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Thursday, September 13, 2012

A Headline You Are Not Likely To See

“Fed increases money supply; business revives and unemployment drops,” is as unlikely as the sun rising in the west.  What we do see repeatedly, as today when the Dow Jones Industrials index surged 206 points, is further inflation of a stock market bubble in response to the Fed’s latest announcement of quantitative easing. 

The Federal Reserve declared its intention to purchase $40 billion of mortgage-backed securities each month, and the stock market leaped again.  Meanwhile real business activity, and employment along with it, continues to decline.  Nominal unemployment remains north of 8% and more than 11% counting people who have given up trying to find a job.  Manufacturing activity continues to decline.

The exchange value of the dollar, since mid-July, has dropped 5% and the price of gold is up 9.6%.  Gold’s price in dollars reflects both consumer and industrial demand for the metal and the world’s expectations for inflation in this country.

Why does the Fed keep doing more of the same when it fails every time to improve real business and employment conditions?  Maybe because presidential incumbents usually win re-election when the stock market is rising significantly.

Posted by Thomas E. Brewton on 09/13 at 04:07 PM
Economics • (2) Comments
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