Fear is the Key . . .

Fear is the Key . . .
Vol: 84 Issue: 22 Monday, September 22, 2008

It’s fair to say that the US stock market is taking a real beating. But this isn’t the Stock Market Crash of 1929. It isn’t even close. This is politics more than it is finance.

It’s raining — there might even be a little hail, but no, the sky itself is not falling — no matter what the mainstream media keeps repeating.

First, let’s look at what happened over the past week. Then we’ll compare it to the historical data. Finally, we’ll sort out why, if the sky ISN’T falling, that everybody seems so convinced that it is.

The market came closest to imploding last Thursday. Before the bell even sounded to signal the Dow’s opening there were more than $500 billion in ‘sell’ orders pending. With a total money market capitalization that morning of $4 trillion, had the Fed and Treasury not stepped in, the market could have lost almost a quarter of its value. It COULD have. But it didn’t.

Money markets are purveyors of short-term debt. The term ‘money market’ is a figurative expression for the informal network of dealers and investors over which short-term debt securities are purchased and sold.

Money market securities generally are highly liquid securities that mature in less than one year, typically in less than ninety days. Banks buy this short term debt, or ‘commercial paper’, to fund credit card operations. Companies like GMAC use it to finance the automobile market.

Without commercial paper, there would be an immediate and devastating effect on the economy. Credit cards would be recalled. Car loans and other short term financial deals would be curtailed or stopped completely. Factories would shut down, workers would be laid off . . . . you see how important it all is.

Let’s compare this week with the 1929 Market Crash. In 1929, the market lost 40% of its value overnight. Bankers were jumping out of high rise office building windows.

In the past week, the Dow Jones fell by less than ten percent for less than three days before recovering all of its losses. Bankers weren’t jumping out of windows — and the few who were tossed out of them had golden parachutes in place to see them to a safe and gentle landing.

What happened over the past week was largely a fiction, although if you were among those investors who saw their portfolio’s shrink it seemed real enough. This wasn’t a crash, it was a legal theft. The ‘smart money’ cleaned up, loudly protesting all the way.

It was the amateurs who took a beating — but there are a LOT of amateurs out there, compared to previous market crashes in 1929 and 1987.

Financial shares in the S&P 500 plunged 13 percent in the first three days of the week as Lehman Brothers Holdings Inc. filed for bankruptcy, Merrill Lynch & Co. sold itself and the government seized American International Group Inc., sending the market to its steepest declines since the 2001 terrorist attacks.

But then the Fed stepped in to bail out AIG, the Treasury pumped a hundred billion dollars in liquidity into the banking sector, and by Friday, the Dow had regained 929 points from its low point of the week.

The S&P 500 ended the week 0.3% HIGHER, the Dow ended the week 0.3% lower, the presidential candidates couldn’t make up their mind if there were more votes for fundamentals of the economy being strong or if the voters wanted to hear that financial Armageddon is just around the corner.

McCain said the fundamentals of the economy were strong last week, and the Obama campaign spent the rest of the week ridiculing him for it.

Which is it? Are the ‘fundamentals’ strong? Or are we teetering on the verge of bankruptcy? Drum roll, please. . . .

At any given time of the night or day, year in, year out, when it comes to the US economy both views are equally accurate.

The ‘fundamentals’ of the US economy require debt in order to operate — the US economy is a debit economy. The last time the US Treasury balanced the budget was during the waning years of the Clinton administration.

The last US recession began, according to the National Bureau of Economic Research, in November 2000 and lasted until 2002. The media called it the ‘Bush recession’ but even a cursory glance at a calendar proves that was political spin.

Once the Bush tax cuts went into effect, the fundamental nature of the economy — that of a deficit economy — regained its strength and, 9/11 notwithstanding, the US economy climbed out of the recession it was in and began to grow again.

So, while the fundamentals of the economy are strong, they are strong BECAUSE we are teetering on the edge of bankruptcy. It is counter-intuitive, but only because we don’t think of money as what it actually is. We tend to think of ‘money’ as an instrument of wealth, which, in the case of individuals, it is.

But in the case of the US Federal Reserve system, however, ‘money’ is an instrument of debt — and the more debt is racked against it, the stronger it is. THOSE are the ‘fundamentals’ of the US economy. Are they strong?

Last Wednesday, the Dow was teetering on the edge of collapse until the Fed pumped more money into the market. Today, thanks to the injection of cash, and much to the dismay of the Democrats, the Dow has recovered almost all of its losses.

Where did the Fed get the money? It borrowed it.

Assessment:

I said that I would explain why, if the isn’t falling, everybody thinks it is. Its not that complicated, really. If you repeat a lie over and over and over, eventually, it will be accepted as true, despite the evidence to the contrary.

For most of the past eight years, we’ve been hearing that recession is just around the corner, that the economy stinks, and that only new leadership in Washington will fix the mess we’re in.

Where are we hearing that from? From the primarily liberal mainstream media, in support of the Democrats who hope to use the ‘failing economy’ as a springboard to power.

When we aren’t hearing about the ‘collapsing economy’, we’re hearing about the 12 million illegal aliens ‘who do the jobs that Americans won’t take’. The phrase ‘cognitive dissonance’ has really been getting a workout lately, hasn’t it?

(‘Cognitive dissonance’ is that uncomfortable sense one has when trying to reconcile contradictory viewpoints — you know, like Americans are losing their jobs ‘in record numbers’, but there is enough work available to keep twelve million illegal aliens busy?)

I don’t want anybody to misread me here. I am NOT saying that there hasn’t been a lot of financial blood-letting taking place — there has. What I am saying is that the political arm of the mainstream media is working overtime to make it seem worse than it is.

Georg Hegel was a German idealist philosopher who lived from 1770 to 1831. Hegel is widely recognized as one of the most influential thinkers of the 19th century.

Hegel built on the philosophy of the ancient Greek Parmenides, arguing that ‘what is rational is real and what is real is rational.’ The logic that governs this developmental process is dialectic. The dialectical method involves the notion that movement, or process, or progress, is the result of the conflict of opposites.

Traditionally, this dimension of Hegel’s thought has been analyzed in terms of the categories of thesis, antithesis, and synthesis.

Hegel’s Dialectic forms the basis for governments and financial markets to ‘manage by crisis’ — to accomplish goals in the face of widespread popular opposition.

Here’s how it works:

Thesis: Create or identify a ‘manageable’ crisis — in this case, the ‘economic sky is falling’.

Antithesis: Identify the root cause, and stir up panic and fear of the crisis situation. In this case, the root cause is ‘failed Republican economic policies that reward the rich’.

Synthesis: Offer as a solution to the problem the policy or program a societal shift which would have been impossible to impose upon the people without the proper psychological conditioning achieved in stages one and two — which in this case would be to elect Democrats to replace Republicans.

It is a matter of record that the vast majority of American mainstream journalists — approaching 90% in some surveys, self-identify as liberal Democrats.

So, let’s add it all up and see what’s what. The media and the Democrats say the economy is in the tank, thanks to failed Republican policies. But the last actual recession was the 2000-2001 Recession that began during the Clinton administration.

Although there is allegedly ‘record’ unemployment (at under 6%) there remain 12 million gainfully employed illegal aliens (who just LOVE this damaged American economy). Personally, I don’t know anybody who can’t find a job, (although I know a number of folks who can’t find the one they think they deserve.)

Prophetically speaking, the Bible divides the last days into two distinct periods — the period of fear, and the period where those fears are realized.

In the period leading up to the Rapture, the Bible warns of fear — “men’s hearts failing them for fear, and for looking after the things which are coming upon the earth . . .” Jesus says at one point.

Fear is what the Hegelian Dialect is designed to harness. Fear is what the current political season is all about. Watch the political commercials — its all about eliciting fear.

The meltdown is coming. But it’s not here yet. The Lord is coming back. His promise is sure.

But it isn’t until the Four Horsemen of the Apocalypse that any of those fears begin to be realized. We’re still in the warning phase.

“The Lord is not slack concerning His promise, as some men count slackness; but is longsuffering to us-ward, not willing that any should perish, but that all should come to repentance.” (2nd Peter 3:9)

He is delaying until the last possible moment, offering Himself as a refuge from the fear and uncertainty, making sure that everybody has had a chance to decide for themselves where they will place their trust.

Jesus said, “For where your treasure is, there will your heart be also.” (Luke 12:34)

Some will put their trust in banks. Some will trust politicians. Some will put their trust in their emergency stockpiles of provisions. Some will hide their money under their mattress and trust only in themselves.

Where one puts one’s trust is where one puts one’s service.

“. . . but as for me and my house, we will serve the LORD.” (Joshua 24:15)

One thing is certain. It’s a lot less nerve-racking.

This entry was posted in Briefings by Pete Garcia. Bookmark the permalink.

About Pete Garcia

Christian, father, husband, veteran, pilot, and sinner saved by grace. I am a firm believer in, and follower of Jesus Christ. I am Pre-Trib, Dispensational, and Non-Denominational (but I lean Southern Baptist).

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