Today's Market
by Dr Invest

I know you have been there before, as though locked in time, you wait for the enevitable wreck that is about to ocur. It just may be, that the world's central banks have everything under control, but for the investors stocks surge forward one day while bonds retreat; then the next day bonds surge forward while stock retreat. The choppy market, though rising higher, creates greater losses for investors as governments compete with the investor in buying bonds and their inflation of currencies. (called liquidity)

Today the market has soared on the PROMISE that Draghi and the ECB (European Central Bank) would make bonds available to guarantee the EURO's monetary success. This means that Spain and Italy would have a readied financial resource for more borrowing of money to keep their economies afloat. On that news the market saw gains nearing 2%.

Part of the problem all along has been the cost of bonds (loans) to the failing economies of Greece, Spain, and Italy. Imagine you, getting a loan at 25% interest. Each year, if you don't payoff the loan, your debt rises 25% and in four years, your debt doubles. Yet, the problem is that you have to keep buying bonds (borrowing) each year to pay for all the services your government is providing its citizens. So besides the interest you have an ever increasing debt. Perhaps you can pay down 75% of the debt the first year; but the second year, you can only paydown 55%; and then the third year you can only paydown 35%; finally, the fourth year you are underwater 10%. You get the picture. And this is what has happened to Greece, Spain, and Italy. The way the governments are economically structured has to be changed. There is no such thing as a limitless supply of money for these countries to borrow who are financially underwater.

Like a business that has a herd of executives, paid six figure salaries and awarded million dollar bonuses each year whose salaries are solely dependent upon BONDS offered to investors, so too are governments continuing business as normal as BONDS (loans) are their only hope of remaining financially viable in governing .

Regardless the promises by Bernanke or Draghi or any central bank, there has to be substance to their promises. Yes, these promises have bought time and may continue to do so at the expense of investors, but at some place and at some time governments will have to practice fudicury responsibility and spend less than they get from taxes to pay back all the bonds. (Loans)

You can't keep the entitlements coming and pay for them without increased taxes; and where there are increased taxes there is also reduced economic growth. The wheels are slowly decreasing their speed and unless economic drag is removed, the wheels with eventually stop.

(Note: the above information is for entertainment purposes only and not to be used as investment advice.)