With the stock market at all-time highs after a record fourteen-month run on top of seven years straight up, with real estate in the same condition, but with the federal government on the verge of a shutdown due to dire financial considerations, it is intriguing to assess just what has occurred in these past nine years.

To recall, in 2009, it was this very federal government, via the Treasury working with the "quasi-agency" Federal Reserve, which bailed out the stock markets and real estate markets.  Who will now bail out the government?

Now, with the Dow at 26,000 and a full 19,000 off the 2009 low, all is good.  All was saved.  But during the same time span, the federal government debt climbed from $9 trillion to near $20 trillion.  Additionally, and in step, the Federal Reserve bought roughly $4 trillion of debt and other securities with money it also didn't have – money, in both instances, created to the benefit of the markets.

Stock prices and government solvency could not have gone in more dramatically opposite directions.

It is almost as if the money to resurrect Wall Street and tide the systemic threat was drawn straight from the coffers of the federal government.  I say "almost" because the nexus is not clear, but the coincidental nature is crystalline. Stocks rocketed up, and federal debt exploded, all at the same time.

Yes, the Federal Reserve made money on its portfolio as the rates it managed were forced down.  But as they say, they are not out of the "trade" yet.  A whopping $4-trillion-plus balance sheet is to be wound down – i.e., matured or sold off.  To put it in perspective, that is roughly equal to the annual federal budget.

The rescue of 2009, at some moment in time, became something other than neutralizing the systemic threat.  Somewhere along the way, the policy-makers must have said, "If we can do this, why stop?"  Just as in Washington, the "let no crisis go to waste" line was put to use on Wall Street.  And the rescue became a party. 

In 2007, when the stock market made a then-all-time high of 14,000, short-term interest rates as set by the Federal Reserve were near 4%.  Now, with a Dow at 26,000, short rates as set by the Federal Reserve are circa 1.5%.

That interest rate "punch bowl" that keeps the "party" going in the financial sectors also masks the costs of creating such grand amounts of debt by the federal government.  Nine years of interest rates suppressed below historical standards prevented market forces from reacting to the new supply of debt.  Those forces would have normally brought into play the old "supply and demand" rule, forcing prices of debt securities down as the supply grew, thus raising rates.  The ever increasing costs of servicing the debt (paying interest) would then have become a warning against creating more.  That didn't happen. 

If creating a crisis is a good thing, because it will be put to good use, there must be some hidden benefit to a $20-trillion national debt.  I don't see it.  But as long as the Federal Reserve abnormally presses interest rates below the inflation rate (in the 20th century, rates were nearly always above inflation), the effects of that debt are hidden, and the stock party goes on.

How long can the federal government go sharply farther down into debt as stocks move sharply higher?  How long can the Federal Reserve protect the federal debt from the forces of supply and demand?