Wednesday, November 30, 2011

The Piper Will Get Paid

"If it's too good to be true, then it probably is." ~ old adage

Call me cynical, but optimism created by the central bank was not warranted based on personal finance principles  that I follow.

Today's coordinated action by global central banks to increase liquidity has given the investors optimism which drove up the Dow 490 points today.   I am reminded of the last two times the Fed pumped exorbitant amounts of money into the economy.   We got the Internet and housing bubbles which were great while they lasted.  Unfortunately, both came with significant crashes that led to economic recessions.

The central bank actions will create some short term relief and positive economic results.  I expect that there will be a nice rally in the stock market.  I may even put reinvest some fund back into stock, reversing the my withdrawal from the market in the past few months.

Unfortunately, while the move does address some interbank lending challenges, it doesn't deal the fundamental issues in Europe.   To me, the central bank action only delays the inevitable.  Greece will default, weak European banks will fail, and there will be another economic crisis. It's not a question of if, but a question of when the piper will get paid.

For more on The Practice of Personal Finance, check back every Wednesday  for a new segment.

This is not financial or policy advice. Please consult a professional advisor.

Copyright © 2011 Achievement Catalyst, LLC

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