-- Posted Friday, 8 March 2013 | | Disqus

Here’s a Wall Street Journal headline to brighten your day: Freshly Flush, the Consumer Is Back. A little premature, wouldn’t you say? Are you feeling flush? That’s what we thought. Of course, this kind of hubris is always going to go down a lot easier with the Dow Industrial Average trading at all-time highs, as it currently is. But isn’t this the way major tops are supposed to feel – i.e., with a bullish drumbeat from the news media so shrill and persistent that we skeptics are about to bleed from the ears? We’ll give the Journal credit, though, for showing a little more restraint than “Easy Al” Greenspan did when, stumping for home equity loans, he repeatedly described inflated real estate values as “wealth.” The Journal avoided repeating this egregious falsehood by noting with a touch of reserve that Americans are “feeling” wealthier because of rising home values and share prices. No matter that stocks are being kept buoyant by an unprecedented tide of easy money, or that the rise in home prices has been slight, or that the dead-cat bounce in real estate is occurring because cheap loans for poorly qualified buyers have been resurrected with a vengeance by GSEs whose swagger has unsurprisingly returned. And it hasn’t exactly hurt our collective “feelings” of wealth that the Federal Reserve has been warehousing virtual mountains of shoddy paper for U.S. banks.

The pretense that the U.S. banking system is somehow healthy at a time when the central bank itself is swollen to the bursting point with toxic debt is the folly of this age. Stupid and crazy as the idea is, it got a big boost yesterday with the announcement that 17 of America’s 18 largest banks had passed a “stress test” conducted by the Federal Reserve. This ceremonial claptrap was meant to convince us that the banks have enough capital to keep lending if the economy turns down sharply. The nitwits who conducted the test, and even moreso those who are trumpeting the results, have conveniently overlooked the fact that it is borrowers who will be in short supply if the economy collapses, not lenders. That’s what deflation is all about. And considering how much pushing on a string it has taken to get housing prices to temporarily stabilize, we shudder to imagine what this fragile achievement will look like when interest rates start to uptick, as they eventually will. Interest rates aside, Obamcare is going to hit small businesses that are the backbone of America’s prosperity like a wrecking ball. Factor in higher taxes and other depredations of our crypto-Marxist president and there are enough negatives to wipe the stupid grin off Wall Street’s face. Who knows? If the Second Great Depression is as deep as the first, it could cure us of the terminally diseased idea that an economy that has barely recovered from the Great Financial Crash is best served by a new binge of credit-financed consumption.

-- Posted Friday, 8 March 2013 | Digg This Article | Source: GoldSeek.com

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