Welcome to your new destination. A place once believed only to exist in the imaginations of dreamers, and Keynesian’s the world over. A place where market fundamentals, free markets, and more seem to no longer have relevancy in the world. However, make no mistake about it – we have now arrived.
The Keynesian argument has been made for decades. I wonder if the man (John Maynard Keynes) would be impressed with just how much his ideology is so vehemently held in the halls of academia and political circles. Many religious devotees pale in comparison.
Once upon time people believed in free market capitalism. The relationship with the money supply. The economy, markets, interest rates and their effects on keeping governments spending in line. All that and more is now out the window along with the old draperies. No need for those silly viewpoints nor those curtains because there’s no longer a need to try to hide. We all know who is (or was) behind them, Federal Reserve Chairman Ben Bernanke.
Without the Federal Reserves involvement in the markets, we would not be where we are today. Period. And, just where are we? Both the S&P 500, along with the Dow Jones Industrial Average are at never before seen in human history levels. (You really need to re-read that last sentence and let it sink in. Yes, it’s that important.)
If that wasn’t enough so is the benchmark that used to be the touch stone of small business health. The Russell 2000. That also has reached and remains at levels never before seen in history. But, as the old saying goes, “There’s always a price to be paid.”
Now many that screamed for Keynesian styled involvement always shouted the reason why they needed to be in charge or, why their ideas needed to be implemented for what they like to call, “The failures of capitalism.” The problem now is,” OK -Now what?” For as you might notice. This all now belongs to the Keynesian. Take a bow, but not to long because like I said before, “Now what?”
You see in actuality you can’t blame free market capitalists any longer. By empirical evidence they are no longer in charge. If the Fed. cuts down the size of QE at any time. The markets will roil in a fit of anger more in line with a tantrum held only in severity with most two-year old’s. There’s nothing fundamental that says the current levels in the market have any reason to be at these heights except for out right monetary manipulation.
Valuations – schmaluations. Please spare me. It might make for good time fill in the financial media’s “power rotation” of talking heads however, to anyone with just a fair understanding of business. The economy can’t be spitting out numbers just over stall speed of a recession with all time highs in the stock markets as something that’s even close to resembling healthy.
All one needs for a window to view just what is taking place are snapshots once again being shown for display from the likes of JP Morgan Chase™. Their earnings “beat.” However, their profits are coming from the ties they have to derivatives or trading. (I’m over simplifying of course. You really should read them for yourself to understand my point) As far as what you or I think a bank is actually for – like making loans? Their results are pitiful. There’s not only no demand, what demand there is most times can’t qualify.
All this along with governments implementing all kinds of new rules, procedures, and more. If they’re not already in effect, they’re being anticipated and acted upon “as if” for their impending disruption. All these new rules are suppose to protect in a manner of – Bigger – bolder – faster. (cue Bionic Man® theme here)
To the Keynesian or the government has all the solutions devotee, everything looks just as it should. Turn on the television, radio, or pick up a paper and the headline reads, “Record High!” Problem is it just doesn’t feel right.
Last time we were at these type of levels unemployment was statistically within FULL employment status.(under 5%) If one had a breath (and I think for some it was an option) you could get a loan. Any type of loan. Housing was being bought and sold hand over fist. You could buy a house, buy a car, sell the house, payoff the car, and start again almost every other year. For some it was every. Babysitters used their weekend earnings became real estate agents and made a ton. Now far too many former real estate agents are looking for daycare gigs for employment.
People who thought gold was a safe haven against the money printing ramifications of central banks are wondering if rumors are true. That these very same central banks are manipulating the gold markets with out of the blue (of HFT) sell programs crushing gold enthusiasts holdings as witnessed in this weeks gold futures. Once again a sell off seemingly triggered out of no where.
Market moving data and information supposedly embargoed from any “wanting” eyes because of the implications it could have on giving others an unfair advantage, is released to major market participants in an “Oh, sorry bout that” moment as witnessed with the early release of the Fed. minutes.
It is now a well know fact that in most offices in congress their TV’s are tuned to CNBC® throughout the day. (As stated on TV by the former Speaker of The House) Is it any wonder why more politicians now appear on these types of channels than anyone else? If the markets aren’t now Keynesian than what are they? Capitalistic? Sorry, it just doesn’t fit any longer.
However for this new-found land of Shangri-La credit can be given where credit is due. We are here. There is absolutely no one or anything that can dispute that. Yet, along with finding this new land one thing is also self-evident. Keynesians now own it.
If it falls apart from here you can’t blame the free markets. You can’t blame all the people who ran around huffing and puffing saying “It’ll never work.” You’ve proved them wrong. But, (and it’s a very big but) as I said earlier, “OK. Now what?” Because the ball is now clearly in your court. You wanted the ball – and you’ve got it. We all just hope for everyone’s sake you know what to do with it from here. Because for most of us – we now haven’t a clue.
What was once the touch stones we understood as free markets has been ground to shifting sand. This paradise isn’t on any of our maps. We all thought this was only possible in fairy tales. Yet, as I said earlier – “here we are.”
Just remember one thing in this new found paradise. One thing still remains to be seen. Can it be sustained? For if it can’t my old saying might just once again come back to haunt.
“Markets right themselves with pain… That’s Capitalism.
Back room manipulation to avoid pain only increases the severity of the pain to be felt down the road.”
Only time will tell which one of us is correct in the long run.
© 2013 Mark St.Cyr