QE2: Don’t get on board without a Lifejacket!

For some reason I caught a MSM (it may have been CBC) news broadcast the other day.  I was pretty amazed when the business news soundbite claimed that the markets were all up.  They explained how in spite of mixed economic news, the stock market was up in September by nearly 10%.  The reporter did caution that “some of that may be inflation.”

below is the S&P 500 for the last month

What’s the real story? In fact, the data shows that the value of the dollar is declining.  Since stocks are valued in dollars, a declining value of the dollar means higher prices for stocks.  As  evidence of decline in the dollar, here is the dollar devaluing 10% relative to the Euro last month. Relative to gold, the dollar is losing value by a similar amount.

Next look at commodities versus the S&P 500

Relative to commodities, the stock market has made no gain in value!  As you can see, stocks appear to be rising only when you don’t compare them to the value of the currency you value them in!

So what does all this mean?  The market is not increasing in value.  The dollar is weakening.

“But Dave,” you say, “if stocks cost more isn’t it the same thing as saying they are more valuable?”

I would argue there is a huge difference in reporting it one way and not the other.  If the market gains value, it is because of the sum of investor’s voluntary actions in the marketplace.  If the dollar is declining, it is because of the actions of the state since they are the only ones who can legally print the extra money that devalues the currency. By reporting that the stock market is doing well, the reporter is acting as an accomplice to the state stealing citizen’s money through currency devaluation.

In the US this month, we will witness a second quantitative easing  or QE2.  What is this gentle sounding policy?  This is where the Federal Reserve will purchase more toxic debt.  How will they purchase this debt? After all the Fed will not promise to babysit the debt holder’s kids!  They will simply create digital money out of thin air  pumping another half a trillion dollars into the market.  They will lower historically low interest rates even more.  The Fed seems to imagine that this will lead to more borrowing and spending thereby lifting the economy.  This Keynesian fallacy has shown itself to be wrong over and over. As Einstein said “insanity is doing the same things over and over expecting different results.”

When it was suggested to New York Fed chairman William Dudley that this policy wouldn’t work because low interest rates haven’t persuaded anyone to buy during the recession, his rebuttal was simply “that is too dark a view.”  How frustrating it must be to watch the Fed destroy your currency in the pursuit of a policy of demonstrated failure. When presented with this failure, the Fed simply says that evidence is just a dim view!  In pursuit of this policy, the currency will be further devalued and people will continue to not see it happening because their news sources are too blind, too incompetent, and too ignorant to report to those without the technical expertise to follow.

Here’s the only QE2 you should ever get on board…

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3 Responses to QE2: Don’t get on board without a Lifejacket!

  1. rainswept says:

    That’s a nice tidy demonstration!

    Over on Gnoschitt a concern over the 3.5 gigabuck cost of the National Ignition Facility has been aired. Perhaps if Selbonaut thought of it as <1% of the interest payments alone on the US national debt he might sleep better.

  2. daviditron says:

    An interesting link. Yes by comparison 3.5 billion is cheap. This month the US will spend $22,831,444,696.60 (22 billion for those with tires eyes) in interest on its debt. So the entire multi-year fusion program is equivalent expense to 6 days of interest!

  3. kevin aschim says:

    I wonder if countries that experienced hyperinflation showed similar early correlations of depreciating currency opposite material assets. Once this information passes from analyst to man-on-the-street, this information has real power to destabilize. How long will it take for this information to transmit? That is the question…..

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