Tuesday, August 3, 2010

Speculation 101

We all heard Alan Greenspan's continued drivel on Meet the Press on Sunday morning. Thank god I was hung over from partying the night before. 


But one particular statement that the maestro made is very interesting and is the root of what has been Fed/Economic/Banking dogma for the past 30 years.

Greenspan stating on Meet The Press.....

"If the stock market continues higher it will do more to stimulate the economy than any other measure we have discussed here."

This statement has to be read by everyone who has a single dollar invested in any market anywhere in the world today. Anyone who wants to understand the general warped philosophy of Crony/Ponzy Capitalism need only understand this one bizarre statement. This one statement alerts us to why and how badly screwed our economy is.

Lets see the quote one more time:

"If the stock market continues higher it will do more to stimulate the economy than any other measure we have discussed here."

Step back and absorb....The above statement is simply amazing. This 22 word quote lets us all know what we have known for years: That both the Maestro and Helicopter Ben believe that the lifeblood of our economy is financial speculation in the stock market.

The financial sector which is 100% backed by the government makes up some 30% of all corporate profits. In fact 75% of the growth in earnings for the S&P 500 come from the financial sector. This is not by accident. This is a calculated effort to sow speculation in the stock market. The Fed was able to achieve this with a continued easing policy in the wake of every financial crisis. They left interest rates at ludicrously low levels so that banks can play the yield curve. This killed savers as they then needed to reach for higher yield which in turn leads to more speculation.Money Market Fund managers who are supposed to be risk averse bought into Commercial Paper that was backed by crappy toxic assets. All in effort for yield differential and enhancement. The Fed also was complicit in gutting any type of regulation all thru out the 90's. In fact brazenly flaunted the "benefits" of derivatives as a risk hedging instrument. After everything blew up they subsequently threw more trillions to the financial sector because that is what Wall Street wanted. From what we have seen and in my prior post about debt monetization, the Fed doesn't give a rats ass about the ordinary citizens that make up our country, they only act as a piggy bank/proxy for Wall Street.

Financial speculation punishes ordinary citizens while rewarding the Wall Street elite. Why is this? Because if a trader speculates and makes money they get to keep the profits, if they screw it up the tax payer has to eat the loss.

This is the financial economy in a nutshell.


It is exasperatingly disconnected from the real economy. The Fed knew that the fundamentals of the US Economy and the USD were dog meat, this is why in the face of massive job outsourcing, the loss of manufacturing output, and lower incomes the Fed along with the financial sector created a credit bubble with extremely loose monetary policy. It was a ploy, a rouse to make Americans feel like they were rich because of cheap credit. This was the great equalizer in their minds. While the gap between rich and poor exponentially expanded, the middle class felt like they were doing better than they were. This wasn't the great moderation but the great illusion.

Why do think the Fed ignored  the tech, telecom, Internet, and credit bubbles? Why do think they continue to think they can address the structural problems inherent in the economy by just inflating old bubbles? This is all they know.  They don't know anything about bubbles and mania's because in their world they don't exist. They only know leverage and debt.

The Fed wants Goldman Sachs, Morgan Stanley, and JP Morgan to speculate because that is all that Wall Street knows. They also know that the stupid tax payer will be there to pick up the pieces when speculation goes wrong.

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