Thursday, April 9, 2009

Market goes up and down – UK and other idiotic things

In the United Kingdom the central bank has gone over to quantitative easing (QE) since the interest rate is as low as it can be and people are still not shopping enough. Basically this means that the central bank presses some keys on a keyboard and presto; more money exists. The bank then uses this money to buy assets - usually financial assets such as government and corporate bonds. The government and those corporate businesses (financial institutes) then have more money in their hands they can invest, spend or buy things for and the theory is that this will get the economy going again since there is suddenly more money in the system.

There are two problems with this theory and this scenario:

1) UK is broke, completely. And in order to keep paying public employees and trying to jumpstart everything the government is borrowing money like crazy, but still people won’t do as expected; spend. This means that the debt is growing rapidly. The rates are very low, but still people will not go out shopping. So when all this money flows into the system, people who get a piece of it will still not shop as the government is pleading them to do. Why? Because it is a crisis, jobs are not safe, the country’s debt is growing, and there is also a slow but steady growth in prices. So even if rates are very low and you actually lose money if you save them, people are so afraid they rather take their chances with the money they have instead of buy something they might not need.

2) This is the important part. This newly “printed” money they have conjured up out of thin air goes firstly to financial institutes who are the main benefactor of this money. They get it first. Every time you fictively increase money without any value attached to them, whoever gets this money first wins the most. Money works like any other commodity so when you increase the supply it means that the demand (the price) goes down. Each pound loses in value. But at the start this is hardly noticeable so the persons/companies that get the money first can “trick” other people/companies that the money is worth more than it really is. This is the main reason why the markets are going up and down at the moment.

Further Explanation:
Company A gets freshly printed money and they use this to buy products from company B which might either increase one company’s stock value (someone is buying or have money to buy, hurray) or even both of them. But when company B uses the same money it has lost in value because it is now more money on the market. So when Company B now buys things from company C the market reacts a bit suspiciously or neutral. Their stock might go up or down, it depends really. And as this continues some companies goes up, some goes down, but the overall effect is about zero. This means that investors start looking for two things; firstly those really sure bets that exists, mainly companies with solid finances that have products that always is sort after, even in a crisis. Secondly they might try to temporary gain profits by investing in those company A:s that get the extra cash first, but this only temporary, they invest, get their winnings and pull out which also is a reason for the market seemingly doing better now and again. But if you look closely on stocks on the market, when the index goes up you will notice that there are few companies (at least fewer then during normal times) that gain momentum and pulls the total index up, which is exactly what is happening now.

What does this mean? It means that nothing is changing; the crisis is not diverted even if some figures might temporary show it and some stupid journalist writes it. The crisis looms still and now you have a ticking inflation bomb waiting for something to trigger it and when that bomb goes off; can you say “Weimar” with a German accent?

The first fun thing is that when the crisis isn’t over and maybe even getting worse, governments will do the same thing again. Look at Japan, they are into their 999th (or something, hard to keep track of) stimulus and things just keep getting worse, but they are still doing the same thing. And every time the inflation bomb and the amount of time it takes to fix the problem increases exponentially.

And second fun thing is that this is going on all over. Not really as bad as in UK and in the US, but it is going on in pretty much every country and the speed and amounts are increasing for every month that goes by. So when the g20 countries say they are going to inject even more trillions of dollars (also created by pressing some keys in a keyboard) on the market it is the same as issuing a death order. We are soon plummeting much further down and within a year we will not be calling this a recession anymore, it will be a depression. Don’t believe eventual positive signals; don’t believe it when some extra billions seemingly are available on the market. It’s a scam, a trick, an illusion. We are fucked and you better believe it soon, because your number is up together with the rest of us.


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