By Andy Gause, Special for USDR
While a record-setting Dow continues to exhilarate investors, currency expert Andy Gause presents a few sobering economic, and geopolitical realities to help protect us from irrational exuberance
Don’t look now, but there is something not quite right with “America’s economic recovery.”
The Dow hits record high, but here is why it does not matter:
After a 5-year bull run, the Dow has reached a record, all-time high, but so has real unemployment…And the number of Americans on food stamps and government assistance.
“Normally, a steadily rising stock market would mean general prosperity for American workers,” said currency expert Andy Gause, author of The Secret World of Money and Uncle Sam Cooks the Books. “But what we are now seeing is very far from that.”
The stock market’s climb to a 17,000 Dow has little to do with improved living conditions for the average consumer on Main Street, and everything to do with the creation of mega-profits for the major players on Wall Street.
“The Fed has pumped trillions of dollars into the banking system, but those trillions have been sucked up by blue chip giants, like Apple and IBM, who borrow at near 0 percent to purchase their own stock,” Gause said. “They are not using the Fed money to develop new products, nor create new jobs. Their mission is to inflate their own stock prices. That Fed-created money never reaches the little guys on Main Street.”
The big Wall Street banks, the institutions that are supposed to be helping American businesses expand, are fueling asset prices by investing in the markets, not in the local businesses in their areas. Why should banks make a risky loan to a new business when they can invest virtually free money from the Fed in stocks, and bonds that have been predictably rising in value for years?
Many market analysts, including Fed officials, are referring to the current market run-up as “an asset bubble,” Gause added.
“Investors are not understanding the word ‘bubble,'” he said. “They are just watching the Dow shoot higher, which means many will be caught owning stock purchased at the high when the bubble bursts, as it did in 2000 with the Tech Bubble, and in 2006 with the Housing Bubble.”
Bubbles, by definition, Gause said, do not last forever. So, what factors might burst the current asset bubble?
“If ISIS detonated a bomb in a U.S. city… If Putin took military action in East Ukraine and NATO dispatched troops…If Israel attacked Iranian nuclear power plants,” Gause says. “Any of these and dozens of other geopolitical events could trigger a ‘flight to safety’ of investor wealth from the U.S. stock market.”
The group most likely to deflate the U.S. stock market is, ironically, Gause says, the Federal Reserve itself.
“The Federal Reserve cannot continue to overtly create new money, as it’s been doing with years of Quantitative Easing,” he says. “It needs to attract the wealth of institutional investors and sovereign nations by raising interest rates, which will cause market investors playing with money borrowed from the Fed to sell, as higher borrowing costs wash-out any profits generated by the stock or bond.”
“Investors looking to enter the current bull market have to understand that the Fed and the too-big to-fail banks have been driving up the Dow. When their involvement, and manipulation comes to an end, there will be a steep correction, which economic historians may euphemistically refer to as ‘The Really Great Recession.'”
ABOUT ANDY GAUSE (www.AndyGause.com)
Andy Gause is one of America’s foremost experts on the history of U.S. currency, president of SDL Numismatics in Hawthorne, NJ, member of the American Numismatics Association, and author of The Secret World of Money and Uncle Sam Cooks the Books. Over the past two decades he’s been an invited guest on thousands of radio and TV programs nationwide. Gause has three free CDs, and a free newsletter which explain what’s been happening to the U.S. monetary system and contain very basic information about how people can preserve their wealth during inflationary periods. To request the free material, call 800-468-2646.