Independent News and Politics

There’s no rally in the stock market to commemorate the victory of Scott Brown in Massachusetts.  Between Obama’s newly found tough rhetoric against “too big to fail” banks and questions about whether or not Bernanke can muster enough votes to be confirmed, investors are feeling a bit shaky about the future value of American equities.

In three days, almost 600 points have vanished from the Dow – nearly a 5% drop.  Of course, a lot of this is just the natural result of continued deleveraging despite federal attempts to inflate housing and stock markets with access to cheap and freshly minted money.

As the Congress reveals itself to be increasingly paralyzed and more states fall into budget crises of their own, expect stock markets to stumble once again.

Several things can effect the value of a currency, and things leading to a fall in worth typically include:  low interest rates, large government deficits, heavy consumer borrowing, and a sense that money is being spent on less than productive investments.

Depending on your perspective, this may be a good thing or a bad thing.

A falling dollar claims to make debt easier to pay back – but the experience of Japan through its series of bubbles and stagnation undermines that theory.

The practical fact is that stock prices and oil end up moving upward together.  Despite the fact that business gets more expensive in many ways, people looking for something to spend dollars on will inevitably buy equities and commodities until the cost of the commodities seizes up the economy and triggers another deflationary spiral (remember what happened when oil hit $150 a barrel?)

Unfortunately, the goal of the Federal Reserve seems to be an attempt at bringing us back to that precipice and hitting the brakes this time.  Why we need to go back to the edge of the cliff at full speed before hitting the breaks – well, I’m not so sure.

• -200 Thursday,
• -100 at Friday’s open,
• Employment is down by a quarter million,
• Dollar is down…

Are you enjoying your economic recovery yet?

I hope so, because another crash in housing is about to get started all over again:

Or are they planning another oh-so-successful bailout for every one of those coming spikes?