When the Fed announced that rates will continue to be Zero, the stock market soared — for about an hour and then plunged. Today down another 200+points.
Why? Real simple — The Fed actually said that the world’s economy is so fragile that a meaningless rate increase of 0.25% was potentially a real problem. And I’ll give them credit for being right about this — had the Fed raised rates, the Dow probably would have been down 500 points instantaneously.
Someone sent me this picture a couple of days back — and if a picture is worth 1,000 words, this one is probably what weighted on the Fed.
This is downright depressing. In the last 7 years, food stamp use has soared, as has the federal debt, the amount of money printed, student loans (which are future losses) and health insurance costs. Obamacare reduces costs?? Really – don’t think so.
What is down? The workers share of the US economy (blame the “rich” guys – Nope – blame Washington & the President’s policies), Median family income, home ownership and most important of all, labor force participation.
The President likes to point out that the unemployment rate has declined to nearly 5%. On the surface that’s great. But how is the 5% calculated? Unemployment = Unemployed / (Employed & those Seeking Jobs). Those employed & seeking jobs are participating in the labor force. THOSE WHO HAVE GIVEN UP HOPE AREN’T PARTICIPATING. They are no longer counted as Unemployed. If everyone who doesn’t have a job stops looking, the Unemployment Rate is 0%. Adjusting for those who have given up, the real Unemployment rate remains near 10%.
There are no easy answers. But as business people & investors, we need to get our head out of the sand. The economy is not doing well. The world is on the brink of another recession, and the Federal Reserve is out of bullets to fight it.
And the Fed yesterday told the world that their best option was to sit aside and see what happens. If you’re not scared, you don’t understand what’s happening around the world.