The cover of Business Week for April 19, 2010 has two stories, "Obamanomics is Working Better Than You Think" and "The Case for More Stimulus".
Even the Wall Street Journal has an article today titled "Evidence Mounts for Strong Recovery". The stock market has been on a year long rally
with the DOW now surging above 11,000. So is this really the start of the next boom?
A common piece of information in all of these stories is that consumer spending is being fueled by an increase in defaults on mortgages and
other debt. People are choosing not to pay their mortgages or are having their principal reduced by the government. The money they were paying
on their mortgage they're now spending at Target.
There really is no other explanation. The amount of people working continues to drop and the average income of working people also is dropping.
How can people without jobs or people with jobs that keep paying less afford to increase their spending? All you have to do is be a deadbeat and
stop paying for the home you live in.
Wall Street is surging because the government has pumped enormous amounts of money into financial firms. If you decide to give up your house
because you owe twice what its worth the government is buying that debt from the bank for the full amount of the loan. The banks are in the
ultimate win-win situation. Think about this. The bank takes in $25,000 in deposits from customers. They are allowed to loan $250,000 based on
the $25,000 with funds from the federal reserve. The fed charges the banks next to nothing in interest and they turn around and charge 5-6%
or more on the loan. When the loan goes bad the bank simply hands the loan back to the fed. They keep whatever profit they made on the spread
in interest and have no risk when the loan defaults. Is it any wonder that banks are now showing record profits and their stock prices are soaring.
All this comes at a steep price though. The fed has to get the money from somewhere and to date they have accumulated $1.25 trillion of
these bad loans that we the tax payer are on the hook for. Very soon this program is coming to an end and along with it and end to the massive
profits of the banks. Without the fed to buy the bank's crap they will not be so willing to let people walk away from their underwater homes.
Once the government pulls the plug the "Deadbeat Bubble" is going to pop like the housing bubble and dot com bubble. You can't build an
economic recovery based on deadbeat spending.
April 16 - Oh no you didn't.
April 15 - The Party of Silence.
April 14 - You've got to be kidding me.
April 13 - Where do we go from here
April 12 - Youth of the Nation
April 9 - Turning the Tables
April 8 - New Age of Discrimination
April 7 - Thank You Kind Stranger
April 6 - The Cost of Compassion
April 5 - Happy Days are Here Again
April 2 - Of Course We Can Do a Better Job
April 1 - The New Normal
March 31 - Take a Deep Breath
March 30 - Metaphors and Blinking Lights