As an investor, what do you do if the Federal Reserve can’t bail markets out? From MN Gordon at economicprism.com:
That was the dispatch made by the popular press on Thursday following word there would be a short-term debt limit extension. But was a default really averted?
Was a default averted when Nixon closed the gold window and put the world on an irredeemable paper standard?
Naturally, Wall Street didn’t bother considering the long-term effects of Washington’s policies of infinite debt – or the soft inflationary default Congress is engineering. Instead, Wall Street did what it loves to do most; it bid up the major stock market indexes.
What a difference a week makes. September may have been painful for stocks. But the first week of October has been all pleasure.
Once again, Washington has a plan to keep the money spigots flowing. It’s roughly the same plan that’s been in operation for the last 50 years. The playbook is real simple: kick the can down the road.
Wall Street generally favors this plan. More debt, both public and private, has loosely translated to higher stock market indexes. And higher stock prices make everyone believe they’re getting rich.
There have been several notable episodic exceptions. But, by and large, the rampant influx of debt based money has brought forth higher stock market indexes.
Still, this relationship is not set in stone. What if things don’t go according to plan? What if the recent past turns out to be much different than the near future?
What would then happen to investors?
We’ll have more on this in just a moment. But first, some perspective is needed…