For all of those now contemplating that the recent upswing of economic indices reflects a true turn around, I wish they would all pause for a brief moment to reflect on the following: imagine if all taxpayer underwritten government programs—the TARP, TAFs, the upcoming PPIP, and any other money the Fed, Treasury Department, and GSEs are now tossing around—what if it all suddenly came to a halt? Then what? Would you still anticipate the economy to continue growing and the numbers to keep rising?
All bear markets have bull swings. This one, in addition, has a lot of government backing. The Obama administration will do everything possible to keep the bubble economy in this disequilibrium state. As long as there are people willing to buy Treasuries, such money can be used indefinitely to keep easy credit flowing and the money supply high. The end point is where Treasuries become prohibitively expensive because nobody wants them or, hopefully sooner, the tax base increasingly comes to realize the fraud being perpetrated and takes a stronger stand against it.
Government bailouts can only stall the economic contraction. Eventually they will run out of money, and the return to fundamentals will continue. What is worse, the government money misapproprated in Wall Street bailouts now will be gone when it is truly needed for jobs, extended unemployment, food programs, and basic social supports.