The Keynesians at team Obama are good Socialists to believe that any cuts in govmint outlays would damage growth. The logic here is simple: growth in govmint = GROWTH. Philosophically, this isn’t difficult to understand, for the Keynesians come from a world view of total centralization. We’ve seen this movie before throughout Russia, China, India, South East Asia and Eastern Europe. The Socialist cure to smother any form of independent autonomy is enforced centralization, socially, psychologically, fiscally etc. . .
But don’t worry about either history or empirical reality, for what matters is how the Keynesians “feel” about themselves!
Ignore the $160 Billion stimulus in 2008 to prevent recession. Ignore the $830 Billion dollar stimulus in 2009 to cut the jobless rate, (now at 7.9). Ignore the housing bust that the Fed said would never happen; or the monetizing of federal debt which Bernanke said isn’t being done; how about forgetting about record high inflation, or the contemporary currency wars that are being waged between nations that are historically benign toward one another. . . What matters is what they say not what actually happens.
Look, for the Federal Reserve to continue going on this path it must either, borrow, tax and/or print the money it needs. It ultimately does this by destroying the currency and devaluating assets. Their simply isn’t another way!
The only other way is for American liberals to commit intellectual suicide by admitting the intrinsic value that is the Reagan Revolution. That means they would have to admit that Hayek and friends were right!
Taxing or borrowing money out of the private sphere to finance unsustainable social entitlements is the path we’re on!
How does this help us understand a rising Dow Jones?
Well, you cannot understand the value of GDP absent inflation, right? You calculate the rate of inflation when you discern the value of GDP. So, a devastated currency, tanked net income, falling asset classes all must be imported into the value of a rising DOW JONES.
To discern the value of an ever rising DOW, keep in the mind the following: With bonds nearly destroyed, everyone must chase value in equities or assets (just look at assets booms in China, Brazil etc. . .); the DOW would need to rise 8% more to reach previous highs; remember, daily market volume is down and the average stock price-earnings ratio is about 14 or 20% cheaper than 2007.
Market/Fiscal fundamentals matter!
A rising DOW cannot be separated from quantitative easing. This is the Fed’s risky strategy of creating another ‘spending bubble’ fueling govmint revenue. The Fed’s goal is to artificially raise asset prices to create a ‘wealth effect’ to boost confidence leading to more consumption.
Here’s the bad news: this will end badly. The confidence fairy runs loose while citizens are prevented from acquiring either capital or equity formation.