Tweaking Confidence

Rockets bursting in air mark another celebration for the close of a two year recession. Third quarter GDP of 2009 hitting 3.5 % indicates government logically will pass a second stimulus bill. Stimulus and bailout will lead as policy through the present economic recovery.

Without government fixing root causes of current turn down. Taxpayers must focus on the collapse of the next growing bubble. Bubble contenders are commercial real estate (CRE) and the mother of all safe havens, the go to of last resort, US Treasuries. Federal government continues to enforce a policy of committing taxpayers to private liabilities.

Perpetuating a cycle of endless spending, taxpayer’s participation in purchasing treasuries to finance deficit spending is no longer required, as the value of surplus dollars deteriorate. Central banks systems were filling the gap by purchasing treasuries, possibly slicing them into traunches, repackaging and marketing them as triple AAA paper.

Collateral swaps of toxic assets may be used to borrow money to purchase securities. Taxpayers observed a drop in the Dow Jones of about 250 points on the news of 2009 Q3 GDP. America is stuck between a rock and a hard place because it is the only country that cannot purchase gold using US dollars.

Any market decline exposes dissipating confidence, declining trust in numbers and dependence on government injections. A jobless recovery will be the norm for government policy and those that no longer have a job may apply for unemployment extension. Will nine percent unemployment become the new normal as full employment?

Somewhere within a dark pool larks a $600 trillion plus derivative market. What volume of money supply is needed to resolve counterparties claims? A shortage of US dollars can only be reverse by increasing supply of money in circulation. Resolution must unwind and flush out financial systems before true economic recovery earnestly begins.

Government lacks grasp, control and motivation to tackle CRE loan workouts. The national psychosis of increasing the national debt through deficit spending in order to grow the economy, which expands money supply, may lead to deflating values of CRE. CRE are picked up by financial institutions that receive taxpayer assurances of loses.

Assurances are guaranteed when price falls below purchase price. Assurances are also financed by stimulus and bailout monies marked to grow the economy.

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