Thursday, April 02, 2009

Can the Fed Finance a Recovery?

... and if so, what is a recovery?

There's no question the market is moving higher. We're off the lows of SP500 around 690 and are still going up. I don't see what it's based on. All of the growth is coming from the Fed printing money to cover government pledges and spending. Is that a recovery? At some point in time, don't you actually have to build or do something to earn money and grow? Here is what I'm seeing:

Brad Setser has come out and said that foregin central banks will not be able to finance much of our 2009 debt. That's in the face of the biggest deficit of all time and that's before the new bank bailout plan begins. All of that debt will have to be financed domestically. That's got to end up with the Fed printing money to cover it.

Speaking of which, Jon Markman is highly dubious of the bank bailout plan as are others. It looks like a gigantic transfer of wealth from taxpayers (read: much higher deficits) to bondholders and banks.

The Obama Administration and the Democrats in congress are planning to transfer wealth from profitable companies like Exxon into known losers like solar and wind. Dittos for the health care plan which is just an open-ended stream of money flowing out of ... the Fed? Nowhere is there any sign that the profitable and productive will be taken care of. Growth comes from these people, not the parasites that ride on them.

So just where is this recovery going to come from? The only player who can "grow" is the Fed. Is that really a recovery?

As of right now, I am clearly wrong in my thinking. The markets are telling us that a recovery is on the way (at least for now). I just don't see the mechanism for it.

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