September 17, 2012, marked the one-year anniversary of “Occupy Wall Street”—a movement made up of protests that started in cities across U.S. last year. At one point, in New York alone, this cause had an estimated 10,000 people marching. (Source: The Guardian, September 18, 2012.)
The U.S. economy hit rock bottom in the financial crisis of 2008, and it has struggled to get back up for far too long. Occupy Wall Street protests are just about that—protesting against stagnant economic growth, unemployment, disparities between the rich and poor, poverty, and the death of the middle class.
In New York alone, there were 200 people arrested on the anniversary of this event. I believe that the protests and possible riots will only become more frequent and larger. But, as time goes by for the U.S. economy, I believe these protests will go from being against Wall Street to being against the government, as the poor retaliate. QE1, QE2, QE3—they’re not helping the poor man. They are helping the rich.
The Occupy Wall Street protestors are definitely not out of their minds; they know the U.S. economy has a very bleak future. The U.S. dollar erodes each passing day in value, food prices have risen, and consumer pockets have thinned significantly.
The financial crisis witnessed by the U.S. economy will cost Americans $7.6 trillion in lost gross domestic product (GDP) between 2008 and 2018, according to advocacy group Better Markets. (Source: Market Watch, September 12, 2012.) U.S. home values dropped 34% from their peak in 2006 through 2011—a loss of $7.0 trillion in home values. In the same period, 3.7 million homes were foreclosed on.
There are other problems that cannot be quantified by the financial crisis. Lost dollars cannot make up for the personal loss, the human tragedy many Americans have faced becoming jobless and homeless, often at the same time.
Sure, there has been some job creation since 2009, but the jobs created are mostly in low-wage industries—working in a restaurant or retail store. More and more people are leaving the labor force because they cannot find the work they need. The number of discouraged workers has increased in the U.S. economy. How can you identify the cost associated with workers leaving the labor force?
The U.S. economy is showing no signs of growth. The reality is that there is no healing to the wounds of financial crisis for the middle class or poor. I have been harping in these pages that nothing has changed. The government keeps borrowing, the Fed keeps interest rates artificially low, and the Fed keeps creating money out of thin air.
The stock market is basking in the fact the Fed has announced QE3 with a twist—the Fed didn’t tell us when they would stop QE3. It is open-ended. If a bank can take junk mortgage-backed securities off its books, get hard cash in return, and give those mortgage-backed securities to the Fed, it’s a dream U.S. economy for the banks. But most Americans, especially the poor, gave up on their dreams a long time ago.
What happens to the U.S. economy if we take three things out of the equation: artificially low interest rates; $6.0 trillion in new government debt since President Obama took office; and trillions of newly created money by the Fed? If you take these three events out, the U.S. would be in a depression. There have been no structural improvements to the U.S. economy since the credit crisis hit in 2008—this is my biggest concern. (Also see: “We Can’t Ignore it: America’s Going Broke.”)
Where the Market Stands; Where it’s Headed:
It’s almost a week now since QE3 was announced. The markets are cooling to news of open-ended buying of mortgage-backed securities by the Federal Reserve. This morning, we get news the Bank of Japan will increase the size of its quantitative easing program by $126 billion (U.S.). The stock market sure does love new money printing.
But on the opposite side of the equation, all this money printing is causing inflation, which will eventually push interest rates higher. According to the U.S. Labor Department, the Consumer Price Index (CPI) rose by the most in three years in August. As I have been writing since QE1 was announced, you can’t print money out of thin air without causing inflation.
Three rounds of quantitative easing, trillions in newly created money, trillions in new government debt, and the Dow Jones Industrial Average still can’t break above its 2007 high? Hmm…maybe that bear market rally that started in March of 2009 is running out of steam.
What He Said:
“Prepare for the worst economic period ahead that we have seen in years, my dear reader, as that is what I see coming. I written over the past three years how, in the late 1920s, real estate prices fell first before the stock market and how I felt the same would happen this time. Home prices in the U.S. peaked in 2005 and started falling in 2006. The stock market is following suit here in 2008. Is a depression coming? No. How about a severe deflationary recession? Yes!” Michael Lombardi in Profit Confidential, January 21, 2008. Michael started talking about and predicting the economic catastrophe we began experiencing in 2008 long before anyone else.