When You Wish Upon A Fed…

When Your Star Is The Fed...

When Your Star Is The Fed…

Our economy is recovering, right? The stock market has risen, real estate prices likewise and the government says things are improving. Thank Obama! Of course, the numbers of people employed haven’t changed much and folks are still facing layoffs. New college grads aren’t finding work, either. And on a constant-dollar basis, the median wage is still dropping.  So do you believe the government that inflation is contained, or do you believe the lying prices at the supermarkets? You decide; I’m not telling you how to think here. That seems to be the governments’ job…

Let’s parse the wonderful health of the stock and real estate markets for a minute. Stock or real estate are legal ownership of a piece of a corporation or a piece of land. You pay a market price for those. Then, depending on what happens, that value goes up or down.

If the corporation goes bust or the land is located in an area that turns bad, their value goes down. What makes them go up? Two things: market forces and/or speculation. If more folk start raising kids who do well and come to need more houses, home prices rise from increased demand. If the corporation finds a new way to sell or a new product that sells, its stock goes up the same way. That is economic wealth creation (and it usually takes a while).

If the Federal Reserve creates a lot of money out of nothing and dumps it onto the banks or the U.S. Treasury (call it: ‘Quantitative Easing’, it sounds better that way) that money has to go somewhere. From the government/banks, it then goes to investors and lenders who start bidding for investments and making easier loans. All this creates more bidders for stocks and real estate; the competitive bidding drives up prices just like the competition from more buyers did when that was caused by increasingly successful business or more people needing homes. From the outside, it’s hard to tell the difference.

But a corporation whose value is growing from its operations or a house price rising because more families need housing are true wealth creation; stock and real estate prices going up because more faux dollars are chasing them is not; printing money is not creating wealth.

Our new ‘recovery’ in the absence of jobs is just that last; fake wealth based on money creation policies at the Fed, coupled with Federal spending of borrowed and now, printed money. We are indulging in building castles in the air, and those who wish to believe that the hot air of politicians’s promises will float economic reality indefinitely, are about to pay a high price for their foolishness. As in history, they always have…

About Jack Curtis

Suspicious of government, doubtful of economics, fond of figure skating (but the off-ice part, not so much)
This entry was posted in Banks, Competition, Domestic Policy, Economics, Finance, Home Ownership, Inflation, Investing, Politics, Recession and tagged , , , , , , . Bookmark the permalink.

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