WooHoo! Get the Champagne!

But I wouldn't be popping that cork quite yet. While the market threw a wild party on the news that the Fed only raised the overnight rate by a quarter point, the hint that they may be able to "pause" really lit the fuse. Of course, the small fact that the Fed and every tout and con artist on Wall Street has been saying this for a year seems to have escaped notice. Hmmm.

What's really going on, and it has become grossly obvious lately is the global stock markets are running purely on artificial liquidity supplied constantly, but unevenly by the Central Banks. When there's an injection of cash, the markets rally. when the magic spigot is closed and the liquidity dries up, the markets drop. Most recently the cash injection from the Bank of Japan (BOJ), Japan's Central Bank has been calling the shots. Its no coincidence that when the BOJ announced in the middle of May that the they would begin raising rates the markets tanked. As long as the cash injections keep coming from one central bank or another this addict will keep stumbling along, but when the dope runs out, its going to be a painful withdrawal.

US no longer calling the shots
With so many creditor nations around the world catching on to the the reality that the US is hopelessly overextended, and the dollar is loosing value again, is it a surprise that they are shifting their reserves out of dollars and into gold, silver and better currencies like the euro and the Canadian dollar? Not that the euro is any great shakes, in many ways its a worse fiat currency than the dollar, but at least lately it has been stronger. Its like comparing one turd to another, they're still both turds. The Canadian dollar has been the shining star, approaching 9/10ths of a USD. For most of my life its been around 7/10ths. Canada has, and exports a lot of gas, oil, timber, and valuable metals. A commodity mother lode, and the two thirds of the world that is really growing, China and India, need a lot of commodities. In contrast, the US is an exporter of dollars, a game that is getting pretty old.

The GDP Myth
The Gross Domestic Product numbers were reported the other day and for the past 3 years have averaged 3.5%. Of course we know that the numbers are juiced up to make the economy look better for whatever idiots are in charge at the moment. Even if we fell off the turnip truck yesterday and accept the official numbers, the problem is that GDP is figured in dollars. Now we know the dollar has lost around 20% to currency inflation alone in the last three years, uh... real GDP is negative. In other words, the USA is loosing ground while the government is telling us its "strong" and "growing". Now, subtract the real CPI, Consumer price Index, which is running around 6-8% and as the startled George Kastanza on Seinfeld once blurted, Shrinkage! The US economy is shrinking at a terrifying rate while the population is growing and has now almost 300 million people.

The Economy Doesn't Have Anti-Lock Brakes
If Big Ben Bernanke sees inflation, which is impossible not to see, and the gentle quarter point tap tap tap, 17 taps even, clearly hasn't worked, like most inexperienced drivers he's likely to stomp the pedal to the floor and throw us off the cliff, or into the mountainside. And soon Hank Paulson also will be jigging the markets. Will it matter? As my friend Chris says, "You can't polish a turd". The Fed will continue to raise rates to stay ahead of the other central banks. Somebody is going to be sacrificed. The dollar and the massive forign debt holders or US adjustable rate mortgagees, the old and the poor, Just like always.