Twice in the last 10 years the Government and the Federal reserve system deemed it an emergency to help bail out the US and economy, each time more dramatic efforts were undertaken to resuscitate an ailing economy and monetary system.
Y2K was the first scare and because of the actions of the federal reserve, we had an explosion of asset prices in the tech sector and then in 2000 that bubble popped from excessive risk taking and exhaustion.
The ensuing Recession would have been rather mild, did not include the Banking Sector, and would have passed on it's own. However, the FED in 2001- 2003 began to force interest rates lower as the Fed Funds rate fell to 1%, 911 was also used as an excuse.
What ensued was an EXPLOSION of home buying that quickly pulled the stock market to new highs and the economy ran with it. But for some reason, no one was looking at the INSANE speculation, flipping and building that was taking place? Prices for homes, even those not yet constructed rose at the speed of light, it seemed like everyone was getting in on the action. THEN...POP went that weasel.
Instead of a reasonably mild recovery from the tech bubble bursting, we now had a FINANCIAL/BANKING SECTOR FIASCO, that threatened our economic system to the core. WHO among our leaders other than Ron Paul, asked what role the Federal Reserves 1% interest rate policy and those in charge of protecting us from the abject wild speculation that followed?
Our Gov't INSISTED banks make loans to those less fortunate, minorities and the like, that home loans be made to them.What followed were piggyback loans and liar loans, no doc loans.....anyone with a face could get a home loan......money was SO CHEAP.....the High School janitors formed clubs to flip condos.....prices went to the moon.
But guess what, the avg Joe, the working schmo also needed housing, families wanted to buy their dream homes, and even though some prices had DOUBLED in 3-4 short years, with rates SO LOW.....people bought in droves.
Then as ALL BUBBLE DO, the housing bubble popped. BUT this time, even after the amazing BIG BEN BERNANKE when asked if he was worried about the housing situation in 2008, replied " ME WORRY? HOUSING HAS NEVER FELL IN VALUE YR/YR"
Guess what, Housing fell YR/YR, and those innocents along with the speculators were trapped. PRICES FELL and have fallen by more than 40% in some areas, recovering lately only slightly. Now 25% of those who won homes find themselves underwater, their homes worth less than what paid.
NOW, the FED has lowered FED FUNDS RATE TO 0%, and it has stayed there for 4 years!!! YES a group of a few men, one in particular have control of the world's interest rates. If 1% brought us the last CRISIS, what will 4 PLUS YEARS OF 0% BRING US?
They have targeted illegally, and have openly targeted ASSET PRICES for appreciation. Guess what it has worked, the market more than doubling off the 2009 lows in Historic, dramatic fashion. THESE ACTIONS WILL, HAVE LED to the forming of another more dangerous bubble, a BOND/ GOV'T DEBT BUBBLE and another ASSET BUBBLE, A PREFERRED STOCK BUBBLE.....
People have been FORCED INTO RISKY ASSETS because their savings, the BEDROCK on investment give them 0% returns. NO ONE can live off interest paid on savings.
This I find VERY worrisome. We have a herd mentality in the stock market, people have been left with little other choices to gain a return, any return on their hard earned after tax incomes.
In the meantime, back at the ranch, our Government seems to have access to free money paying as little as 1.6% for 10 years and can borrow into the tsratosphere with ever widening federal deficits current and future piling so high each year equal or greater than 10% of our entire GDP and accumulating current deficits nearing 100% of GDP. But don't worry, long term rates are still near 1.7%.....this could go on forever......
But now we reach the Fiscal CLiff, or so it seems, between rock and hard place. DO we have Gov't spending cuts or raising taxes or both?
To attract investors companies have raised their dividends adn many like APPLE have begun paying one, this diverts investment into Capital equipment and research and investment, which help drive earnings and hiring, all GOOD for the economy.
Companies are not hiring like they used to, there is great uncertainty in the land, worry about the Health care law, raising the cost of workers, and what the coming policy changes will do to business. We head into 2013 with a lot of unsettled things and US deficits soaring above $1 TRILLION a year.
LOTS OF US $'s have to be minted, new $'s can be created of less value (or no value) to pay off the OLD DEBTS when the same $'s had more value, as their were less of them.
YOU CANNOT keep up with this printing, devaluing. What you have been forced to do is almost anything for a return on your money, and for now that means the stock market.
No one else finds this troublesome? Markets can function and cleanse themselves, reset when mostly left alone, then when it gets fiddled with those adjustments, malinvestments become MUCH LARGER to deal with, we are in uncharted territory.
That doesn't seem to keep Ben Bernanke up at night, when this one pops, the fingers will go a pointing, but no one will be charged, no one will pay the price except the avg American who will be left with the price tag and the consequences.
What debt have you ever had, where you can just keep getting new loans to pay for the old ones? What debt do you have where you never have to pay it back?
Our Governemnt is acting as if HISTORIC LOW interest rates to fund it's debt will go on forever, what happens if the cost of funding this never ending debt goes up?
They cannot collect fromt hose who cannot pay, so whoever is left standing will be the target of their attention, and its now just begun.
The economy cannot function without 0% FED interest rates? for 4 years and counting?
Something is very wrong, any solution might get hyped, but I guarantee it will be LIP SERVICE to the real issues and problems, another kicking of the can, it will address next to nothing in the NEAR TERM, and offer MINIMUM solutions spread out over 10 years or more that do nothing to REDUCE the ACCUMULATING DEFICITS, but might take a nip at todays.
That's why I think corporate profits appear to have peaked, may be on the contraction slide of things going forward, other than 0% returns on savings, what LURE for new money will there be for the stock market?
ALL Bull Markets end, some last longer than others, in 1980 we began a 20 year bull market, some argue with a higher high, it ran until 2007, if we have a higher high now then what? But we ALSO made A LOWER LOW in 2009 vs 2003.
If we are in the latter stages of a game of MUSICAL CHAIRS, who wants to be late trying to get out the door to safety, or am I a BEAR crying wolf one too many times for anyone to listen to, or consider what I am suggesting COULD be what is in our future?
If you think you are diversified, and won't worry over a 40% or more haircut, and can hold until prices reach for a new high once again......if we all live long enough....probably true, the market in the LONG RUN seems to always go higher....also remember the ensuing BEAR MKT will take 2/3 as long to work itself out as the previous BULL MKT.....does that put us at an ultimate bottom in year 2016? *(and how does the man on street feel when not one person has been indicted for the worst financial crisis in history? the rich have gotten much more so during the last 3 years...and the rest of us, thenot so connected and well off?)
WE WILL rise again, and it will be glorious, but IMHO we have not purged our system, we have NOT corrected the wrongs, but only added to them and we are at the MERCY of the FED and maybe one man, in his wild historic gamble on monetary policy and Fed actions.