Thursday, October 10, 2013

An Agreement is Not Good News

As the US continues down the path to almost certain bankruptcy, the stock market had its best one-day rally in a long time -- up over 300 points in the Dow, a whopping 2.2 percent increase in a single session.

What was the news?  Was it something that could avert the bankruptcy that lies ahead in little more than a decade?  Nope.  The news is that the Dems and Reps are likely to come to an agreement that guarantees more spending and more debt.  Is that really good news?

That the government won't default now -- as a matter of choice -- is scant consolation for the fact that agreements like the one in the works are virtually a guarantee of a default within a generation.  No Congressional vote can stave off the default that awaits us in a dozen years or so.

Is Greece (or Spain or Italy) better off today because the EU and the IMF provided the funding for them to expand their debt and continue spending money they don't have?

Boehner put it best: "This is not some game."  Right he is.   Either the growing debt crisis is faced or it is ignored.  An agreement simply ignores the problem.  Sadly, Boehner may not have the stomach to stand up for fiscal sanity. 

It is worth remembering that the stock market reached an all time high just a mere ten months before the collapse of Lehman Brothers which triggered the financial collapse of 2008.  The stock market has a poor record of anticipating disaster.  The 1929 collapse followed the peak levels of 1929, peaks reached just as the underlying economy was sliding into oblivion.

If history is any guide, the stock market's surge this year may be a prelude to disaster.

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