Great Correction facing trouble in expressing itself - The Daily Reckoning
The Daily Reckoning by Bill Bonner
On This Day - 10 May 2011
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Beijing, China

We can barely keep up.

One report tells us things are getting better. The next tells us that they are getting worse.

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Last week, for example, we thought we might finally be seeing the sell-off we've been waiting for. But yesterday, the Dow rose. Gold rose. And oil rose. Gold's back over $1,500...and oil is back over $100.

As for the economy, same story. We got back-to-back updates on the employment situation, for example. No sooner had we absorbed this news on Thursday:

WASHINGTON (Reuters) - The number of Americans filing for jobless aid rose to an eight-month high last week and productivity growth slowed in the first quarter, clouding the outlook for an economy that is struggling to gain speed.

While the surprise jump in initial claims for unemployment benefits was blamed on factors ranging from spring break layoffs to the introduction of an emergency benefits program, economists said it corroborated reports this week indicating a loss of momentum in job creation.

Other reports this week showed weaker employment growth in the manufacturing and services sectors in April and a step back in private hiring, suggesting Friday's closely watched data could prove weaker than economists have been expecting.
But come Friday, and the news was entirely different:

The report in the Financial Times told us that "stock market was boosted by good jobs report."

According to Friday's news, employment had gone up!

A similar flip-flop came to us in the housing market - but in the other direction. Last week, there was a story that told us that sales had been surprisingly strong...hinting that the housing market had finally "bottomed out."

But yesterday, the Wall Street Journal reported that the bottom had already given way:
Home Market Takes a Tumble Turnaround More Distant After 3% Drop, Steepest Quarterly Decline Since 2008

Home values posted the largest decline in the first quarter since late 2008, prompting many economists to push back their estimates of when the housing market will hit a bottom.

Home values fell 3% in the first quarter from the previous quarter and 1.1% in March from the previous month, pushed down by an abundance of foreclosed homes on the market, according to data to be released Monday by real-estate website Zillow.com. Prices have now fallen for 57 consecutive months, according to Zillow.
What's the real story?

The real story is that we're in a Great Correction. But it is one that is having a hard time expressing itself. Every time it opens its mouth, the feds come along with duct tape.

The Great Correction wants to tell the truth - that there's too much debt in the system; that most of today's 'growth' is phony, and that bad debt needs to be erased. The feds want to shut it up...they want to lend more money...and pretend the problem will go away.

As a result, the 'news' we get is garbled...unclear. We have to listen hard to figure out what it really means.

*** Here's one of the stories that has gotten jumbled up and mis-reported. The rich have gotten richer, but why? The dumbbells blame 'capitalism' and ask the government to 'do something.'

The real culprit is the government itself. Here's one report that got it right:
How the Fed made the rich richer

The 'QE2' project was supposed to ease borrowing and get consumers to spend again. Instead, it has benefited only a few while raising most people's cost of living.

There's a good reason for this: As inflation surges at the store and the gas pump, the economy is stalling. And the heart of the problem could very well be the Federal Reserve's $600 billion "QE2" money-printing initiative, which was implemented last November to great fanfare on Wall Street and is set to end in June.

While the program has helped push up the cost of living for all of us -- sending inflation into the red zone and damaging consumer confidence -- evidence suggests its benefits have accrued only to the top tier of the net-worth ladder.

Yes, the stock market has posted impressive gains since the idea of QE2 surfaced, with the Standard & Poor's 500 Index ($INX ) up nearly 31% from its low last August. And that has pushed up household net worth by $2 trillion. The hope has been that this will translate into new spending and drive the economy forward.

But stock ownership is concentrated among the wealthy: On average, just 12% of households worth $100,000 or less own stocks and mutual fund shares outside their retirement plans -- a group that comprises 74% of the total population. While many more own shares through 401ks and IRAs, they're not in a position to easily tap that wealth for current spending.

At the same time, QE2 has pushed up borrowing costs, pressing down the prices of homes -- a much more widely held asset. The Case-Shiller Home Price Index started falling last summer as the idea of QE2 was floated, and it hasn't stopped since. The broad 20-city index now sits below 2009 levels.

[Alan] Meltzer believes the Fed is making the same mistakes it made in the 1970s, focusing too much on unemployment while ignoring the inflation threat. The Fed dismisses that threat as transitory and says inflation expectations remain under control.

This is "simply wrong" according to Meltzer, since inflationary pressures reflect real, lasting shifts in the supply/demand balance as countries like China grow and those like Saudi Arabia struggle to feed their growing appetite for resources. And while unemployment is a problem, "it's not a monetary problem."

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

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