Bubbles and Stimulants

Let’s see if we get this right:

·         The United States government has run its largest deficits ever for the last five years which, of course, followed upon the largest deficits ever in the preceding five years

·         The Federal reserve, in the earlier period describe above followed a program of ignoring the fundamentals of market distortion in lending standards which contributed to a massive build up of inflated home mortgage lending including, in many cases, loans which had no real underwriting qualifications

·         In addition, the Federal reserve, complemented its disregard for underwriting standards by lowering interest rates even though unemployment was very low – home prices were skyrocketing and mortgage debt had reached record levels

·         The combination of this excessive and ongoing stimulus – artificial injections by a clueless government (redundant statement)  – resulted in a large group of financial institutions and banks doing one of two things – staying way too late at the party resulting in the destruction of their financial condition, or, bet against the obvious bubble in the mortgage backed security markets resulting in substantial windfall profits

The consequences of the situation described above:

·         Party out of power gets power because most everyone is spooked that the sky is falling – everyone is sick of the party in power – the party in power runs an old hack politician for the top job, and the new party’s kid, hires a darn near brilliant propagandist who goes about blaming everything on either the banks or the party in power and the party about to be thrown out has no answer to said allegations

·         New party comes in and gooses up everything (they call it crisis management) – massive deficits – massive spending – massive build up of government employment – and, continuing the policies of the previous administration – no oversight/regulation/discipline of anything

·         In the meantime the Federal reserve, under the puerile guidance of a replacement economist schooled at the same places that produced this mess, goes nuts – runs the printing presses 24/7 and distributes US currency to finance the already burgeoning bubbles in everything government – at federal, state and city levels and the completely out of control excessive costs in health care and education

·         Their justification this time – if we don’t do this everything will collapse

·         So now we wait anyway, for everything to collapse

Moral of this story – given the above, why are we picking on a few baseball players who use artificial stimulants to bulk up and add a few percentage points to their performance statistics?  Such behavior is the law, the practice, the expectation of all the many governments in the country – it is legal – it is deemed “good policy” – it is ballyhooed by the party in power as the best thing that ever happened.

We, at TheFundamentals, do not understand bubble politics.  We sure don’t understand bubble governance.