Once again Regional Banks (KRE)was one of the worst performing sectors, with some of the banks having stopped paying the U.S. government, dividends they owe from taking part in the Troubled Asset Relief Program, and another bank continuing to face elevated risk primarily due to its exposure to commercial real estate. There seems to be a major disconnect, between the broader markets, and real economic conditions. Truth is, that without manipulation, theSPX wouldn't be as high as it is today... flat on the year. The rally off the March lows is in essence, just another bubble, made possible by the immense infusion of liquidity into the markets, and is neither an accurate reflection our current economy, nor an accurate projection of the economy, 6 months in the future. There is still systemic risk, in the banking system, to bad loans and bad derivatives bets, and this will probably, inhibit any recovery in the housing market (XHB) or the economy in general, in the near future, and cause the markets to make double dip, with another test of the March lows, and guarantee massive inflation, down the road.
Price inflation results when “demand” (money) increases more than “supply” (goods and services), driving prices up. If the newly created money( liquidity) was created for the purpose of funding productivity, supply and demand would increase together and prices would remain stable. In other words, if the monetizing of the debt, or quantitative easing, were actually to be used to fund infrastructure and other productive projects, as in President Obama’s stimulus package, the result could actually invigorate the economy. Real economic growth and development could be achieved, without attendant price inflation , because supply and demand would rise together.
Unfortunately, this is not what is happening. That is because, money creation in the United States is created and controlled by the Fed, a privately-owned central bank, and it is largely being done to settle speculative derivative bets on the books of private banks, without producing anything of value to the economy.
If money continues to be printed merely to bail out Geithner's cronies on Wall Street,the inevitable result will be to cause demand ( money supply) to shoot up, while supply (goods and services) remain fixed. The result could be, not just inflation, but hyperinflation, because foreign nations like China, (who already have lost confidence in the U.S. dollar), and currency speculators would sell dollars, triggering rampant mania and panic, and an eventual populist outcry for the nationalization of the Fed. I won't go as far as to say I'll name one of my kid's "Cryoport", if it doesn't happen, but I'll stand by my prediction.
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