The Masque of Green Death  

Will the Economy Follow the Stock Market Up-or Vice Versa?

October 20, 2009

by Jack Curtis

The financial pandemic smolders untreated beneath a hastily plugged-in life support of increased overspending that is only masking and prolonging the disease; the final collapse is getting closer. The housing collapse wrung the illusory wealth out of homes and banks as the buildings and their mortgages returned to the real world together. Suddenly bereft of wealth, homeowners cut spending; banks froze. Without buyers, business contracted, hemorrhaging ex-employees who spend even less.

Instead of letting the sick banks clean out the worthless loans and securities that infect them, thereafter dying or returning to health as might be, the government has transfused them with oceans of money that, since it is also broke, it had to borrow or just make up from the air. The government money pump has returned a nice healthy flush to the cheeks of the stock market but it has not touched the economy’s terminal disease that rots it from within. When the pump stops; so will the economy, sicker than before.

The pump will stop soon. The country’s debt exceeds anything ever imagined by a non-astronomer and we have just heard that we are adding $1.42 trillion to it this year with plans to continue adding with borrowed money. Nobody is going back to work.

ObamaCare is written to physically start in the real world after the next round of elections for a very good reason. Our politicians don’t want to run for reelection after you have seen it in action. They didn’t exclude themselves from it by accident. And as the country and the taxpayers are financially paralyzed by too much debt already, the additions of ObamaCare’s 46 million new beneficiaries and the crushing economic surtax that is cap-and-trade will further reduce the already shrunken spending ability of the citizens carrying the increasing load. Today, there are well over 750 ocean freighters stored empty outside of Singapore; there are others elsewhere. Many of the lost jobs will never return to this high-cost economy. The government is pumping money; the economy is not, wealth is not being created and what exists is still poisoned by the unresolved bad debt and investments that have been green-papered over instead of cauterized.

If the debt trillions can’t be paid, what’s left? Default like Argentina and blow up international trade and everybody who depends on government paying its debts. Inflate and repay the debt with a flood of worthless dollars, hoping not to overinflate and destroy the dollar utterly (Tricky). Roosevelt devalued the dollar in 1933, inflating by fiat. Some see the various central banks in the world getting together to do that informally. Or just plug along, hoping it will all fall on a successor’s head (Risky!).

The Administration, augmented by its enablers at the Fed, is emulating Prince Prospero in Poe’s story; he decreed revels with life as usual for those safely locked inside the palace while the plague of the Red Death ran loose outside, killing the people. As midnight struck, the Prince’s masked ball was visited by a ghastly figure; the Prince and his nobles could not defeat reality. Neither can the Obama Administration (which is continuing the 1930’s replay started by the Bush Administration); we are dancing at our own revels with those losing their homes and the unemployed running out their unemployment checks outside, presided over by a prince equally unable to avert reality for long.

The stock market is the only thing going up. It can’t be held up without a real economic recovery; none is in sight. It will come down; the rest will come with it. It’s just waiting for a cue; it won’t be too long.