EconomicCrisis.US

Behind the mainstream Wall Street happy talk about more stable financial markets and an improving economy are grim warnings of tough times ahead from a small cadre of doomsayers who warn that the worst of the financial crisis is still to come.

Harry Dent, author of the new book The Great Crash Ahead, says another stock market crash is coming due to a bad ending to the global debt bubble. He has pulled back on his earlier prediction of a crash in 2012, as central banks around the world have been flooding markets with money, giving stocks an artificial short-term boost. But a crash is coming in 2013 or 2014, he warns. “This will be a repeat of 2008-09, only bigger, when it finally hits,” Dent told USA TODAY.
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For the first time since May, 2008, the Dow Jones Industrial Average traded above the psychological milestone of 13,000. Yes, 13,000 is just a number, but every time we reach a milestone, it helps investors shed a little bit more of their post-financial crisis stress disorder.

Given that the Dow was touched a 52-week low of 10,404 last October, the recent move is substantial. US stocks have gained over 22 percent since those precarious lows and the blue chip index is only 8.5 percent away from the all-time closing high of 14,164.53, reached on October 9, 2007. As MoneyWatch blogger Allan Roth reports, the market is a hair away from crossing a more significant, but less noticed, milestone: If you look at the entire market, rather than just the 30 stocks in the Dow, U.S. stocks have recovered within one percent of their all-time high, reached on Oct. 9, 2007.
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The unemployment rate’s unexpected drop to a three-year low has overshadowed a less-positive labor- market development: fewer Americans are looking for work.

Last week’s Labor Department announcement that the jobless rate fell to 8.3 percent in January sent stocks and bond yields higher. The same report showed the share of working-age people in the labor force had declined to the lowest level in 29 years.

The so-called participation rate was cited by Federal Reserve Chairman Ben S. Bernanke yesterday to support his assessment that the rate of unemployment obscures vulnerabilities in the job market. Bernanke, speaking to the Senate Budget Committee, confirmed the Fed’s stance that interest rates will stay low at least through late 2014, and repeated his view that the job market is a “long way” from returning to normal.
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The Federal Reserve should start raising interest rates next year, a top Fed official said on Monday, arguing that even if rates stay near zero for many years, U.S. economic output will not bounce back to pre-recession levels.

Last month the Fed said it was likely to keep interest rates exceptionally low through late 2014 to bolster a recovery that was moving too slowly.

St. Louis Fed President James Bullard said he disagreed with that decision, arguing that the housing collapse means unemployment is likely to stay high and labor markets will improve only slowly even if rates are kept low for many years.
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