Asset Reflation Does Not Signal Recovery for Collapsed U.S. Economy

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". . .divergence between the economy and asset prices apparently has to become even more grotesque before people will understand."

If all the highly informed people who've been waging a war the past six months against rising stock prices would just step back for a moment, they would perhaps understand better that their macro views are supported, not negated, by asset reflation. For it's this asset reflation that hints at the singular and doomed strategy of our monetary policy, and its overlay on our collapsed economy.

Just so that I'm clear: there is no macroeconomic recovery occurring in the United States. What's unfolding currently is snap-back from last year's crash, which led us to the bottom of a spider-hole. The positive bits of macro data, dribbling out here and there, are really just about getting us back to zero. A kind of steady-state, expected to carry on for some time to come. And that's a best-case scenario.

Our society's hierarchy rests in part upon the following assumption: that the intellectual capacity of the chairman of the Federal Reserve, with his PhD and his white papers, is superior to that of a mortgage broker from Orange County, California. I think we need an adjustment to this type of assumption. . .I f the chairman of the Federal Reserve will not allow that the greatest credit bubble ever has now burst, or that it ever existed, then this partially explains why he would think stuffing the banking system with fresh capital would revive the economy.

Asset reflation therefore, in equities and especially in gold, should be seen not as exuberance but merely as part of the same chaos in pricing unleashed by The Fed, starting earlier this decade. For those who recognize a rising stock market as evidence of disarray, what we should anticipate now is the recognition phase where the wider public finally comes to understand the nature of our inflationary depression. My marker has been $100 oil and 15% unemployment in California. That should finally get the message across. But other combinations will do: $1,300 gold and $1,300 on the SPX. The divergence between the economy and asset prices apparently has to become even more grotesque before people will understand.

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