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June 4, 2009 There’s been a lot of talk recently about how the stock market is rallying and how economic recovery is on the way. I myself am very skeptical, although of course I would welcome it. A couple of psychological factors may be prompting all this optimistic talk. Firstly, some people may think that they can make something happen merely by taking it as a foregone conclusion that it will happen, exercising, you know, the power of positive thinking. Secondly, some other people seem to be eager to make a hero of Obama and may be trying to create the illusion that his program is working, so they can heap him with praises and name a holiday after him. To my way of thinking, however, the outlook is not terribly rosy. I hope I am wrong, and I confess that I am anything but an authority on finance and economics. There are a few things I’ve noticed that make me wonder what everyone is so pleased about. Take a look at the Dow Jones Industrials for the past six months: http://finance.yahoo.com/q/bc?s=^DJI&t=6m&l=on&z=m&q=l&c= You’ll see that the so-called rally is just the right-hand side of the big valley that took place in early March. For the last couple of months, the average has risen only little, and seems to be flattening out. If you lose $100 and then win it back, you’re still at 0. But there are several other things that don’t look very good. There have been 36 bank failures so far this year, and the FDIC expects several more by year-end. In round figures the FDIC has only 25 cents for every $100 on deposit in US banks. Bank United, FSB, failed as recently as May 27, and two smaller banks failed on June 1. If failures are more numerous than anticipated, the FDIC will run out of money. General Growth Properties, which owned or operated 200 malls, went bankrupt on April 16. And many other real estate investment trusts are expected to follow suit. The sale of commercial mortgage-backed securities, which funds commercial real estate loans, has fallen to zero, so that companies that have to renew expiring mortgages will not be able to raise the money to do so. Of course, everyone knows that Chrysler and GM have just declared bankruptcy, and that Citigroup has just been ejected from the Dow Jones 30 Industrials. These events don’t sound to me like the harbingers of imminent prosperity. These mark an economy in decline rather than a renaissance, and demote the US in the eyes if the world. AIG’s situation seems to be stagnating too. The Federal Reserve has printed trillions of new dollars, turning paper into money, without a corresponding growth of the underlying material wealth. As this new money begins to infiltrate the general economy, prices will inevitably rise, bringing inflation in their wake. Rising interest rates are inhibiting the increase of home purchases. The rates are rising in order to enable banks to sell the mortgages to Fannie Mae and Freddie Mac, whose bonds have to compete with US Treasury bills, notes and bonds, currently forced to offer high rates to attract domestic and foreign investors. Oil and gasoline prices are beginning to climb back up, which may put other automobile manufacturers in harm’s way. Gasoline costs $2.50 or more per gallon in California, whereas in 2004, you could get it for $1.85, though admittedly for a while, it was well over $3.00 there. Unemployment is hovering at around 9%. Unemployment is still increasing, but not as fast as before, if that’s any consolation. Only 500,000 people lost jobs in May, whereas 600,000 did in April. Hallelujah! Really ominous is the statement by Richard Fisher, president of the Dallas Federal Reserve Bank, that unfunded US liabilities exceed $100 trillion. He is talking about off-balance-sheet debt in the form of future payments for Social Security and Medicare. $100 trillion! http://seekingalpha.com/article/139841-federal-u-s-debt-has-ballooned-to-over-100-trillion?source=email Fisher’s actual speech can be found online too, but this article sums it up more clearly. Of course, none of this is Obama’s fault. The fault lies with Clinton and Bush, of course, if we restrict the blame to presidents only. But it really seems like the wrong time to experiment with a president who was elected primarily out of political correctness, as an appeasement to minorities, rather than for any demonstrated intrinsic ability. As for me, the system of government I find most appealing is benevolent monarchy, but I’ll be darned if I know whether it would work. Will democracy keep working? Let’s see. ------------ About the author Thomas Keyes: I have written two books: A SOJOURN IN ASIA (non-fiction) and A TALE OF UNG (fiction), neither published so far. I have studied languages for years and traveled extensively on five continents. Visit my website here. Email: udikeyes@yahoo.com Comment on this article here! 
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