Bubble Myths

14 months ago the American economic bubble burst bringing about the worst recession since the Great Depression. Since that time, in the age of internet enlightenment, we have all watched as the Fed has done everything in is power to re-inflate the bubble. It is a very weird time in the history of our country and I hope I can bust a few myths related to our economic bubble.

Our economy is not improving

They are quick to rush out any sign that the economy is improving because GDP is on the rise. The best measure of the strength of our economy is not GDP; it’s employment. No matter how you cut it, the unemployment numbers continue to grow. Plus if you add in the people that were searching for a job and have given up, the picture looks even worse.

Although the Fed and the government would like us to believe that things are improving, it is a hard pill to swallow as long as unemployment continues to rise. If one takes into account, all of the illegal aliens and transient workers that have left since the economy imploded, the employment picture looks abysmal.

The Stock Market is not a proxy for the economy

The Dow has hit over 10,000 and is up to over 30% from its lows a little over a year ago. Wow! That is great growth. The problem is that in times such as these, there is little or no relation to stock market performance and that of our economy.

Home prices are rising and that is bad

Home prices in the United States have risen for the last three months. We now have more Americans out of work than in my entire life time, and the price of a home is rising. Somehow Wall Street and the press want us to believe that this is a good thing. They want us to think that if our home is rising, then we are worth more and we will feel richer. Sound familiar? It is that type of thinking that got us in this mess to start with.

Our Government Is NOT Responsible

This is the biggest myth. The reality is that the Fed has far more control over our economy than Congress and the President. Furthermore, our government has little to no control over the Fed. You don’t read much about it in the press, but there are efforts in Congress to increase transparency in the Fed and also to end the Fed’s strangehold on the American economy.

The Fed is the organization that controls interest rates, the exchange rate of the dollar, and the nation’s money supply. Let’s not forget that the dollar is considered the world’s reserve currency so not only does the Fed control the US economy but much of the world’s economy as well.

Our economic problems have nothing to do with politics

I participate in numerous political discussion forums and there are a lot of people that want to blame this economic crisis on George W Bush or Barack Obama. Or perhaps, some want to blame it on the Democrats or Republicans for the exploding debt. Neither is true. The Fed is not a political entity and it does not follow a political agenda. When George W Bush cut taxes to the wealthy and funded an ill advised war, the Fed was there to accommodate. Then when Obama wanted to push through a huge pork laden stimulus bill, the Fed was there to sign the check. The Fed is no partisan.

It is actually worse than that. No matter whether Bush is cutting taxes or Obama is increasing spending, both have the short term effect of increasing federal demand for money. The normal result is to drive UP interest rates. But in the bizarre economic world in American, interest rates have gone DOWN! Why are interest rates going down when our government is spending like drunken sailors? The Fed of course.

In some ways, the Fed WANTS us to believe that this is a Republican/Democrat thing, because it deflects attention from them. All along (at least since 1971 when Nixon took the US off the gold standard), the Fed has been pulling the strings.

Conclusion

Time will prove that the direction the Fed is driving our country will be disastrous. The Fed should be growing our nation’s money supply at the rate at which our economy is growing. They are doing the opposite. They grow the money supply in order to MAKE the economy grow. Ultimately, this strategy is unsustainable and the results will be horrible for the US.

Inherent in all of this is inflation. Due to the Fed’s mismanagement of our money supply, America will suffer greatly. Here are a few predictions. The dollar will fall greatly particularly against currencies with high interest rates As the dollar falls, the price of oil will rise dramatically increasing all American’s cost of living. Interest rates will RISE further contributing to the economic melt down.

I have analyzed this subject at length and I cannot see any other outcome. I really wish I could see some light at the end but it’s not looking good.