What the tax package proves conclusively is that the President, the House and the Senate have absolutely no intention of getting their fiscal house in order. We will address the lurid details later. There is no change in the policies of borrowing continuously in order to sustain current consumption and to keep the economy from collapsing. As far as we are concerned the hold up in the package was to load it up with pork and stimulus. Some call it bells and whistles – we call it irresponsible. The Fed and all the players are buying time and 70% of the public knows that and they are going along with it. Very few want to face the music.
The Fed, via the “President’s Working Group on Financial markets” is targeting asset prices, if possible, and the equities market. This is really the only bastion of wealth that the public recognizes. Wait until government and Wall Street go after their retirement plans, then they will get a wake-up call. Mr. Bernanke believes a strong stock market will spur spending, leading to higher income and profits. They had best have some heavy propaganda ready because 4th quarter GDP will probably come in around 2%. Inventories are building production is again stagnant, railroad traffic is off over 1% and the Baltic Index is down. Consumer credit has expanded more than $3 billion the first two-month rise in more than two years, although that number was aided by one off student loans, which accounted for all of October’s gains. In reality consumer credit fell more than $32 billion, the lowest level since late 2004. If you cut away the student loans consumer credit fell about $75 billion over the past three months.
What may seem odd to you is that a federal judge’s rejection of mandatory insurance, a keystone provision of the Obama Health Care Reform Package, is bullish for the stock market. The bill is enormously unpopular and the gutting of this part of the bill neuters it. It is on to the Supreme Court, where unfortunately it will be upheld, by our bought and paid for socialist activist judges. It reminds us in many ways of the Warren Court. The judges may take the case for decision by next June.
Irrespective, temporary fiscal stimulus has been just that, temporary. We ask, why would the result be any different this time? All the exercise, a very expensive exercise of $2.5 trillion annually, is doing is buying time. The result will be more inflation and unemployment and the beginning of demonstrations and violence as we have seen all over Europe for the past few years. Incidentally, both are worsening and next year will reach a level not seen since 1968 in Paris. Riots are on the way in America, just be patient, they will come in good time. This is the result of austerity from the bottom up and the rich getting richer. Washington and NYC had best re-read French history starting in 1788.
