Is Quantitative Easing Creating Unwanted Bubbles?

The Dow set an alltime record today (Mar. 5, 2013). The last time the Dow / Stock Market was this high was in Oct. 2007. Here are some interesting statistics comparing then vs now.

~ Dow Jones Industrial Average:   Then 14164.5;   Now 14164.5

~ Regular Gas Price:   Then $2.75;   Now $3.73

~ GDP Growth:   Then +2.5%;   Now +1.6%

~ Americans Unemployed (in Labor Force):   Then 6.7 million;   Now 13.2 million

~ Americans On Food Stamps:   Then 26.9 million;   Now 47.69 million

~ Size of Fed’s Balance Sheet:   Then $0.89 trillion;   Now $3.01 trillion

~ US Debt as a Percentage of GDP:   Then ~38%;   Now 74.2%

~ US Deficit (LTM):   Then $97 billion;   Now $975.6 billion

~ Total US Debt Oustanding:   Then $9.008 trillion;   Now $16.43 trillion

~ US Household Debt:   Then $13.5 trillion;   Now 12.87 trillion

~ Labor Force Particpation Rate:   Then 65.8%;   Now 63.6%

~ Consumer Confidence:   Then 99.5;   Now 69.6

~ S&P Rating of the US:   Then AAA;   Now AA+

~ VIX:   Then 17.5%;   Now 14%

~ 10 Year Treasury Yield:   Then 4.64%;   Now 1.89%

~ EURUSD:   Then 1.4145;   Now 1.3050

~ Gold:   Then $748;   Now $1583

~ NYSE Average LTM Volume (per day): Then 1.3 billion shares; Now 545 million shares

There are some very troubling numbers in there – and the trend is not good. It appears that the Quantitative Easing the Fed has been doing is creating a bubble or multiple bubbles that will be very scary when they pop.

America’s Baby Bust

The nation’s falling fertility rate is the root cause of many of our problems. And it’s only getting worse.

Excellent article talking about some of the root problems in society today.

Snapshot of US debt and deficit in relation to an annual household budget

US Tax revenue: $2,170,000,000,000
Federal budge: $3,820,000,000,000
New debt: $1,650,000,000,000
National debt: $14,271,000,000,000
Recent budget cuts: $38,5000,000,000 (billions…the above amounts are trillions)

Now remove 8 zeros and pretend we are looking at a household budget

Annual family income: $21,700
Money the family spent: $38,200
New debt on the credit card: $16,500
Outstanding balance on the credit card: $142,710
Total budget cuts so far: $38.50

This doesn’t include unfunded liabilities that have already been promised. If the U.S. Government were using GAAP (Generally Accepted Accounting Principles) and had to declare those unfunded liabilities on their books like companies do – then the U.S. debt is more like $60,000,000,000,000 (that is $60 Trillion).

Abbott and Costello explain Uncle Sam’s Accounting System for Unemployment Statistics

COSTELLO:  I want to talk about the unemployment rate in America .

ABBOTT:  Good Subject. Terrible Times. It’s 9%.

COSTELLO:  That many people are out of work?

ABBOTT:  No, that’s 16%.

COSTELLO:  You just said  9%.

ABBOTT:  9% Unemployed.

COSTELLO:  Right 9% out of work.

ABBOTT:  No, that’s 16%.

COSTELLO:    Okay, so it’s 16% unemployed.

ABBOTT:  No, that’s 9% .

COSTELLO:  WAIT A MINUTE. Is it 9% or 16%?

ABBOTT:  9% are unemployed. 16% are out of work.

COSTELLO:  IF you are out of work you are unemployed.

ABBOTT:  No, you can’t count the “Out of Work” as the unemployed.  You have to look for work to be unemployed


ABBOTT:  No, you miss my point.

COSTELLO:  What point?

ABBOTT:   Someone who doesn’t look for work, can’t be counted with those who look for work. It wouldn’t be fair.

COSTELLO:  To whom?

ABBOTT:  The unemployed.

COSTELLO: But they are ALL out of work.

ABBOTT:  No, the unemployed are actively looking for work. Those who are out of work stopped looking. They gave up. And, if you give up, you are no longer in the ranks of the unemployed.

COSTELLO:  So if you’re off the unemployment rolls, that would count as less unemployment?

ABBOTT:  Unemployment would go down. Absolutely!

COSTELLO:  The unemployment just goes down because you don’t look for work?

ABBOTT:  Absolutely it goes down. That’s how you get to 9%. Otherwise it would be 16%. You don’t want to read about 16% unemployment, do ya?

COSTELLO:  That would be frightening.

ABBOTT:  Absolutely.

COSTELLO:    Wait, I got a question for you. That means there are two ways to bring down the unemployment number?

ABBOTT:  Two ways is correct.

COSTELLO:  Unemployment can go down if someone gets a job?

ABBOTT:  Correct.

COSTELLO:  And unemployment can also go down if you stop looking for a job?

ABBOTT:  Bingo.

COSTELLO:  So there are two ways to bring unemployment down, and the easier of the two is to just  stop looking for work.

ABBOTT:  Now you’re thinking like an economist.

COSTELLO:  I don’t even know what I just said!

ABBOTT: Now you’re thinking like a politician!

The Power of the Market

An essay and two videos show the power of the market. Let the free market work and see what can happen.

The Pencil by Milton Friedman and I, Smartphone. These are both based on the writing of Leonard Read in 1958.   Enjoy

The Pencil by Leonard Read:


The Power of the Market, The Pencil by Milton Friedman

I, Smartphone

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