WASHINGTON, Aug. 18, 2015 – Stocks continue to meander in mildly negative territory Tuesday. Markets lack any sense of direction this summer except for energy, whose direction has been decisively down−not that we’ve seen much of this at the pump, BTW.
An afternoon headline today on CNBC can’t be very helpful here: “St. Louis Fed official: No evidence QE boosted economy.” You don’t say? In a newly released white paper, Stephen D. Williamson, St. Louis Fed VP, finally dared to make an observation we’ve been making here for the past seven years. At last, some truth from a federal banking official. Better late than never, we guess.
Meanwhile, the “recovery” happy talk continued today, albeit in somewhat muted tones. Noted Fed-watcher Jon Hilsenrath (along with colleague Nick Timiraos) penned a thoughtful piece for the Wall Street Journal Tuesday, noting, “As the U.S. economic expansion ages and clouds gather overseas, policy makers worry about recession. Their concern isn’t that a downturn is imminent but whether they will have firepower to fight back when one does arrive.
“Money has been Washington’s primary weapon in the decades since British economist John Maynard Keynes proposed aggressive government spending to battle the Great Depression,” the authors further observe. “The U.S. generally injects cash into the economy through interest-rate cuts, tax cuts or ramped-up federal spending.”
But here’s the sticky wicket: “[Such tools] could be hard to employ when the next dip comes: Interest rates are near zero, and fiscal stimulus plans could be hampered by high levels of government debt and the prospect of growing budget deficits to cover entitlement spending on retired baby boomers.”
Markets are seeing precisely that this summer, and it may very well be why stocks remain stuck in neutral to negative mode as they are once again this Tuesday afternoon.
While Hilsenrath and company hit many interesting points in this lengthy piece, they miss what has been glaringly obvious since America’s economic roof began to cave in late in 2007. The Fed’s printing presses have run 24/7, cranking out an unprecedented amount of dollars. The administration jammed a nearly $1 trillion “stimulus” program through Congress. And ailing financial institutions were either sold off to stronger institutions at bargain basement rates or were bailed out, once again, by the feds, using their printing presses along with taxpayer money.
But what did we all get in the end? Let us count the ways:
- Nearly all the fat cats and politicians who had gradually engineered the eventual Great Recession via absurd and reckless fiscal and loan manipulation continued to prosper while the nation sank into poverty, debt and despair.
- Nearly all taxpayer bailout funds, whether raised via actual taxes or heedlessly borrowed by selling U.S. government bonds that will never actually be retired, went to save financial institutions and the fat cats who continue to run them.
- The administration’s vaunted “stimulus program” was, in fact, a blatant payoff to unions, particularly California teachers’ unions, to keep their workers employed while taxpayers continued to lose their jobs by the boatload. According to the WSJ article, this “$787 billion spending package ‘was so badly designed it probably gave fiscal policy a bad name,’ said Martin Feldstein, a Harvard University professor and former economic adviser to President Ronald Reagan….”
- The administration and a completely voter-insensitive Congress rammed through the biggest government entitlement program in history, heedless of the fact that an already debt-burdened nation couldn’t come close to affording this kind of fake medical utopia.
- All the while, those middle-class and working-class citizens who somehow remained employed began the long, almost hopeless struggle to extricate themselves from the housing and consumer debt they’d been cheerfully urged to take on when the good times were rolling.
Now the Fed and other policy makers want to make an attempt to get things back to normal by jacking up interest rates to get things back to “normal.” Except that goods and commodities have been flattened for over a year now by a relentless but scarcely reported deflation that has stymied most governments’ efforts to “stimulate” us into a mildly inflationary environment that would slowly begin to rescue institutions and individuals from debt loads by lowering the value of the dollars they were repaying.
None of this is worked. Consumers are still tapped out. Many Americans still can’t move out of their houses and into new ones because their mortgages are still under water, or their credit ratings show they’re carrying too much debt. Thus, they decide that the few breaks that come their way (like lower gas prices earlier this year) should be saved or used to further reduce their respective debt loads, leading to little if any new consumption.
The real problem here is that the entire system is hugely biased in favor of “saving” large institutions—and not incidentally, in assuring that huge executive-level salaries and bonuses are maintained in the process. Virtually none of the last seven years of government largess has been directed toward the consumer.
Instead, the huge amount of tax dollars and borrowed money have gone to “stabilize” large financial institutions—a stability that includes “sitting” on most of those dollars to pass the Fed’s yearly “stress tests.” If even a fraction of this money had somehow gotten to Joe Sixpack, we’d be in the midst of an actual, robust recovery—instead of the one we’re supposedly in but that no one outside of Washington or Wall Street can actually see.
The last seven years of flailing by Congress and this feckless administration have not engineered any kind of recovery at all—only a bizarre flavor of socio-economic entropy.
All that borrowed money allegedly out there has gone nowhere but the vaults of “too big to fail” institutions. That money has no “velocity.” It’s not in the people’s hands, unless some of them happen to be the fat cats and tycoons who’ve never missed a bonus or a beat in their endless drive toward personal mega-wealth.
In this situation, according to Hilsenrath et. al., the Fed has ultimately run out of ammo, and this market seems to sense it. The Journal quotes Sen. Bob Corker, R-Tenn., who sees this issue and comments, ““They have, like, zero juice left.” Like, totally awesome, dude. You or the Republicans we elected to change Washington got any new ideas to fix this? Didn’t think so.
The fact on the ground is this: There is not nor has there ever been a “recovery” for the average American citizen since this nation’s economic collapse began in late 2007. The current “recovery” is simply Washingtonspeak, happy talk. It’s a mirage and always has been. And everyone who has to work for a living knows this. For the vast majority of Americans, the “recovery” narrative is a myth, an outright lie.
All those trillions of taxed and borrowed bailout dollars sitting around gathering dust (and interest for the institutions) are doing nothing to boost workers’ paychecks or goose our moribund economy. There is no “velocity” to all this money. It is going nowhere and doing absolutely nothing to improve the lives of American citizens.
On the other hand, the rich continue to get rich, because they and their companies can make big campaign donations, the better to buy compliant politicians. But everyone else is getting poorer, pinched by an inability to earn higher wages on one hand, and hammered on the other by big employers, including members of the turncoat U.S. Chamber of Commerce, who want to give what jobs there are to low-paid illegal aliens and poorly compensated H-1B visa holders. Actual U.S. citizens no longer figure in to the equation.
Everyone in flyover country now knows this. And – note to both clueless political parties: If this issue is not decisively addressed by the election of 2016, there will be hell to pay. Count on it.
Stocks are meandering once again today, Tuesday, in mildly red ink territory. We’ve just listed the likely reasons why they are likely to continue to do so. Careful what you invest in until and unless we can locate a new path ahead.