Funny Money From The Feds


“The only real force that ultimately makes the stock market or any market rise (and to a large extent, fall) over the longer term,” writes analyst Kel Kelly, “is simply changes in the quantity of money and the volume of spending in the economy. Stocks rise when there is inflation of the money supply (i.e., more money in the economy and in the markets).”

You’ll recall, Dear Reader, that we are getting suspicious of GDP. As we said yesterday, it measures how fast the wheels are spinning; it doesn’t tell you if you are getting anywhere.

What happened over the last 30 years in the US? Money…funny money from the feds…was causing the wheels to spin faster and faster. But the economy got nowhere…

…except deeper in debt.

Yes, the phony money caused people (many of them in Japan and China) to produce more stuff.

And, oh yes, it shifted money from the middle classes to the rich, by increasing the relative value of their investments 13 times…while simultaneously holding real wages flat.

Ken Gerbino explains it in another way:

It is the paper money created out of thin air that creates the unfair distribution of wealth that is making the middle class fall more behind and the poor more poor. Newly created money and credit in a paper money system benefits those that can access the money first and buy capital goods and real property…before the new money circulates and makes all prices go up. Wages also do not keep up with the inflation and that creates another squeeze on the middle class…the bottom 90% of our citizens went from owning a big piece of the income gains (65%) in the 1960s to being squashed in the 2002-2007 period to 11%.

Now, the feds have the voters where they want them. Forty-six million on food stamps. And millions more dependent on federal handouts… Most people can’t afford to oppose the government. They need it to eat. The Week reports:

“Over the last three decades, annual spending on the top federal programs for the poor and near-poor – such as Medicaid, food stamps and Pell grants – soared from $126 billion (in inflation adjusted 2011 dollars) to $625 billion. Today, the average poor person receives $13,000 in federal aid, up from $4,300 in 1980. Programs that transfer wealth to the middle classes are even more massive, with Social Security consuming $725 billion last year and Medicare $560 billion. All told, the US spends nearly $2.1 trillion on social programs, 60% of all federal spending.”


Bill Bonner
for The Daily Reckoning Australia

From the Archives…

Markets and the Aurelius Vision
2012-05-04 – Greg Canavan

How the RBA’s Interest Rate Cuts Cause a Housing Bubble
2012-05-03 – Nick Hubble

How a Cashless Society Promotes Tyranny
2012-05-02 – Dan Denning

2012-05-01 – Dan Denning

Risky Investments in a Market Full of Conmen
2012-04-30 – Bill Bonner

Bill Bonner

Bill Bonner

Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
Bill Bonner

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