The recession we’ve entered into wil be short-lived, unless those who’ve been predicting doom these last eight years continue to go unchallenged.
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Don’t misunderstand: mark-to-market accounting should still be suspended; but that would be gravy at this point. Within the artificial accounting restraints the government has created, enough money has finally been injected to contain the problem.
STILL, IT IS CLEAR that many do not share this optimism. And why should they? Short-sellers have made a bundle in recent months. But we are now at a point of over-confidence on the short side. Irrational pessimism has set in, and just like a bubble to the upside, this downside bubble must eventually burst.
The short-sellers and pessimists were right about a recession and large stock market declines, but for the wrong reasons. The markets fell apart because of accounting rules and ham-handed government intervention, and this is what undermined confidence and led to a drop in consumer spending.
The key thing to remember is that while the U.S. financial system may have taken a beating, it has not completely broken down. The Great Depression was caused by a massive deflation and the destruction of money as thousands of banks failed. Today, the Federal Reserve has more than doubled its balance sheet to a whopping $2 trillion and the Treasury has drawn a line in the sand, essentially taking any more large bank failures (for accounting reasons alone) off the table.
And every time the Fed injects money into the system, the economy reacts. The money will find its way into the economy and a sharp recovery in spending will begin quite quickly. And when the velocity of money actually increases, the injection of money into the system will be like gasoline on a fire.
When that happens, short-sellers will have nowhere to run. But because they have grown overconfident, it will take some time before they fully capitulate. In the process, the markets could have a spectacular run to the upside. Already, we have seen this in Japan, where the Nikkei rose 26 percent in just three days. Look for a “melt up” in the months ahead as irrational pessimism finally must give way to reality.
A man of faith in a godless age is hitting Americans where it hurts.
Mr. and Mrs. American Spectator Reader, let P.J. O’Rourke talk sense to your kids.
In Britain, defending your property can get you life.
The debacle of this president’s administration is both a cause and a symptom of the decline of American values. Unless Congress impeaches him, that decline will go on unchecked. An eminent jurist surveys the damage and assesses the chances for the recovery of our culture.
It won’t take long for conservatives to scratch this presidential wannabe off their 2008 scorecard.
The American Christmas, like the songs that celebrate it, makes room for everybody under the rainbow. Is that why so many people seem to be hostile to it?
Was the President done in by the economy, or by the politics of the economy?