The market went up nearly 500 points! Why didn’t we pump money into the international markets years ago if this is all it takes to stimulate the stock market and calm the fears of investors? Question: Where did the money come from? Did it drop out of the sky? Did someone find this “extra liquidity” buried in their backyard? Was a long-ago lost gold shipment found buried under the silt and sand of the Mediterranean Sea?
This liquidity infusion is funny money. It doesn’t exist except on paper. Yes, the markets jumped. Like any Ponzi scheme, those who get in early make the money. In time, however, the old debt ghosts will come haunting looking for a new infusion of capital to prop up the debt markets.
In a statement on Wednesday, the Federal Reserve tried to dispel fears that there might be concerns about short-term liquidity for U.S. banks:
U.S. financial institutions currently do not face difficulty obtaining liquidity in short-term funding markets. However, were conditions to deteriorate, the Federal Reserve has a range of tools available to provide an effective liquidity backstop for such institutions and is prepared to use these tools as needed to support financial stability and to promote the extension of credit to U.S. households and businesses.
And what are the “range of tools” that the FED has in its tool box? Printing more money or typing in more digits to save the day. Gary North writes: “Long-term thinking is not characteristic of politicians. Their time perspective is limited by the date of the next election.” He calls this “Kicking the Can While Riding a Tiger.” The looming budget deficits, in America and in Europe, have not been fixed even though the market soared.
Everybody wants to go to heaven: stable money, rising employment, and economic growth. But nobody wants to walk through the valley of the shadow of death: Great Depression 2.
So, Congress refuses to face squarely the projected costs of these promises. Economists tell us that there is still time to fund these programs, if we begin now. They have told us this every year since the early 1970s. All that needs to be done is for Congress to fund these future expenditures. But Congress does nothing. On the contrary, it increases the amount of unfunded liabilities. These are now in the range of $80 trillion.
Now the European contagion is about to spread.