Recovery?

Stocks bounce. Bonds bounce. An economy that bounces following the Japanese experience, with a long, slow on-again/off-again period of depression to expecting some quarters of growth, followed by quarters of non-growth. It's going to be a painful adjustment to the 'new normal,' whatever that may be.

The Fed - faced with undeniable evidence of growth and prosperity - decided to make another mistake. “It will keep monetary policy loose until whenever, if necessary, in order to avoid a Japan-style slump.” But so far, a Japan-style slump is just what seems to occur, while public officials are fighting it, Japan-style.

Unemployment is headed up officially 10,2%. “The U6 figure - a more accurate picture of how many people are out of work - is up to 17%. There are 1.5 million homeless children in the US now, including 300,000 in the state of California alone. One out of 10 Americans will not bite the hand of government - for it is the hand that gives him his food stamps.”

“Foreign direct investment has dropped 30%. International trade is down 10%.”

As David Rosenberg puts it, "less enthused by the fact that a lower rate of inventory de-stocking is arithmetically underpinning GDP growth at this time." In other words, it's 'growth' that only an economist could love, and then, only an economist who was an idiot.
Rosenberg: "Put simply, a Wall Street Journal/NBC News poll just found that 58% of the public believe the economic recession still has a ways to go - and that is up from 52% in September and means that the private investor, unlike the hedge fund manager, is not interested in adding risk to the portfolio even after a 60% surge in the equity market.”

"Only 29% of those polled believe the economy has hit bottom - imagine having that psychology with nearly zero interest rates, a bloated Fed balance sheet and unprecedented fiscal deficits (poll was taken from October 23-25). Nearly two in three (64%) said the rally in the stock market (still a bear market rally - not the onset of a new bull market) has not swayed their view. There is going to be some very tough slogging ahead as far as the economy is concerned."

Economic growth is largely an illusion. It is the result of delusional policy made at the Fed.

Even the CNBC team couldn't put on a smiley-face when it announced yesterday's unemployment numbers - 10.2%, the worst since 1983.

“If you include the people who've given up looking for work, and the people who want to work full-time but must settle for part-time jobs, it's 17.5%.”

All the talk of "recovery" is just a distraction from what's shaping up to be the biggest scam in history - a "triple-swindle".

“$1.8 trillion in extra spending, which is "unfunded", liabilities now soaring past $56 trillion, a personal family share of the debt topping $438,000, and bailouts and "stimulus" that have now burned through an eye-popping $200 million per hour!”

In short, it's a government-backed shell game that cheats in three separate ways:
•    “First, this "triple-swindle" starts when bureaucrats prop up their fake "recovery" with tax-funded bailouts and huge "cash advances" from foreign lenders.
•    Second, it goes deeper — as the Fed secretly funnels billions of dollars to foreign lenders then borrows it back again just to keep the scam from collapsing.
•    And finally, the "swindle" goes public, as Washington openly BUYS BACK their own debt using hundreds of billions more that they called out of thin air.”

Governments are running breathtaking deficits, and accumulating alarming debts. “Japan has a national debt of nearly 200% of its GDP.” Where did that debt come from? It came from 20 years of trying to buy its way out of a slump with borrowed money. Of course, it didn't work. But now, “Britain and America are following the Japanese lead, while the Japanese are still at it! At the present rate, Japan's government debt will grow to 300% of GDP in 10 years. America's debt could grow to 100%, and then 200% of GDP over the next decade (depending on whose projections you believe). And Britain, will have debt equal to 200% of GDP within 3 years.” according to The Financial Times.

Just what kind of crisis do these numbers foreshadow? Likely it is a combination of confidence, followed by debt default and inflation.

Would the US actually default? Paul Samuelson gives the answer 'maybe.' He writes in The Washington Post:

"The idea that the government of a major advanced country would default on its debt - that is, tell lenders that it won't repay them all they're owed - was, until recently, a preposterous proposition. Argentina and Russia have stiffed their creditors, but surely the likes of the United States, Japan or Britain wouldn't. Well, it's still a very, very long shot, but it's no longer entirely unimaginable. Governments of rich countries are borrowing so much that it's conceivable that one day the twin assumptions underlying their burgeoning debt (that lenders will continue to lend and that governments will continue to pay) might collapse.” What happens then?

"...People have predicted such a crisis for decades. It hasn't happened yet. The currency's decline has been orderly, because the dollar retains a bedrock confidence based on America's political stability, openness, wealth and low inflation. But something could shatter that confidence - tomorrow or 10 years from tomorrow.”

"Despite huge deficits, interest rates on 10-year Treasury bonds have hovered around 3.5 percent. In time of financial crisis, investors have sought the apparent sanctuary of government bonds. But the correct conclusion to draw is not that major governments (such as Japan and the United States) can easily borrow as much as they want. It is that they can easily borrow as much as they want until confidence that they can do so evaporates - and we don't know when, how or whether that may happen."

Why wouldn't the US just "print its way out of debt?"

Because it's not that as easy as it looks, actually the feds are trying to print their way out of debt now. They've added huge amounts to the monetary base. But that money is not getting into the real economy. Instead, it's going into vaults and speculations.

"Jittery Companies Stash Cash," says The Wall Street Journal.

And banks, too, borrow, but they don't lend. They can borrow at negligible rates of interest, and buy US Treasury bonds on a leveraged basis, producing a 20% yield. That means the US dollar has replaced the yen as the go-to currency for speculators.

Net effect? “Lots of cash in what appears to the Mother of all Carry Trades.” Says The Financial Times:

"The US dollar has become the major funding currency of carry trades as the Fed has kept interest rates on hold and is expected to do so for a long time. Investors who are shorting the US dollar to buy on a highly leveraged basis higher-yielding assets and other global assets are not just borrowing at zero interest rates in dollar terms; they are borrowing at very negative interest rates - as low as negative 10 or 20 per cent annualized - as the fall in the US dollar leads to massive capital gains on short dollar positions."

However thanks to all this, very little economic progress comes from this kind of speculation. Bankruptcies rose 7% last month. And the economic recovery still is a long way off.