Looking at where the Fed’s money goes

Another reprint from the latest Van Tharp newsletter – with thanks: www.vantharp.com

Makes everything Elliott Wave International has said of recent decades regarding the state of the USA’s finances [excluding wave counts] spot on of which I have highlighted on this blog for a long long time.

Where Does the Fed’s Stimulus Money Go?Part V – A Bigger Picture

by D.R. Barton, Jr.

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My high school chemistry class was actually a lot of  fun.  Half of the students in the class  were my good friends and I liked chemistry very much (hence the subsequent  chemical engineering degree). I vividly remember one class when the teacher and  one of the sharpest guys in school were debating a point — okay, arguing really  — about a completely inconsequential topic and the whole class was becoming  annoyed.

The teacher, Ms. Duncan, was seriously smart. The  student arguing with her was even smarter (he’s now the radiology Chair at  Boston Children’s Hospital and a Professor at some Medical School up there that  goes by the name of Harvard).  They only were  arguing to top the other, hold their ground and prove a point.  Meanwhile, the rest of us were bored  stiff.  So I stepped in and offered a  baseball analogy — the rest of the class had just made a clean base hit straight  up the middle, and those two were arguing over where the foul lines were  drawn.  Ms. Duncan said, “That has  nothing to do with the base hit!”  I  said, “Exactly.”

I love the saying “can’t see the forest for the  trees” because it applies so often in real life.  People just naturally seem to get caught up  in the minutiae, the immediate problem at hand or their own little problems and  fail to recognize the big picture.  See  where I’m going with this?

Welcome to the world of Washington politics and the  high holy keepers of the worst examples of “can’t see the forest for the  trees”.

Kicking the Can Down the Road (Again)

The biggest news of the last week was the refunding of the federal  government’s day-to-day operations.  Non-essential government  employees returned to work and the politicians got to  delay really debating the debt  ceiling again until early 2014.  Hear that can  a-rattlin’ down the pavement?

If we all  step  back calmly and look at what just happened without any political party  prejudices, we quickly see that we don’t have a budget problem, we have a  governance problem.  We have lost the  ability to efficiently and effectively legislate.  And I’m pretty sure I’ll never see a national  political body make a difficult decision again in my lifetime.  All decisions are vetted through the lenses  of entitlement groups — whether they receive a government handout directly (those  on the left can yell nasty things about me) or whether they receive special  treatment by the government like the financial institutions and the  industrial-military complex (those on the right can now say ugly things about  my lineage).

The Big Picture in One Cool Graphic

Now, let’s all hold hands and solemnly repeat, “The  problem is not about raising the debt ceiling, the problem IS the debt  ceiling”.  We are in the midst of the largest  financial engineering experiment in the history of economics as we know  it.  The unwinding of this will be ugly,  barring some technology / productivity quantum leap that allows the global  economy to rapidly expand and grow our way out of part of the problem.

In one graphic we see a startling depiction of the  big picture (it’s from the Ricochet blog — a conservative gig, but I did vet  the numbers which seem reasonably accurate):


First of all, it’s pretty clear that the debt problem  (or more appropriately, the rate of debt growth relative to revenue growth)  exists on both sides of the aisle — it is a national problem that doesn’t  belong to one political party more than the other.

I now firmly believe that a government that can’t  make tough decisions on how to slow spending or increase revenues will have  tough decisions thrust upon them by another financial crisis.  Whether that crisis is bad, like 2008 or  really bad like 1929+, it’s tough to see us getting a resolution that looks or  sounds anything like a “soft landing”.

In weeks to come, we’ll look at some things that  traders  can reasonably do between now and then (like continue to enjoy the  stock market climb until price tells you otherwise).

Until then, your thoughts and comments are welcome —  please send them to drbarton “at” vantharp.com.

Great Trading,   D. R.

About the Author: A passion for the systematic approach to the markets and lifelong love of teaching and learning have propelled D.R. Barton, Jr. to the top of the investment and trading arena. He is a regularly featured guest on both Report on Business TV, and WTOP News Radio in Washington, D.C., and has been a guest on Bloomberg Radio. His articles have appeared on SmartMoney.com and Financial Advisor magazine. You may contact D.R. at “drbarton” at “vantharp.com

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1 Comment

  1. The destruction of the USA is plain enough to see, what is not, is why would successive Presidents of the USA allow it to happen and be happy to add to the problem!
    Just shocking


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