By Charles Biderman
My lovely wife, Virginia, says I almost always end these videos with a forecast of gloom and doom. As usual, she is right. However, in my reality, I am very optimistic for both the short and the longer term. It is only about the medium term that I am concerned, very concerned. And while it could get quite bad, my guess is that the bad times won’t last more then a very few years.
To summarize, I am optimistic over the short term primarily because the financial markets are allowing themselves to be conned into believing that the $85 billion of fake money being created each month by the US Federal Reserve is real. That’s a daily infusion of some $4 billion of fake money being used to buy existing financial assets. Another reason for my short-term optimism is that a record amount of buybacks have been announced over the past few months. Therefore, what you get over the short term, is more money chasing a relatively smaller amount of shares. That means the overall stock market should keep going up, for now.
However, at some point soon – maybe within a few months – the financial markets will wake up to the reality that governments cannot create economic prosperity by using fake money to pay their bills as well as prop up stock and bond prices.
Until people wake up, the majority of Americans will continue to believe that government can effectively provide services, despite the fact that governments have never effectively provided services over the longer in the past, the key word being effectively.
Some NY Times type columnists all seem to believe the real question facing us is how to fund government so it can provide the services the columnists seem to think we need. Instead, the real conversation should be since government cannot effectively provide services, how can we as a society create the services we all need?
Let me repeat what I said, maybe in a different way. The real problem we are facing is that despite all of the central bank money printing, the underlying US, European, Japanese and even Chinese economies are not growing and will not grow fast any time soon.
So if money printing is only keeping stock prices higher and is not helping the underlying economies, then at some point the markets will no longer believe that the fake money being printed daily is the same as already existing money. That means that at some point not only will the economy be on its butt, but so will the stock and bond markets.
At that point the government will be forced to admit not only that it cannot create economic growth, but that it will have to in essence declare bankruptcy. The conversation then will change from how to fund government services, to how can our economy create the services we need without government.
There is only one solution that I can visualize. And that is that a government financial collapse will end representative government. Only after that, can we begin real conversations about how to create a new form of self, not representative based, government.
As I have said in previous videos, it is easy to forget that the constitutional convention of 1787 for the first time created a government by the people, for the people and of the people. Before then, either heredity or physical force determined who ruled. And, back in 1787, representative government was the only form logistically possible in the world before steam engines, telegraph and even a managed mail service. It took George Washington four weeks by horseback to go from Mt. Vernon to NYC to be sworn in as the first president.
But 200 some odd years later, representative government has been taken over by the special interest groups who control the representatives by providing them the campaign contributions needed to get elected and then reelected. Who are the special interest groups? Easy answer, just look who is being funded by the government. Therefore, since the special interests own our government in reality there can be no change over the near term in government services.
What all this means is that it will take the equivalent of government bankruptcy to bust the special interests. Only after can we begin conversations and discussions as to how we can effectively govern ourselves using all the technology available now and in the future.
The world I envision in the longer term is one where every email address on this planet is the equal to every other email address. The rule of law will apply globally, meaning one’s life and well being will not be in danger simply by being in the wrong place at the wrong time anywhere. Instead of government destroying value by confiscating assets and then try to provide services, government will reduced to acting as judge and referee in maintaining a level playing field.
The end result will be an unprecedented global prosperity.
Tags: Economics Economy federal reserve government Investing Stock Market Trading Wall Street