Former U.S. Labor Secretary Robert Reich believes that the Dow’s recent rally to the 10,000 mark is “fluff” that has no relation to the real economy.
Reich, a professor and Clinton-era Labor Secretary, now an informal economic advisor to President Obama, says that “anyone who hasn't learned by now that there's almost no relationship between the Dow and the real economy deserves to lose his or her shirt in the Wall Street casino.”
Reich wonders how the Dow broke through the 10,000 barrier, last seen before the economic meltdown in the United States when, as he put it, “the rest of the economy is in the toilet.”
Writing on his personal blog, Reich said that corporate earnings are up primarily because companies have been trimming costs by slashing jobs, and jobs account for 70 percent of a company’s expenses.
Federal debt, he reckons, is bolstering the economy, but that is now at an unsustainably high level and can’t be kept there forever.
The Federal Reserve’s low interest rate policy is also helping pump up the Dow, “and that’s good news for the Street because it means money stays cheap,” writes Reich.
But, Reich cautions, at some point, very soon, the Fed is going to start worrying about inflation and the falling dollar.
Others concur that there remain severe problems with the underlying economy and fiscal situation.
The Wall Street Journal reports that the U.S. government is at risk of having terms dictated to it by Chinese lenders, and this could lead to a loss of status for the dollar, just like what happened to the British pound after World War II.
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