Market plummets, but has anything really changed?
by Rick Ackerman
Originally posted June 2, 2011
WE SEARCHED IN VAIN FOR NEWS YESTERDAY that might have explained the nearly 300-point drop in the Dow Industrials. Granted, there were reports of dramatic weakness in home prices and a downward revision in Goldman’s GDP forecast for Q2, to 3% from an earlier 3.5%. But that stuff is old hat, at least in a newsletter world that has always viewed the recovery story as an unpersuasive hoax. And what’s the big deal anyway about a 4.2% drop in home prices when it seems entirely likely they will fall by a further 50% before the crisis ends?
To expect a better outcome is folly when residential real estate has already fallen 35% despite a multi-trillion dollar “stimulus” by the central bank. As for the GDP figure that supposedly knocked investors for a loop, the numbers were never even remotely credible to begin with, extrapolated as they undoubtedly were from the same murky sources that the Labor Department uses to understate unemployment each month by more than half. Why worry about economic reports that nearly everyone except the editors of the Wall Street Journal and the New York Times know are completely made-up? It beats us.
Nor can we fathom why the supposed termination of QE2 later this month keeps surfacing in the mainstream media as a source of angst. Does anyone actually believe the government will not continue to monetize Treasury debt as though there will be no tomorrow? The Federal Reserve has become Treasury’s biggest “buyer” by far and will soon surpass China and Japan combined in that category. Does that sound like a good time to go cold turkey? That’s what we thought – and we’ll lay odds on it.
Meanwhile, although some have argued that QE2 has been a bust, who besides Obama, Bernanke and a few benighted big-city newspapers would take the other side? Perhaps in a world less enamored of bizarre ideas about the source of wealth and prosperity, we would expect investors to enthusiastically welcome an end to quantitative easing. Instead, economists who should know better – including a Nobelist who has asserted, apparently not in jest, that the stimulus was not large enough – continue to vest their hopes in Big Government to extricate us from this mess.
The news media have parroted and promoted such claptrap, but who even believes them any more? Here’s the Wall Street Journal yesterday, soft-pedaling the recession-or-worse — and we can’t decide whether they were displaying cluelessness, or pure Goebbels: “The U.S. economy might be on a slower path to full health as manufacturing cools, the housing market struggles and consumers keep a close eye on spending.” Talk about understatement. If these guys are indeed shilling for Obama, Bernanke et al., at least they cannot be accused of not having their hearts in it.