Following the Brexit vote global stock moments momentarily plummeted, but for nearly a month running Wall Street has been setting all kinds of new records. In fact, just this week NASDAQ set another new record high. However, with an understanding of economic principals and political policy, here is why this serves more as a cause for concern than an indicator of prosperity.
Since Obama first took office the Federal Reserve has introduced over 4 trillion dollars of newly created money into the market. As this money is created in the form government bonds and deposited into banks to be loaned, all of this money is subject to fractional reserve banking laws. If you are not familiar these laws, banks are permitted to loan out up to ten times the amount of money they actually posses. This means if a bank owns 10$ they can legally loan out 100$; if banks has 4 trillion dollars, they can loan out 40 trillion dollars.
Do you see where we are going with this? With 4 trillion dollars having been artificially introduced into the economy and up to 40 trillion dollars in potential new loans, of course we are going to see monetary totals soaring and stocks reaching all time levels. This is not an indicator that the economy is strong, rather, it is simply the result of unprecedented amounts of new money entering into the economic system.
The down side to all this new money is, of course, inflation. Last December, the FED increased interest rates for the first time in nearly a decade and have hinted at another rate increase in the near future – possible September 2016. Prior to their last meeting July 26th, the FED also indicated how recent pressures in the United States to increase wages was putting pressure on the economic market that will indubitably result in higher inflation.
For the time being everything is remaining relatively stable, but this could all change dramatically in the very near future – and no, this is not just more conspiracy talk. Patrick Harker, President of the Federal Reserve Bank of Philadelphia, told Bloomberg News last month that the FED is planning “up to two additional rate hikes this year (2016) and that the funds rate will approach 3.0 percent by the end of 2018.” In addition to this, Harker notes how he expects inflation to kick in sometime next year in 2017 – after the national elections.
Remember, the stock market has regularly been hitting all time record highs dating back to 2014 – the latest news is nothing all that new. All of this is a result of the influx of newly created money by the federal reserve/bailouts/federal stimulus and is not an indicator of economic prosperity.
In 2012, for the first time in history, our budget deficit surpassed our gross domestic product – reaching 101% of our GDP. Last month, the Congressional Budget Deficit forecasted our debt could inflate to 141% our GDP if we remain on the same economic course. This number indicates annual spending/debt in relation to the amount of goods and services produced by our country over the same period. When debt to GDP is over 100%, this means our nation is producing more debt than assets.
A nation with 19.3 trillion in national debt is not prospering, despite the positive messages being release from the White House. So as you can see, despite headlines reading about the stock market reaching all time levels, sadly this is nothing more than a facade. The truth is we are artificial printing endless amounts of money just to stave off economic collapse and stay afloat as a country. The higher the FED hikes interest rates, the more money comes out of the pockets of the average American and with new rate hikes and inflation soon on the horizon, the economic divide within society will only continue to grow larger.
This article (Inside Wall Streets Record Setting Month) is free and open source. You have permission to republish this article using a creative commons license with attribution to Brian Dunn and The Daily Proletariat