Sunday, May 9, 2010

Where's The Outrage? Dylan Ratigan Forgets The Fed

This weekend ZeroHedge posted the following video of Dylan Ratigan explaining Thursday's crash, causes and consequences:

Ratigan and his guest both seem outraged about this crash and other similar Wall Street shenanigans because they think these events are examples of average Americans getting jerked around and screwed by Wall Street.

When I watch a video like this, however, I wonder, why is everyone so outraged?

Ratigan acts like, before the whipsaw-crash, all that market cap-value really existed as wealth held by the public. According to Ratigan, after the crash, it arbitrarily evaporated. This isn't right.

The wealth never existed! The crash is actually good because it's a demonstration of reality presiding over fantasy, if only for a few short minutes on Thursday. The fantasy was the stock market's valuation prior to the crash-- the reality is the stock market during the crash.

When the Fed sets off to print money, lower interest rates and generally kick-off a false boom, all the "wealth" that is created subsequently is also false. It doesn't actually exist, it just appears to thanks to market participants temporarily being fooled by Fed money-printing.

Think of it like this: if you created a really great counterfeiting machine in your garage and used it to print up a bunch of $100 bills, you'd suddenly feel quite rich. This is the boom. Then, when you go to spend them at the store and the cashier realizes they're fakes and doesn't allow you to make your purchase, you feel quite poor again. This is the crash.

If you're Dylan Ratigan and his guest, you become outraged when the cashier hands you your phony $100 bills back. You accuse the cashier of destroying your hopes and dreams and decimating your wealth. But if you're a bit more sensible than that, you realize that the real outrage was that you thought you could print up phony money and pass it off as real wealth to others in the first place. The dream-crushing happened the moment you turned on your counterfeiting machine, not when the cashier rejected your fraudulent wealth.

The same thing goes for the complaining about the fall in home values. That wealth was all illusory to begin with. When home prices fell, no one really lost anything because they hadn't actually gained anything when house prices rose. It was an unsustainable, fraudulent accumulation of wealth in the first place that only needed enough time to be realized as such.

Unfortunately, Dylan and his guest don't talk about the Fed and its money supply manipulations. If you followed my example, you should realize by now that that's where the real outrage should be aimed.

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