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Monday, April 27, 2015

The Rant - Markets, Economy Disconnect

Markets, Economy Disconnect
In George Orwell's classic novel, 1984, one of the axioms everyone had to accept was 2+2=5. It was a form of brainwashing that enabled government to control everything.

In today's version of the equation, we are to accept the fact the recession is over because the financial sector has managed to regain its footing. But, like Orwell's, the numbers don't add up. What we are left with is a marketplace, worldwide, being supported by central bankers, worldwide, without much more going for them than they support the governments in situ.

In the U.S. markets, the strong dollar is dashing any hopes for a profitable profit reporting season. As the reports and projected reports start piling up it is abundantly clear U.S. corporations are fighting a losing battle when the dollar is so strong against other fiat. Pepsi announced the greenback's relative value could trim its profits by 11% this year. McDonald's, already struggling with a cumbersome menu, reported the rising dollar will cut revenue by $700 million and enhance the restaurant's cash flow problems. Proctor and Gamble reported sales volume decreased by 2% in the first quarter, year-over-year.

What has been the result on the stock prices of these companies? Pepsi has posted a six percent rise, McDonald's climbed 4% over the last half of last week and P&G is up 3%. With profits, sales and/or revenues shrinking, how can that be?

America is leading the world as its stock markets were the first to disconnect from economic reality. But Sherman's March didn't stop at U.S. borders this time. Interested politicians around the globe made note and hastened to follow suit.

Shanghai's Composite Index rose 121% last year but the positive effects haven't been seen or felt inside the Chinese borders, much like the market rise in America hasn't left the bounds of Wall Street. China's economic surge is coming apart because of the impending credit bubble burst despite the fact the market is heading the opposite direction.

In Japan they have a superb light rail system with trains now capable of speeds more than 500KmPH but the average person has had to trim diets simply because food is so pricey. Markets in the Euro Union, Great Britain and elsewhere continue to climb even while day-to-day economic news worsens in those places as well.

This world-wide disconnect is directly attributable to the machinations of the world's central banks, encouraged by governments. The unceasing printing press runs, where fiat is created from thin air with no reliable support system, are stopping in the financial centers of the afflicted countries and never getting to populace but it looks good on paper if the government can claim "We Tried!".

This backward system continues to put pressure on the average person, forcing them to rely more and more on the crutch of government support to maintain an illusion of a living standard that is no longer supportable by fundamental economic activity in the area or indeed in the developed countries of the world.

In other words we have a nice sports utility vehicle but can't afford fuel for the engine and must use a yoke and oxen to move it from one place to another.

You can see this deterioration in basic infrastructure. Sewage systems are aging and coming apart, but governmental agencies in charge are tapped out and address only the worst cases. Major roadways are more filled-in potholes than they are smooth trails of access from place to place. The list goes on but the only major infrastructure that seems to be improving is the telecommunications sector.

The central banks do not stand alone in this economic mess, they are the front men. Governments have had a major hand. In fact many of the central banks chose the printing press solution simply because the governments desired more populace reliance on their services and handouts are a way to achieve that. This need, they feel, makes them more indispensable to the average person and therefore more secure because there is less likelihood of popular revolt. 

In many ways the feudal society that was ripped apart by the Industrial Revolution has been reinvented and reborn in the abrupt devaluation of the fiat of choice.

Society in developed countries was heading back to the feudal system with the spread of socialism post-WWII. The advent of the climatologists helped but the severe shock waves are in the currency war raging among the central banks. It threatens to devour the foundations of a free economy completely.

We thus have central bankers printing money that stays in an inflated financial sector with government blessing because the devalued fiat in the peasant's pocket forces them to be reliant solely on government for continued existence.

It is classically Orwellian in concept, it just took 30 more years than he thought to accomplish. Only governments so corrupted by power could have conceived a this uneven equation or a way to sell it to the masses as true. "Two plus two equals five" works just fine for them. Everything else in society suffers but what do they care as long as they 'feel' more secure.

In this way, 2+2+5 does work out perfectly and even makes sense.

"I have sworn on the altar of God eternal hostility to every form of tyranny over the mind of man."--Thomas Jefferson       

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