Since our currency is no longer on the gold or silver standard it is backed with nothing but 'Fiat!" "Fiat' could be translated as "It is what it is!" However, a literal translation from the latin is "Let it be done!" Merriam-Webster Dictionary online defines "Fiat" as:
1 : a command or act of will that creates something without or as if without further effort
When applied to a currency it means is the currency is worth what you think it is worth. It is worth what the people that use it think it is worth. So there are a lot of nuances on how a currency is propped up as we all saw in this last year, but the main way it is propped up is by speaking well of the dollar. The news refers to it as 'Consumer confidence' but it is certainly more than that. It has a lot to do with trust in our government, and the faith they will do the right thing. It is this faith and trust in the government that kept US citizens from making runs on failing banks like they did in "Northern Rock' in England.
What we really have to concern ourselves is that most citizens realize things are not working as normal. Most of the historic financial rules that should have worked do not seem to apply anymore. Bad financial news should bring selling in the stock market and instead it rises on buying. So in many ways the news is beginning to sound like the spin doctors are out there telling us how good it really is, even if we have major doubts. The problem is that sometimes the spin comes on a little too strong by an over zealous Washington crowd, Perhaps they are not realizing it but the numbers are less than credible. The terms 'Propaganda, and spin' come to mind.
The recent news stories that the economy took off in the last quarter and the GDP increased at an unheard of 5.7% is really unbelievable. It seemed to take everyone by surprise, and stocks went down. For one thing if it were true, you can expect interest rates to start to rise rather quickly which would be a total disaster for all in our industry. The GDP story was so heavy handed that it sounded like total propaganda meant to loosen up our wallets so we would quickly start spending again. It neglected to mention that was the quarter a lot of Federal monies was pumped into the economy. Tarp funds, new home tax credits, cash for clunkers etc. It wasn't as if the private sector caught on fire, that unemployment turned around or the dollars quoted were a paper shuffle! In a a Blog on Seeking Alpha, they mentioned that a lot of the GDP was a direct result of inventory reductions, not new business.
At some point, real numbers will come out, and once optimistic or spin data will have revisions of that news. Perhaps it will post on page 20 of your local newspaper. We will all sense signs of real recovery, and no one will have to tell you it has arrived. I suppose what we all want to see is unemployment slow, and employment rise before anyone gets carried away doing cartwheels.
Yes I know that employment is a lagging indicator, but at least it's a real measure of growth...not a lying indicator! The country needs real jobs to affect a recovery.
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