Tags: america | economy | debt | dollar

The American Investor Is in Serious Trouble

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Sunday, 23 Nov 2014 11:07 PM Current | Bio | Archive

I had lunch with one of my close friends this week. It wasn’t much in the way of a conversation other than him telling me how much money he is making in the stock market.

“New highs,” he says. Corporations are showing great profits because the economy is on a roll.

As I walked back to my office, I wondered how such a well-educated professional could be so blind as to what is going on.

I understand the market hype. It’s in the interest of Wall Street and its media outlets to promote good times. One generates commissions and fees while the other generates ad revenues by keeping more eyeballs on the TV or computer screen, as well as the printed stuff.
It seemed to me that when the market is valuing equities at 20-times projected earnings that there is something very wrong here.

How can there be an actual fair value to equities when interest rates are controlled and suppressed?

There can’t be and there isn’t.

I noticed an article on Friday saying that the price of hamburger has doubled. Yet the government number crunchers tell us that there is effectively too little inflation. In fact, they are worried because it is so low.

I think what should be a gauge for measuring market value is not in dollars per share, but in purchasing power per share. After all, equities, bonds, and even money are effectively only a representation of purchasing power value.

This situation is nothing new. The Federal Reserve and Treasury have been promoting this outright market manipulation for at least the last six presidents.

The current president is just taking this to another level. It’s an opportunity to carry out his agenda by a process perfected by his predecessors. It was wrong then and it’s even worse now.

The government spends vastly more money than it receives in tax revenues. This year, tax revenues hit an all-time high. But then again, the ratio of revenues to debt is also at an all-time high.

Because we don’t pay off the old debt, the United States has to borrow to pay for the interest due and roll over the principal. Essentially, the United States is insolvent due to the magic of compounding interest as well as adding more new debt principle.

Which countries has the U.S. relied on to keep buying ever greater amounts of its debt?
Japan is a major holder of Treasurys. But Japan is officially again in recession. Likely, it won’t be able to buy our junk Treasury bonds any more.

China is another major holder of our debt. But China is in serious economic difficulty. There has never been a successful communist economy and China is going to prove that communism is consistent in economic failure notwithstanding the charade of the mantra of one country but two systems.

Perhaps the European Union will pick up the slack? No, that is not going to happen. The EU is heading into an economic abyss itself. The European Central Bank is another one that says that there is too little inflation and they need to slightly increase the rate to bring the EU economies around.

This, of course, is nuts. The EU has no ability to control the inflation genii when it gets out of the bottle. Inflation means purchasing power is going down. It’s a tax increase on everyone.

Besides, the EU suffers from diminishing productivity. Without productivity there is no hope of economic recovery.

What’s left is the Federal Reserve. If quantitative easing would have worked, then it would have worked by now. This QE economic experiment has involved trillions of dollars and look where we are. The U.S. dollar is getting closer to resembling the purchasing power value of Monopoly money.

As for investments in the market like equities and bonds, an American investor holding these is in serious trouble.

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Kleinfeld
The U.S. dollar is getting closer to resembling the purchasing power value of Monopoly money. As for investments in the market like equities and bonds, an American investor holding these is in serious trouble.
america, economy, debt, dollar
646
2014-07-23
Sunday, 23 Nov 2014 11:07 PM
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