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Economic Denial

The majority of society lives in economic denial, sustained by sifting positive facts from the news that will support their desired outlook.

 

On February 9th, Stan sent me the following quote through which I saw a lot of economic denial:

The stock market is rising because the stock market is rising. That’s all we know and, apparently, all we need to know. The S&P 500 Index has nearly doubled since the dark days of March 2009. It’s been a great run. The Wall Street folks tell us that this great big rally is reflecting “improving economic data and higher-than-estimated earnings.” And probably that’s true…or partly true.

The rest of the truth might be that the S&P 500 is reflecting Ben Bernanke’s massive money-printing exercise. Eventually, this exercise will produce inflation, or at least it should. But for the moment, inflation is showing up most prominently in the stock market. (The Daily Reckoning)

Economic denial is the very thing that led me to write The Great Recession Blog in later months, so I responded…

On this I partly agree, but I think more can be said about it that gives a clearer picture of what is happening in people’s minds:

 

Economic denial about stock market trends

While it is … partly true that the market is rising due to improving economic data, what is more true is that people are selectively looking at the data because they want the bull days back and want to find any indications of such good days they can. Thus, they are not thinking about how the hoarding of money by banks is for the time being keeping inflation from happening and how eventually banks will release that money [that Ben Bernanke was creating out of thin air] and trigger inflation.

 

Economic denial about jobs

They’re not sifting through the jobs data to find the truth. They barely acknowledge the truth when someone says it … as if they did not even hear it said. So, they don’t compute that unemployment is not dropping because more of the available job force is employed, but rather because millions have been on unemployment for more than a year and are no longer eligible for benefits. They are now rapidly falling off the unemployment charts, which ONLY track people IF they are being paid benefits.

People are not reading between the lines or drawing things to logical conclusions, but are, instead, sifting through the data to find shreds of hope and are choosing to believe in those shreds.

Economic denial about quantitative easing:

Likewise, people are not seeing further down the road because they don’t WANT to see what is coming: they are not asking what happens when QEII runs out? They are simply assuming that the stock market will continue to inflate even without the government dumping hundreds of billions into investment banks that buy things like stocks because they are allowed to invest. They are not thinking about the very real fact down the road that our government CANNOT do a QEIII without putting its own credit rating seriously at risk, for that rating hangs in peril already. They are not thinking about the fact that congress is now highly unlikely to approve a QEIII because our government cannot pay its debt if its credit rating drops. They are continuing blindly along just as they did when housing was going up unrealistically.