I wish all my readers a safe and Happy Memorial Day long weekend…and I’ll see you here on Tuesday

A friend of mine is a retired plastic surgeon.  He absolutely refuses to believe the articles that we write on the economy.  He points to the Dow and says, “The economy is strong, corporations are flush with cash and we are all just a bunch of doom-and-gloomers.” He absolutely can’t distinguish between real and artificial!  How about a day like today – the Dow is UP 25 (as of this writing), the dollar is DOWN 0.56, gold is UP $22.80 and the Nikkei is DOWN a monster 1143 points!  The Dow is not allowed to fall, plain and simple!

At the risk of repeating myself, here is what is happening – the big corporations have cut millions of jobs and shut down factories.  Sure their bottom line looks good, but they are doing nothing to create new jobs.  In fact the only new jobs that are being created are from the pen of a bureaucrat, and they are imaginary!  Until big business starts investing in new technologies, create new factories and new jobs, there is no recovery.

So WHY is the stock market going up?  It’s going up because the hedge funds are pouring billions into the Dow and S&P 500 futures.  Why are they doing it?  Because they can’t make a return with interest bearing investments – due to the Fed’s low interest rate policy, also known as QE.  Where are they getting the money to put into the stock market?  From the Too Big To Fail Banks!  And they get it from the Fed – to the tune of $40,000,000,000 a month and it’s called QE.  The other $45,000,000,000 a month of QE is used to purchase US Treasuries, that apparently the rest of the world is not interested in buying at these low interest rates.
So the Main Street economy is failing while Washington is piling a soaring debt burden on our descendants, unable to rein in either the warfare state or the welfare state or raise the taxes needed to pay the nation’s bills. By default, the Fed has resorted to a radical, uncharted spree of money printing. But the flood of liquidity, instead of spurring banks to lend and corporations to spend, has stayed trapped in the canyons of Wall Street, where it is inflating yet another unsustainable bubble. When it bursts, there will be no new round of bailouts like the ones the banks got in 2008. Instead, America will descend into an era of zero-sum austerity and virulent political conflict, extinguishing even today’s feeble remnants of economic growth.
– David Stockman, NYTimes.com
The Fed can create, out of thin air, $85,000,000,000 a month of new money but do you get any of it?  I don’t think so.  Do I get any of it?  I don’t think so.  It doesn’t make its way down to Main Street.  The top 1% gets it, but the rest of us get the usual bottom of the barrel.  I’m not saying we can’t make a nice living, I’m saying we don’t see any of the Fed’s QE.

I’ll tell you who else gets it – a friend of ours has a granddaughter who has a friend who has nine brothers and sisters and her mother is pregnant with a 10th on the way.  No one in the family works, they are all on Welfare.  I’ll tell you what I do get – I get to pay for families like these who add nothing productive to the economy and only take.  Socialism is a wonderful thing if you are on the receiving end of other people’s money!  Or, as Margaret Thatcher said, “Socialism works until you run out of other people’s money.”

This 10-child Welfare family is not uncommon.  Before you say, “So what!” consider the math here.  Mine is a “typical upper middle class” family with two children.  My two children have two children.  Let’s play this out for three generations – 2 x 2 = 4; 4 x 2 = 8; 8 x 2 = 16.  Now let’s look at the Welfare family.  10 x 10 = 100, 100 x 10 = 1,000, 1,000 x 10 = 10,000.  There will be 16 of us and 10,000 of them – and they can all vote (as in vote themselves more benefits).  And chances are the kids who grow up on Welfare will also end up on Welfare.  It perpetuates itself from generation to generation.  Can you see where this is headed?  The landscape in America is changing and our grandchildren will have to deal with this.  It is as certain as the math I just laid out for you.

Socialism is not in the least what it pretends to be. It is not the pioneer of a better and finer world, but the spoiler of what thousands of years of civilization have created. It does not build, it destroys. For destruction is the essence of it. It produces nothing, it only consumes what the social order based on private ownership in the means of production has created. 
– Ludwig von Mises (1881-1973) Economist and social philosopher

If you think it is out of hand at the Federal level, then you should come live here in Minnesota.  Our Liberal Governor and Legislature passed an additional 2% tax surcharge on the wealthiest 2% of Minnesota earners.  That amounts to about 10% on all income above $250,000 a year.  We now rank, I believe, the second highest tax-rate state in the union.

Come on, David, it ain’t that bad!  Yup, it could be worse, we could live in France.  But the wealthy people in France are leaving the country like rats leaving a sinking ship.  Who will be left to pay the taxes when the wealthy pack up and leave?