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This was written on 11/4/10

The central banks are doing everything they can - going to total extremes - in an effort to keep an unsustainable trend going that has already been stretched to the limit.  The result, when things finally turn around, will be a very, very bad situation (at least in the longer run). 

My first thought when I found out about the law against recessions in the summer of 2001 was "this country is headed for very, very bad times."  We are fast heading exactly there. 

Why did I have that thought in the summer of 2001?  Because once I knew about the law against recessions (in light of everything else I knew in the meantime back then about how the system really works), I knew that the central bank would push the system absolutely to the limit to the upside - and then the system would come all the way back down again. 

The central bank is now in the process of pushing the system truly absolutely to the limit to the upside - which means that America will have a very, very bad situation when the system finally comes back down. 

The simple reality is that there is no such thing as a capitalistic economy that has no recessions - contrary to the beliefs of the modern neo-Keynesians (known simply as Keynesians to most people).  The attempt to avoid recessions is ultimately going to result in an economic depression - an absolutely massive one at the rate things are going. 

Why do I say "neo-Keynesians"?  Because Keynes never said to do what the modern Keynesians are doing - he said to spend deficit money during the downturns and then pay it back during the upturns so that the system will be ready for the next time around.  But that is not how human psychology works - human psychology says to deficit spend money during the bad times to get things going again and then continue to deficit spend money during the good times because it feels so good.  That is exactly what we have been doing - except during the bubbly great years of the late 1990's, which will never return again because they can't return again - and so the country is simply going to spend itself into oblivion in coming times. 

Bernanke, and Greenspan before him, kept saying to Congress that if Congress does not get spending under control, nothing that the Fed does will matter in the end.  Bernanke and Greenspan were (and are) quite right - but Greenspan did and Bernanke does keep doing everything they could/can to keep the economy going in the meantime even in the face of government spending that relentlessly does not go down, which is going to spell doom for this country because in the end, the system will go down and the longer the central bank tries to keep things going in the meantime, the worse the come-down will be. 

Can the central bank prevent the come-down?  No - because the government spending is inevitable, no amount of begging and pleading by outsiders is going to stop that.  The record deficit spending under George W. Bush was just as inevitable as the even more record deficit spending under Obama - and the record spending under George W. Bush is what actually put us over the top in terms of going past the knee of the debt exponential a couple of years ago, not Obama (as I point out on this website - in other words, the Republicans have it all wrong, it was their own man who did it; round numbers such as a trillion do not matter, but that is what the Republicans are putting their emphasis on - what matters is the actual math, and the reality is that we went past the knee of the American debt exponential before Obama's deficits even came along). 

In the big picture, the simple reality is that economies go through cycles and so do civilizations - we are at the end of both a long economic cycle and a long civilizational cycle and nothing can prevent that from running its course anymore, we are long-past the point where that can be stopped anymore.  It can be postponed - and that is what the central bank is doing - but the longer that is done, the worse the consequences will be. 

Bernanke has made clear along the way during his tenure so far that if the economy goes down due to government spending while he is Fed chairman, he will simply blame the politicians when they try to blame him (which they inevitably will do).  The problem with that is that all the begging and pleading in the world - by him or anyone else - to get the government to eliminate the deficits and reduce the debt at this point in the cycle won't do any good at all, and so he has no appreciation for just how much damage he is doing by trying to keep the economy going at all costs in the meantime.  The simple reality is that trying to do so is a pointless, useless effort that is only inflicting major damage in the long run - the more it is done, the more damage America is going to have to live with in the long run. 

Here is a simple reality. There is a head-and-shoulders pattern on the one-year S&P 500 chart - that has now resolved to the upside (failed up instead of going down) because of all the central bank intervention.  But the reality is that we are past the knee of the exponential in the American national debt and have been for a couple of years already.  It is a HUGE exponential - so it is taking its time to run its course even after going past the knee - but it will only take another year or two to go vertical and when that happens (and, no, Obama can't stop that from happening anymore), all other spending besides interest on the national debt will be crowded out.  When that happens, it won't matter how well everything else is doing - and the higher the stock market is when that point is reached, the bigger the disaster is going to be, so pumping things up in the meantime and causing the S&P 500 to fail up instead of going down is just going to make the future situation that much worse

I do not think the economy is even going to hold up until the national debt would go exponential under current circumstances - I think the economy is so weak that it is going to go down despite the Fed's best efforts before we even get to the point where the national debt would go exponential assuming the current circumstances (if the economy collapses sooner, the national debt will go exponential much sooner because of a huge decrease in tax revenues due to the rapidly declining economy), but holding the stock market up relative to an economy that will go down sooner is also not a good idea because the higher the stock market is when the economy goes down, the worse the situation will be - but if the economy holds up until the national debt would go exponential at the latest time it can (i.e., in a year or two from now), the situation will be even worse.