So, the stock market rose 1300 points on Monday, 3/2/2020. I guess that means the economy has been saved from collapse. Capitalism saved itself plus all of us and all is right with the world.
Right. Not what happened.
What happened on Monday was that the Federal Reserve announced that they will be increasing the amount of fiat currency created from thin air to bail out failing banks. Then very soon they are lowering the core interest rate so that same newly created fantasy money can be loaned out to large businesses at much lower interest rates.
So, the Fed is expected to decrease the core interest rate by 0.5% in March. With the current core rate being 1.5–1.75%, that effectively means an interest rate of 1%. With another possible decrease later in the year.
The sole reason the Fed is taking these steps is to save the stock market. Not the economy, the stock market.
However, the conditions which led to the stock market decline last week still exist. Other markets in other countries around the world today have not recovered at all. The Corona virus quarantine in China is still ongoing with a related disruption in the supply chain. Deutsche Bank is still on the verge of collapse. Corporations are still laying people off in numerous countries and across different industries with more soon to follow.
Camouflage. What this means for the steps taken by the Fed comes down to camouflage. They have applied a band-aid, a mask, a veil, a curtain to hide the fact that, in truth, the economic decline is still happening. Basically, the operation was a success but the patient still died on the operating table.
Codependency. Stock market speculators and investors are addicts, no different from crack addicts. They are addicted to profits. They do not care what damage they do or who suffers for their profits, they just have to have their “fix”. The effects of the steps taken by the Fed equate to handing money to an unemployed, debt-ridden crack addict, then offering them a low interest loan. The addict remains addicted, unemployed and in debt. Receiving the money will make them happy for a short time but then they will blow that money on drugs, run up more debt and be back, asking for another handout, another loan and an extension of the first loan.
Devaluation. Each new dollar the Fed creates from thin air serves to further devalue the existing US currency in circulation. To make things worse, the existing currency is also fiat currency which has no value aside from what we claim it has and how much it trades against other currencies. As other countries suffer economic turmoil and debt, they trade in US dollars less and less. The closer we get to trade in dollars being zero, the closer we get to the value of the dollar being zero.
Trade deficit. The US has a trade deficit with nearly every country we trade with. Which truly makes one question how the dollar has any value at all. Though the higher the trade deficit becomes, the nearer we also come to hyperinflation. Our government further enforces this by imposing sanctions which limit the countries we trade with and goods we trade for. Tariffs act as a tax on US consumers, increasing the cost of goods we purchase, adding to inflation.
I won’t go into the effects of inflation itself. That’s fairly obvious.
The so-called “partial recovery” of the stock market on Monday will be short lived. Remember that when the Fed reduced the interest rate once in 2019, the market actually rose before the reduction and the same day as the reduction, the market declined. The reduction was not ENOUGH of a reduction to satisfy the addiction craving of the speculators. It remained that way until the Repo bailout began shortly after. It seems highly unlikely the Fed has any more tricks up their sleeves, so the Repo bailout and interest rate reduction is the final stunt before negative interest rates. Negative interest rates would devalue the dollar even more, causing the Fed to place currency creation on turbo steroids. Great for the stock market, devastating to the economy.
I expect this “recovery” to flatten in days, followed by further decline. If that doesn’t happen, the alternative is even worse. That the actual crash of the market is further delayed and when it happens is far more catastrophic than if it happens now.