Helicopters are nice but they cause more problems than they solve
Well, dear reader, you know the story as well as we do:?“U.S. Stocks Rise as Fed Announces Additional Treasury Purchases,” says Bloomberg.
Maybe stocks will go up. Maybe they’ll go down.?We don’t know, and we don’t care. Stocks aren’t cheap, and the country is still at the beginning of a major adjustment, a great correction that will probably depress business profits for many years.
Every investment asset class goes from the trash heap to the penthouse and then back. By our calculations, U.S. ?stocks are on the downside of that slope. We’ll wait ’til they reach the dump, that is, when they’re at giveaway cheap prices, before we get excited about them again. We want to pick them out of the trash at pennies on the dollar.
Of course, we could wait a long time. From trough to peak typically takes 16 to 20 years. If you take the peak as of January 2000, when the NASDAQ hit its high, we have another six or so years to wait. If the peak was the peak in the Dow of 2008, heck, we could wait until 2028 until we finally hit bottom.
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Don’t forget. Japan waited 20 years between its glory days of 1989 and its low of 2009. We could do the same. But so what? We can wait, but let’s talk about happier things. This year the voters – God bless ’em – threw out more bums than usual. The Republicans gained 60 house seats.
That means Congress is gridlocked. Obama doesn’t seem to understand what is happening, and Ben Bernanke is cranking up the presses.
The Fed announced a $600 billion purchase program, from here until June. Even in dollars, that’s a lot of money to throw into a market. The stated purpose is to lower interest rates even further, trying to coax business into hiring and consumers into spending.
Will it work? Will it create real prosperity? Growth? Wealth? ?In theory, it makes no sense. Real jobs require real investment by real investors, entrepreneurs and businesspeople. It takes time. Skill. Luck. Giving the banks more money (which is what happens with QE) merely destabilizes serious producers. They don’t know what to expect. Cheap money forever? Will inflation increase? What should interest rates be? They don’t know. So, they wait and watch and the slump gets worse. Besides, the economy is correcting for a reason. Any interference is bound to be a mistake.
The lessons from experience are even more damning. There is no instance in all of history when printing press money actually turned around a correction. And if you really could make people better off by printing money, Zimbabweans would be the world’s richest and most prosperous citizens. Followed by the Argentines; they’ve got 25% inflation right now.
Nope; it isn’t going to work. Even if it seems to be working, it will actually be making people worse off.
Why Printing Money Won’t Correct the Correction by Bill Bonner originally appeared in the Daily Reckoning.
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