The problem is that easy money doesn't fix what's broken. We can state this simply:

1. One primary problem with the real economy is there is too much debt, too much leverage and too little collateral.

2. Making money cheap and liquid only compounds this problem.

3. The other problem is household incomes are stagnating, making it difficult to service the monumental debt carried by households.

4. Making money cheap and liquid for banks and speculators does not funnel money into the real economy or households, so it neither reduces debt loads nor boosts incomes.

Easy money flows into "risk-on" speculations like equities. The one "achievement" of the Obama administration and the Federal Reserve is the Bull market in equities since the March 2009 post-meltdown low.

As this chart (courtesy of Scott at thelastcanary.blogspot.com) reveals, stocks rose in lockstep with the expansion of the monetary base. The key indicator here is the red line, a ratio of the S&P 500 stock market index growth and monetary base growth:

Note that the ratio rose smartly in the 1990s as equities experienced strong growth while the monetary base remained stable. This Bull market did not depend on a rapidly expanding monetary base.

Now look at the red line during the 2009-2012 Bull market. As the monetary base exploded higher, the ratio of equities growth and monetary growth plummeted as monetary expansion completely swamped the rise in equities. A stupendous rise in the monetary base yielded a comparatively modest rise in equities, a reality reflected in the nearly flatlined ratio line.

The standard measure of money in the real economy, M2, has also gone nowhere when correlated to the monetary base.

This chart reflects an economy and stock market that is increasingly immune to the expansion of the monetary base.

Incentivizing debt and leverage does nothing to reduce leverage or debt, and incentivizing speculation does not reduce household debt loads or increase household incomes. And without improving household incomes, you have a recessionary economy held aloft by unsustainably profligate Federal borrowing and spending.

Is this a "solution"? No. Is this sustainable? No.

Read the Introduction (2,600 words) and Chapter One (7,600 words) for free.

We are like passengers on the Titanic ten minutes after its fatal encounter with the iceberg: though our financial system seems unsinkable, its reliance on debt and financialization has already doomed it.

We cannot know when the Central State and financial system will destabilize, we only know they will destabilize. We cannot know which of the State’s fast-rising debts and obligations will be renounced; we only know they will be renounced in one fashion or another.

The process of the unsustainable collapsing and a new, more sustainable model emerging is called revolution, and it combines cultural, technological, financial and political elements in a dynamic flux.

History is not fixed; it is in our hands. We cannot await a remote future transition to transform our lives. Revolution begins with our internal understanding and reaches fruition in our coherently directed daily actions in the lived-in world.

If this recession strikes you as different from previous downturns, you might be interested in my book An Unconventional Guide to Investing in Troubled Times (print edition) or Kindle ebook format. You can read the ebook on any computer, smart phone, iPad, etc. Click here for links to Kindle apps and Chapter One. The solution in one word: Localism.


Readers forum: DailyJava.net.



Order Survival+: Structuring Prosperity for Yourself and the Nation (free bits) (Kindle) or Survival+ The Primer (Kindle) or Weblogs & New Media: Marketing in Crisis (free bits) (Kindle) or from your local bookseller.

Of Two Minds Kindle edition: Of Two Minds blog-Kindle

---

"This guy is THE leading visionary on reality. He routinely discusses things which no one else has talked about, yet, turn out to be quite relevant months later."
--Walt Howard, commenting about CHS on another blog.

---

NOTE: gifts/contributions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.

Thank you, Gaylan P. ($5/month), for your exceedingly generous subscription to this site--I am greatly honored by your support and readership.

---

Or send him coins, stamps or quatloos via mail--please request P.O. Box address.

Subscribers ($5/mo) and contributors of $50 or more this year will receive a weekly email of exclusive (though not necessarily coherent) musings and amusings.

At readers' request, there is also a $10/month option.

The "unsubscribe" link is for when you find the usual drivel here insufferable.

Your readership is greatly appreciated with or without a donation.

---

For more on this subject and a wide array of other topics, please visit my weblog.

                                                           

All content, HTML coding, format design, design elements and images copyright © 2012 Charles Hugh Smith, All rights reserved in all media, unless otherwise credited or noted.

I would be honored if you linked this essay to your site, or printed a copy for your own use.

Terms of Service:
All content on this blog is provided by Trewe LLC for informational purposes only. The owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site. The owner will not be liable for any errors or omissions in this information nor for the availability of this information. The owner will not be liable for any losses, injuries, or damages from the display or use of this information. These terms and conditions of use are subject to change at anytime and without notice.