Debt and Bubbles from Bloomberg TV

The headline says it all: “US Debt Is A Black Cloud Over Investors.”

Steve Holland of The Holland Group was discussing “why we’re seeing a rally” in US markets with Angie Lau on Bloomberg Television’s “First Up.” Holland listed a lot of short term positive signs, but his outlook did not seem positive at all when he was done. Listen especially at 1:53 and following.

[Click here if the video does not work below]

Hearing Holland mention the debt as a reason that investors fear the US economy prompted an immediate response from Lau, who had to reiterate the party line that the hesitation to raise the debt ceiling and the government shut down had hurt the economy. Lau does not seem to be able to distinguish between short-term churn in the market and long term drag or damage. Holland insisted that “any bull market can be derailed” by a $17-trillion-dollar debt.

So the claim that the markets were scared that the US government would fail to borrow money to pay interest on borrowed money was not the whole story!

It got even more interesting after that when Holland (with Lau’s apparent agreement) pointed out that all his investors “clearly remember 2008.” They remember losing 30-40 percent of their capital. Holland says they are “pulling back” and being more defensive.

Many of his investors are “expecting another significant correction” in the stock market like what happened in 2008.

Lau quoted Larry Fink the CEO of Blackrock the world’s largest money manager: “It’s imperative that the Fed begin to taper. We’ve seen real bubble markets again.” Lau agreed herself, saying that the S&P 500s year to date 24 percent gains are due to the Fed’s printing money. Lau asked Holland if he agreed we are seeing asset bubbles.

Holland agreed: “Absolutely.”

His investors are telling him, “We really don’t trust this rally.”

They shouldn’t.

Of course, the Fed is not likely to start tapering any time soon. I think it will never do so. It will keep providing easy money for the one percent and the rest of us will see our expenses go up. Our only hope, from a short-term economic perspective–is another deflationary crash. But when prices go through the floor we can expect more panic in the government driving them to do evil things to save the banks and financial institutions that gave us this mess.

The bottom line here is that the debt is hurting, not helping our economy, and much of the prosperity we see will be washed out overnight in another crash.