Following one of the worst weeks in stock market history, the Dow posted a 4.75% gain this week which was the best performance since 2003. And since a lot of people use the stock market as a major indicator of the direction of the economy, it looks like recent moves by the Fed may be working in staving off a major recession. But you have to believe there's a lot more here than just a good week...and you have to wonder when the other shoe will drop?
The Fed has already spent $1.5 trillion dollars in attempting to prop up the faltering economy. The Treasury Department has already borrowed $500 billion from pension plans, foreign governments and other investors to replenish the coffers of the Federal Reserve. This borrowing has pushed the defecit from $9.6 trillion to $10.3 trillion in just a matter of two months. The annual budget deficit is looking to nearly triple this year, from $162 billion to $455 billion. With additional proposals not included, including another $250 billion in bailout requests, there is a scenario where the annual budge deficit starting October 1st could reach $1 trillion dollars.
Both presidential candidates have projects to spend even more money. McCain is proposing a $52 billion dollar stimulus package while Obama's plan tops $175 billion. Nancy Pelosi is calling for another $150 billion - $200 billion for stimulus and mortgage relief. And then you throw in Obama's additional investment in education and expanded health care coverage.
This is one of the reasons I didn't like the bailout. It has essentially opened the floodgates and turned the federal government into a huge bank. Only the bank just gives handouts to everyone. We're overdoing the stimulus work out of fear. And eventually that will come back to haunt us. The pain the bailouts are saving us now could come back and cause real damage later. It may take a little time, but there's always another shoe to drop.