By Greg Hunter’s USAWatchdog.com
There is an old saying in the markets, “nothing goes straight up or straight down.” If the economy has a lot more to fall, as I think it does, then it will not fall straight down. I think we are on a proverbial plateau in this downturn. Yesterday, Treasury Secretary Tim Geithner said, “The financial sector story is in a much stronger position than it was but it’s a mixed picture,” and “The price of credit has come down dramatically.” The economic picture has improved because of massive amounts of money printing for things such as “Cash for Clunkers” and the “$8,000 home buyers tax credit.” There has also been hundreds of billions spent buying toxic assets and our own treasuries to suppress interest rates. Yes, pump hundreds of billions of dollars into the credit markets and economy and things will look better…for awhile. John Williams of shadowstats.com says in his latest alert, “Fed Pushes Monetary Base to Record High.” That certainly makes sense because of what the Fed has been doing. Williams is not alone in tracking high money growth by the Fed. Terry Coxon of The Casey Report said, “As of July, the M1 money supply (currency held by the public plus checking deposits) had grown 17.5% in a year’s time. That’s not just unusually rapid, it’s extraordinarily rapid.”
Yes, the economy is appearing to look better. However, even with all the money creation, it is not great. Secretary Geithner said as much with his “mixed picture” comment. Economist John Williams concurs and takes it one step further by saying, “Recession Not Over Despite a Positive GDP Quarter.” Williams thinks the government will continue to print money at or near record amounts and thinks the downturn has farther to go. Williams is expecting the economy will not look very good in the 4th quarter. I think that means brace yourselves for another leg down.
New York University Professor Nouriel Roubini is once again sending up warning flares about a different problem, the Fed’s zero interest rate policy. We’re talking free money, folks. You might remember that he was one of the few that predicted the current financial crisis. For that, he earned the nickname “Doctor Doom.” Now you can call him “Doctor Right on the Money.” Roubini sees the economy a little different than Williams. In some ways, Roubini sees things more positive and in some ways not so much, as told in the excerpt below.
Reuters reports: … ”Investors worldwide are borrowing dollars to buy assets including equities and commodities, fueling “huge” bubbles that may spark another financial crisis….”Roubini said he sees a bubble in emerging-market equities and that gains in some developing-nation currencies are becoming “excessive.” The rally in oil “is not justified by the fundamentals,” he said. An asset “bust” may not occur for another year or two as a “wall of liquidity” pushes prices higher … In a carry trade, investors borrow in countries with low interest rates to invest in higher-yielding assets. Roubini said the U.S. recession seems to be over, though the economic recovery in advanced nations will be “anemic.”… (The complete Reuters story)
Money printing will make things look better, but will it last? What will happen if the Fed stops printing? What will happen if the Fed keeps on printing? Don’t be fooled by the crooked path the economy is taking. Stay defensive. One thing is for sure, when Professor Roubini gets nervous, you should too.