By: Todd Wheatley
(c) IQ-2k   01-06-15

I started writing this article in mid-September 2014 as the Dow Jones Industrial Average continued racking up the record highs, but did not complete the post to do further research. So given a 1000 point correction to the Dow Jones and the end of the QEIII bond buying program I chose, instead, to post my "Economic Apocalypse 2020" article (10-14-14) and await the FOMC decision on raising interest rates.

Still the decision seemed obvious given very strong employment numbers and the initial FOMC guidance about raising rates with a drop to 6% unemployment. Again, strong employment gains over 200,000 per month continued through the summer and became the best employment gain since 1995 (see. Current events 11-01-14). In other words, ample evidence of robust economic growth and TIME TO NORMALIZE INTEREST RATES.

TIME TO SHIFT THE ECONOMY TOWARDS MIDDLE INCOME SAVERS AND AWAY FROM THE 1% SPECULATORS.

But no!! According to their press release the Federal Open Market Committee (FOMC) NOW wants to see rising inflation before normalizing interest rates. Wake up! We are in a new economic paradigm (see. "The Economy - Econ 101" 1-31-10). So instead of leadership the FOMC looks increasingly like the puppets of market speculators. Think about it. Who has reaped the gains of low interest rates?

>> The average credit card holder? NO! The banks have not lowered credit rates and they have reportedly not loaned the $1.5 odd trillion (QEI - III). Banks like many other corporation are sitting on piles of cash and reaping the profits.

>> The elderly and middle income savers? NO! Speculators and major corporations with mergers and acquisitions.

>> Consumers? NO! Low interests rates leads to a lower dollar. Therefore imports cost more.

The fine financial minds of the FOMC discounted all other evidence to wait for the final data point (inflation) to act. Well no leadership here. In fact it seems the FOMC has succumb to fear. Either fear of admonishment; Fear of popping the bubble; or worse ... fear of their real patrons ... the 1%. After all, raising interests rates during October or November would have surely precipitated a sharp market decline and likely dampened moods for the Christmas season. Still given the fourth quarter GDP growth at an unbelievable 5% a dampened Christmas would not have been big deal. Taking all of this into consideration the time to act was September (2014). More importantly a very modest % rise would signal that mass speculation needs to end. The economy is on a sugar high and needs to get back to meat and potatoes. In other words, strong savings and less speculation.

Ironically the problem goes back to the widely acclaimed Federal Reserve Chairman, Alan Greenspan, who warned of "irrational exuberance" during the dot com stock market bubble, but did nothing to curb the out-of-control speculation. So with two stock market bubbles (2001,2008) in less than 10 years and now a third riding the same road to ruin where is the leadership?? It's time to consider the stock market in the big economic picture instead of letting it run amok. For me an article on the CNBC website ("This is a Ticking Time Bomb for Stocks" 1-5-15) put the market bubble in perspective. It seems that stock purchases on MARGIN are the highest (percentage of GDP) since the 1929 crash!! So be sure to thank the FOMC for the tons of cheap money ... and the upcoming crash!!


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