Exactly how is the economy doing?

As the stock market has increased 30% the last two months, there should be significant doubts about the long term trend of our economy. 

Today, the Federal Government is on a pace to add $2.5 trillion to our national debt this year. Over the next 10 years, the Federal Government is projected to spend $11 trillion more than it takes in. Since there are no longer enough private buyers, the US Department of Treasury issues debt and the Federal Reserve "buys" the debt at an alarming and staggering rate. 

Somehow, investors are encouraged by this policy and they buying financial stocks with the impression that the government will do whatever it takes to prevent their failure. This is a very short sighted investment strategy.

There are several weaknesses with the theory that the Federal Government can bail out this problem. The entire economic system is too complex and interconnected to pick just a single group of banks to protect. Many estimates place the total losses related to the financial bubble at $11 trillion, the entire size of our yearly GDP. Consumer spending makes up 70% of our GDP, but 25% of consumer spending was artificially created by unsustainable credit standards and using homes as cash machines. 

While you have heard about a housing bubble, the biggest bubble is the United States GDP and that bubble is in the process of bursting. According to the above numbers, the GDP needs to contract 18% from the high point in 2007. Keynesian economics says government spending can fill the hole to protect our GDP bubble by printing money. This will work in the short term, but never in the history of the world, has an economy sustained itself by finding a way to prop up the economy by taxing the work done 50 years in the future by workers who haven't even been born yet.

Is it this economic system that investors find encouraging as they push the stock market higher? 

The following article should raise some serious doubt.

http://www.marketoracle.co.uk/Article10375.html