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Now for the facts:
Any government can pump stock prices of insolvent institutions for a while by allowing them to lie on their balance sheets. The poster child for this is, of course, Lehman brothers. I reproduce for your edification a chart showing two quarterly reports during which Lehman was arguably insolvent (light gray) and then (in pink) a further period of time spanning more than a month when their counterparties knew they had no cash, yet FRBNY and The Fed, including but not limited to FRBNY, Paulson, Geithner and every other bank they dealt with knew they had no money. Yet their stock continued to trade, the company continued along, and Dick Fuld was on CNBS saying he was going to "burn the shorts."
What was the outcome Steve? Was it "all ok in the end" even though for a period of more than six months the stock continued to trade and in fact after that first report went up significantly?
What caused the collapse? They ran out of cash flow.
Now about those other large banks and their balance sheets....
As a corollary to the above governments can also pump markets generally by replacing private demand in GDP with borrowing and spending, just as you can by using your credit card even though your income has been cut off. This can and does lead to huge market rallies - for a while. However, unless you can manage to increase credit in the system generally, meaning that private parties "come back" and take over from government, eventually the government becomes unable to sustain such a practice, just as you become unable to sustain such a practice. In point of fact the government has borrowed and spent ten percent of GDP (in addition to all that it was spending before) for the last two years. This has prevented the recognition of an economic depression in the "statistics" put forward by government, but that replacement of private demand is not, in fact, private demand! Thus you have unemployment and underemployment, even under the government's statistics (among those who want jobs), hovering near one person in five in the economy, and only 60% of the labor force is actually working. The other 40% of working-age, non-institutionalized people, are not working - which means they're drawing on social programs of some sort. This, of course, exacerbates the demand for the government to continue borrowing and spending that additional 10% of GDP.
What will cause this to collapse? The same thing - recognition that the banks are in fact broke (and there are a bunch of them that are), inability to sell or roll over enough debt to satisfy the leaches in society, one of the rating agencies growing a pair of balls and downgrading the United States and more. Indeed, a lockup in the credit markets could easily occur just as it did in 2008, and for the same reasons - a recognition that "heh that jackass over there has no good collateral!"
Can the government keep this from happening forever? No.
Can it do so for "an extended period of time"? Sure, but for exactly how long?
That's the key, isn't it? We're not running an 89% debt-to-GDP ratio, it's in fact over 500%. We're lying just as Lehman was lying, but on a grader scale. Yet when Rick Santelli brings this up, the pump monkeys go nuts.
Well gee, if you want to sell something to someone that is based on a fraudulent premise, how much luck will you have if the truth is exposed?
You may see the original post here