Stocks are bleeding red. It is the worst June for the DOW since 1930. As reported by MarketWatch, the DOW “tumbled 358.41 points, or 3%, to 11,453.42, leaving it down nearly 1,200 points, or 9.4%, for the month, with two trading days yet to go. As things stand, the month is the worst June so far since 1930 when the index declined 17.72%.”
Dow Jones Industrial Average
Last: 11,453.42-358.41-3.03%
4:30pm 06/26/2008
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The news for today set the stage for pushing this market lower. If the DOW fails and drops below its July 2007 close of 10,739, I think we’re going to see it break down even further—and quickly. Gold rallied a bit and silver was also in lockstep as oil tested new highs. Reader, what to make of this?
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What is it we are seeing and feeling? The Federal Reserve seems to tell us it is concerned about inflation but its not going to raise rates. The days of lower gas and food prices seem like a dream. Let me suggest that we are not seeing panic but rather an adjustment for the true value of the dollar. Bernanke set his course by lowering interest rates drastically seven times since June of 2006. To put it simply, he started printing more money. Today, the Fed did nothing but embark on a wait-n-see approach because of concerns of inflation. This is a problem as highlighted by major investment firms.
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Wall Street is becoming alarmed. There’s been worldwide inflation. This means that Bernanke’s strategy is in trouble if the levees he’s putting in place fail to hold against the flood of Europe’s inflationary pressure. He’s hoping that a slowing U.S. economy will drive prices down. Recall also that Bernanke bailed out Bear Stearns to stop a “run” on the market and it worked. The U.S. military spending worldwide is out of control as the Borg Blog posted in a startling chart. But now he’s in a quandary. If he raises rates, he stops liquidity in the market place. Things slow down. That means money going into the pocket of the private entreprenuer slows to a trickle. Unemployment goes up.
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I would suggest to you dear Reader, that the dollar is merely catching up to it true value. Untethered to a fixed standard such as gold or silver, the dollar’s value is “full faith and credit”. In otherwords, the value is meaningless and approaches the value to produce the dollar bill itself. When more money is printed, the dollar becomes less valuable because more of it is floating around. Stated differently, the power that the Fed has is to be able to adjust the dollar’s value without involving elected officials by raising or lowering rates. In the old days, Congress had to vote to devalue your dollar. Not so anymore. The tax now comes at the hand of an unelected Federal Reserve. Our seniors on fixed incomes get hit the hardest.
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Can we recover? Sure we can and we will though I don’t believe the worst has come. I can’t believe for a moment that gas will go down especially when the Democrats in the Virginia General Assembly are trying to add more taxes to gasoline. Be of good cheer (if you’re not retired), your wages will have to increase at some point. Until they do, expect what we had in the Carter era until 2012 when Obama is voted out of office for horrible “management” of the economy. Hopefully the people will see the turn to restoring freedom and prosperity. Hopefully they’ll see a return to sound economics.
