Sun Mar 31, 2013, 03:07 AM
Ichingcarpenter (36,988 posts)
NYT.State-Wrecked: The Corruption of Capitalism in America
The Dow Jones and Standard & Poor’s 500 indexes reached record highs on Thursday, having completely erased the losses since the stock market’s last peak, in 2007. But instead of cheering, we should be very afraid.
Over the last 13 years, the stock market has twice crashed and touched off a recession: American households lost $5 trillion in the 2000 dot-com bust and more than $7 trillion in the 2007 housing crash. Sooner or later — within a few years, I predict — this latest Wall Street bubble, inflated by an egregious flood of phony money from the Federal Reserve rather than real economic gains, will explode, too.
Since the S.&P. 500 first reached its current level, in March 2000, the mad money printers at the Federal Reserve have expanded their balance sheet sixfold (to $3.2 trillion from $500 billion). Yet during that stretch, economic output has grown by an average of 1.7 percent a year (the slowest since the Civil War); real business investment has crawled forward at only 0.8 percent per year; and the payroll job count has crept up at a negligible 0.1 percent annually. Real median family income growth has dropped 8 percent, and the number of full-time middle class jobs, 6 percent. The real net worth of the “bottom” 90 percent has dropped by one-fourth. The number of food stamp and disability aid recipients has more than doubled, to 59 million, about one in five Americans.
So the Main Street economy is failing while Washington is piling a soaring debt burden on our descendants, unable to rein in either the warfare state or the welfare state or raise the taxes needed to pay the nation’s bills. By default, the Fed has resorted to a radical, uncharted spree of money printing. But the flood of liquidity, instead of spurring banks to lend and corporations to spend, has stayed trapped in the canyons of Wall Street, where it is inflating yet another unsustainable bubble.
6 replies, 1415 views
NYT.State-Wrecked: The Corruption of Capitalism in America (Original post)
|Lefty Thinker||Mar 2013||#5|
Response to dkf (Reply #3)
Sun Mar 31, 2013, 03:31 AM
Ichingcarpenter (36,988 posts)
First cup of coffee. Sorry, Anyway I think the economic bubble after all the bail outs is showing itself for what it was as a false fix to the real problems of so called capitalism.
Stockman was Reagan's man so this is interesting being one of the architects of Reaganonics.
Response to Ichingcarpenter (Reply #4)
Sun Mar 31, 2013, 11:27 AM
dkf (37,305 posts)
6. Stockman is talking about policies that goes back for decades, really the Fed in itself.
This is why the old timers are having such a difficult time understanding the market, so much is unnatural. In the normal scheme of things you would have to be more defensive to save yourself from the market downturns or even collapse given the problems in the financial system. In today's market you don't know when the Fed is going to see the downturn and start talking up the market with the next QE. The Fed lives to smash vigilantes like bugs. "Don't fight the Fed" is more relevant than ever.
The amount of bonds the fed is buying is mind bobbling. $85 billion a month, the same as the sequester for the whole year! Now the concern is how do they stop? When so much of investing is centered on the Fed and not on profits or the economy that is messed up.
I saw a study where they pinpointed the causes of bull and bear markets and aimed it all at Fed policy. Now that should make one think.
We have been living on a sugar high. One wonders when the diabetes kicks in what will happen.
Response to Ichingcarpenter (Original post)
Sun Mar 31, 2013, 10:22 AM
Lefty Thinker (95 posts)
5. The Fed's actions pose no problem
It's the lack of fiscal policy response by Congress that really is putting us in a bind. Currency is draining out of circulation into the bank accounts of the 1% and the trade deficit. The only actor capable of replacing it is the federal government, which is, courtesy of its power to coin money, unconstrained in the amount of money it can inject into circulation. An increase in the deficit spent wisely would result in economic growth that would shift private sector actors from saving toward investment (not stock market "investment," but economic investment that increases productivity). Spent foolishly, a deficit increase would cause inflation, which would also drive savers into riskier, higher-return opportunities. Most likely is some mix of the two.
In truth, Bernanke has been doing his best to achieve the Fed's dual mandate given the limited toolbox at his disposal. Whether you prefer "liquidity trap" or "circulating currency drain," the only humane way forward is for Congress to act. The Fed just doesn't have the tools to fix this kind of problem.