as the necessary stimulus needed to get the economy going.  Paul Krugman, economist at at the New York Times, said it wasn’t enough and we should do more.  It was predicted that this $600 billion buying spree by the Fed would raise bond prices, reduce interest rates charged to the government, and spur economic growth with the dose of Federal spending that it would allow.

What we see now is that the market has soundly rejected the actions of the Fed  as not only ineffective, but as actually even more risky than doing nothing.  Treasury yields have risen nearly 100 basis points with bond prices falling.  This is the market saying clearly that the Fed is taking a riskier path (higher interest rates) by devaluing the currency and facilitating government deficit spending in the midst of an economic depression.

The markets are saying that Bernanke did not see the original crisis coming, has not succeeded in improving any aspect (employment, GDP, lending, price inflation, etc.), and they don’t believe that doing the same thing as before will solve any of our problems.  It will, in fact, exacerbate those problems.  The Fed will keep getting clobbered as we finish the fourth quarter.

In addition, we have the CFTC investigating firms (JP Morgan and HSBC) for manipulating precious metals markets in silver and reportedly receiving funds from the Bank of England and the Federal Reserve to offset losses in their naked short trading that is intended to keep prices down to hide the extent of monetary inflation in the markets.  If this is true, it is the equivalent of economic dynamite on a short fuse.  It means that our government and financial protectors are manipulating us to maintain an illusion that everything is OK when actually the economy is going to hell in a hand-basket.

The Fed is not only meeting Einstein’s definition of insanity – doing the same thing over and over and expecting different results – it’s exceeding that definition.  We see the spectators watching and saying, “Oh, watch this.  That idiot is doing the same thing again, and everything is going to get worse.”  And we see the victims, those on fixed incomes, small investors, and people who believe in their government protection rackets losing their futures while the in-crowd of corporatists are protected with our money from the consequences of their horrible decision-making.

And so we return to Dandy Don as the fourth quarter is starting.  The score is Markets 35, Fed 7.  The Markets score a touchdown on the kickoff as interest rates rise after QE2 is announced.  The Fed continues to go three and out on it’s drive.  “Good night.  The party’s over…”

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