Dow Ends Best 6 Weeks Since 1938 on Econ Hopes
By - April 18, 2009

Stocks rose on Friday, with the Dow scoring its biggest six-week gain since July 1938, helped by a reassuring report on the mood of consumers and stabilization in General Electric (GE.N) and Citigroup's (C.N) quarterly results. The Dow is up 22.7 percent over the past six weeks, making this the largest six-week gain since July 29, 1938. Friday's close also marked the S&P 500's longest weekly winning streak since 2007. The Reuters/University of Michigan survey showed that U.S. consumers have more confidence in the economy than they have had since the sudden collapse of Lehman Brothers in September, the latest in a spate of data suggesting the economic slump may be easing. GE and Citigroup both posted better-than-expected results, lifting the broader market, and bank stocks rallied as investors bet other financial companies could follow up with more news showing the sector is on the mend. – Reuters

Dominant Social Theme: Good times return?

Free-Market Analysis: It is not surprising the American stock market is up given the amount of money the federal government is dumping into the marketplace – trillions and trillions. The US mainstream media is filled with articles about the markets' positive performance, and especially the banking sector. This is held to presage a general economic comeback. For if the market rises, then investors with money in the market will begin to feel better about their prospects and life in general. Consumers will begin to spend and Western economies will rebound as they always have.

There are several problems with this theory, however. Unemployment in the West, and America, too, keeps rising and businesses keep closing. The stock market may not even be a predictable barometer anymore — divorced as it is from the underlying economy.

California and North Carolina in March posted their highest jobless rates in at least three decades, as unemployment increased in all but a handful of states during the month, the US Labour Department said. California's unemployment rate jumped to 11.2 per cent in March, while North Carolina rose to 10.8 per cent, the highest for both since the US government began a comprehensive tally of state joblessness in 1976. The state-by-state employment figures showed only a few states avoiding the deterioration seen nationwide. Unemployment rose in 46 states during the month, and 12 states plus the District of Columbia posted unemployment rates in March that were significantly higher than the 8.5 per cent nationwide figure the government released earlier this month. -The Australian

We present the following humble prediction: Markets will rise, but many middle class investors will not benefit. Central banks are taking care of their own – putting trillions into play through commercial banks that will ultimately support a relative handful of insiders. Wealth distribution will shrink further, while inflation will rise. Thus we can see the rich will get richer, especially those associated with banking, while the middle class will be further squeezed by price inflation, taxes and unemployment. So long as the stock market averages keep climbing, the mainstream media will trumpet a recovery, even though the recovery is artificial and based on monetary expansion.

After Thoughts

We've offered the idea that the Western world is "overbanked" – that the biggest bubble of all is the banking bubble. This is a logical outcome in fact of central banking, which would naturally tend to its own industry and to its continual expansion. While some banks have begun to fall away in this latest and greatest economic crisis, the Western world probably remains dramatically over-banked and the trillions in stimulation – funneled through banks – will not do anything but aggravate the situation. This is unfortunately how a central banking economy works, and contracts the available pool of wealth as well. Price inflation and unemployment continually squeeze the middle class while a smallish pool of big-time investors and banking-affiliated speculators and executives benefit from central banking money-printing and credit-largesse.

The media plays its part too, talking up the stock market as if it were a predictable indicator of general prosperity, and presenting a renewed banking bubble as evidence of prosperity as well. The middle class is not however invited to this party and is likely to feel increasingly upset and frustrated. In this case, given the depth of the ongoing recession/depression, there is ample cause to wonder if social unrest may become a real possibility. We believe this is something on the minds of the Western political and monetary leadership.