The problem is that in reality the economy is not our of recession. The temporary uptick in GDP figures was artificially created by QE, but real consumer demand was absent. Even worse than the fact that QE has had no real positive effects on the economy is that it was counterproductive and actually fueled the second wave of the financial crisis which started to unfold over the summer. The second wave of the financial crisis will be more evident next year and fully shake up financial markets next fall.
The second wave of the financial crisis will wipe out over 90% of those who were supposed to be cleaned from the global financial system during the first wave, which started in 2007 and ended in 2009, but managed to stay afloat thanks to bailouts. A lot of tax payer money was wasted in the hope that those companies will slowly rebuild and recover in order to pay back the bailouts. This is another example of how the theoretical waste does not work in the real world.
The idea that more debt, which caused the problem in the first place, will solve the crisis was ludicrous. The sole reason the U.S. economy grew to an economic powerhouse was debt, in other words foreign inflow of cash allowed the U.S. to create a super bubble within its borders while creating the illusion of strength. A decent amount of that foreign money was used to build up a strong military to further deepen the illusion. Either way you twist it, true economic strength has been absent for decades. Each bubble will burst and every illusion will be wiped out be reality. Now, after the first pop in the bubble, the U.S. is the most indebted country in history with a crushed economy, weakened military due to lower standards and lack of funding as well as an accelerated decrease in importance on a global level.
Quantitative Easing, $1.7 Trillion later and ow what?
The Septic Tank and his Plumbers will most likely reveal another round of quantitative easing, QE2, during their next meeting on November 2nd and 3rd. The amount of money is not yet known, but should be less than the $1.7 Trillion ponzi scheme known as QE.
QE2, just like its predecessor QE, will have no positive economic benefit but rather add to the problems. It is not possible to fix a long-term problem with a short-term approach. The entire QE philosophy was based on hope. Hope that the consumer will recover, hope that companies will restructure, hope that the funds will be recovered and the idea that it has to get better one day. A perfect recipe for failure.
On top of that it gave socialists an excuse to create more regulation and fire more ammunition against the leftovers of capitalism. In case you hate capitalism, the U.S. economy did not have a true capitalistic system in decades so the system that you grew to hate is a combo between capitalism and socialism, another reason why it failed so badly.
Consumer demand is absent, retail sales have been kept alive due to the last bit of debt consumers could squeeze out and thanks to heavy discounts. True unemployment is close to 22% and will creep higher. One third of the country relies on food stamps, over 50 million people don't know where there next meal will come from and the economy will deteriorate further thanks to the counter-productive policies which were the result of the financial crisis created by those who now attempt to fix it.
It is a great time to be in global financial markets
Every time is a great time to be in global financial markets, because it is 100% irrelevant if the markets go up or down. All that matters is that you are on the smart side of the equation. A very simple approach would be to slowly start initiating short positions in the S&P 500. You may want to check out Dumb Money Portfolio versus Smart Money Portfolio.
Photo Credit: The picture in the top left corner was created by Filomena Scalise and downloaded for free use at freedigitalphotos.net.
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