With Fed Chairman Jerome Powell’s U-Turn Decision to Cut Rates, the Surrender of Our Future to Wall Street is Final.
And Media Outlets Like the New York Times Can Only Stand By, Cheering.
“The Federal Reserve’s decision this week to cut rates for the first time in more than a decade was driven, in part, by a recognition that policymakers have a role to play in the fate of American workers.”
A society in which the leading newspaper can with a straight face print unmitigated propaganda like this — complete and utter bullshit — is in deep trouble.
Make no mistake, our national media now exists to help a tiny segment of our population fleece the rest of us.
Ever since Alan Greenspan’s easy money policies of the 1990s shepherded in our New Gilded Age, the age of total tackiness which has ended inevitably with the election of a huckster president to preside over a huckster economy, the entire world has been in thrall to the idea that all of the globe’s economic problems can be solved through the simple alchemy of low interest rates.
The central bankers have made the already filthy rich absolutely filthy stinking rich — without having to work much or create much to do it. For the rest of the population, the results have been catastrophic.
Easy money’s disasters have been by turns dramatic or subtle, but always ineluctably damaging to the nation’s economic health.
Easy money creates bubbles.
And bubbles always pop.
First we had the dot-com bubble of the late 1990s when a heady mix of new technology and the easiest money in decades led to an orgy of speculation. Billions in sucker cash was thrown at an array of startups we can now only laugh at. Suckerfool scams like Webvan, Pets.com, Flooz and a host of others raked in millions in “investor” cash, only to see it all go poof. (My personal fave has to be Dr.Koop.com, a medical advice site started by Reagan’s Amish-esque surgeon General, Dr. C. Everett Koop. The stock peaked, unbelievably, at 45 clams a share, before collapsing,)
The bursting of the dot-com bubble led to the bad-enough but not severe recession of 2001.
Was the lesson learned?
Of course not.
The drunk’s response to waking up with a hangover is always to get drunk again, and that is exactly what the cheap money junkies (central bankers) did in 2001.
Beginning late that year, the Fed began pouring nearly free credit into the market with reckless abandon. In 2008 (the date ring any bells?) the Federal Funds rate hit practically zero — .25 percent — after 10 cuts in one year.
Those alive during that time can remember how such low rates meant anyone with a pulse — and many without — could get almost unlimited loans for buying houses. Even people with no real income were able to use “liars’ loans” to get a house (or several of them to quickly flip to someone else running the same scam).
The crash resulting from the pricking of this credit-fueled bubble was, of course, monumental. The financial crisis wiped out almost $8 trillion in household stock market wealth and $6 trillion in home value. As many as 10 million Americans are believed to have lost their homes, according to the St. Louis Federal Reserve.
I mean the entire global economy nearly capsized.
But what, again, was the central bankers’ policy response?
Well, this time rates were already low, but our global banking geniuses sent them even lower. To do so they resorted to madcap policies like quantitative easing (money printing), which even they called “experiments” promised to be “temporary.” Vast oceans of nearly free cash (free only if you are a banker, of course) surged into the credit markets.
The experiment is so mad that trillions of dollars in global “investment” is now sunk in negative-yielding bonds. That’s right, supposedly smart global investors are now PAYING governments the world over to take their money off their hands for them. Yes, a full 25 percent of all global debt involves someone paying to lend someone else money! Governments — rarely models of fiscal restraint in the best of times — are now being PAID to spend borrowed money.
It seemed for a while that Trump’s new Fed chair, Jerome Powell, was woke to the danger of this situation, if not the absurdity.
Yes just one year ago, Powell stated that, “In the run-up to the past two recessions, destabilizing excesses appeared mainly in financial markets rather than in inflation.”
Translation: Easy money causes bubbles.
Powell promised a slow reversal of course. A gradual “normalization” of interest rates.
But when he tried this, of course, Wall Street threw an immediate hissy fit.
Addicted to the non-stop mainline injection of cash, the world’s greediest speculators balked at Powell’s rate increases and by the end of 2018 the stock market had fallen to its lowest level in two years.
The immediate reaction was, naturally, to retreat.
Last week Powell and the Fed decided to cut rates by one-quarter of one percent.
One could argue that the Times and the rest of our Establishment media are merely near-sighted: One little rate cut squeezes a burst of juice into the economy to perhaps spur things along. But after decades of observing serial bubbles, it is hard to believe that our guardians of the public well-being are incapable of connecting the dots. It is foolish to believe that they cannot see the bubbles, have not noticed the yawning divide which has separated rich from poor, have not seen how workers’ wages haven’t budged in decades.
What the national media refuses to do — for obvious reasons — is to look at how low interest rates fit into the big picture. And the big picture is financialization: the transformation of the US economy away from one which produces things and toward one in which control of paper assets and access to unlimited cheap capital overwhelm all other considerations.
Financialization — and the easy money policies central to it — warp the American economy in ways by turns subtle and obvious. Almost universally to the detriment of average people. And there is almost no discussion of these effects in mainstream media.
Take, for example, social security.
The Social Security Trust Fund holds $2.9 trillion in Treasury securities. Its investments earned an average of 2.9 percent average interest in 2018 compared to 5.1 percent in 2008. To make the math clearer, the difference between earning 2.9 percent and 5 percent is $62 billion in interest earned per year! So while billionaires can borrow at almost no cost to buy out companies (and of course immediately lay off workers), the retirement system regular Americans are counting on is being slowly starved. The inevitable result will be raised retirement ages, diminished pension payments and raised contributions (taxes) — if not total insolvency.
Is that what the New York Times means when it says latest rate cut shows the Fed is “trying to be more attuned to the needs and attitudes of everyday Americans?”
The damage to working Americans’ retirement years is not limited to Social Security. Pensions in general are in crisis. Public pensions went from being at 100 percent funded for future obligations in 2001 to just 71 percent funded in 2018. Furthermore, low interest rates are pushing pension fund managers into more risky investments. The Fed itself admitted as much in a recent study: “We estimate that up to one-third of the funds’ total risk was related to underfunding and low interest rates.”
The Gospel of Low Interest Rates is hurting regular Americans in many other subtle ways, directly or indirectly.
Take, for example, stock share buybacks.
With credit so cheap, CEOs who are increasingly compensated via stock options are tempted to take on debt not to invest in their companies or their workers, but rather to purchase millions of shares in the own companies so as to inflate the value of their own personal stock holdings.
According to Goldman Sachs, US corporations are on pace to set another record for buybacks in 2019. Moreover, corporations are for the first time since the last crisis expected to hand out more in buybacks than they will earn net of capital and debt payments!
Translation: CEOs will borrow to enrich themselves.
The role of low interest rates in spurring CEOs to cannibalize their own companies is so clear that news of the Fed’s pending interest rate cut spurred a mini-boom in stocks of crappy companies. “Since the start of June, weaker balance sheet companies have seen a return of 12% vs. 8% for their counterparts in anticipation that the cost of borrowing will get even cheaper.”
Translation: Investors — speculators — know that CEOS will use cheaper credit to buy back shares, juicing share prices for a quarter or two (while of course saddling weak companies with still more long-term debt).
The false alchemy of low interest rates plus share buybacks doesn’t just store up long-term pain; it also blocks workers from sharing in good times today.
One firm particularly addicted to buybacks is home Depot. CEO Craig Menear told investors in February, 2018 that he would buy back $4 billion in company shares. The next day he sold 113,687 of his own shares, pocketing $18 million. The following day he was granted 38,689 new shares and immediately sold more than 24,000 of them for another payday of $4.5 million.
If the money used on buybacks had instead been used to boost salaries, each of Home Depot’s workers would have made an additional $18,000 per year. Median pay at the firm is $23,000.
But raising worker pay was of course out of the question. And it was not all. Home Depot, prodded by low interest rates, eventually further raised its 2018 share buyback plan to $6 billion, and this year took out $1.4 billion in new debt ($400 million more than expected) with the likely result still more money will be shoveled to speculators.
Low interest rates also spur another job-killing but Wall-Street-pleasing feature of our Fed-shaped financialized landscape: corporate buyouts.
Media narratives suggest that retail stores are simply doomed in the Internet Age. But the total retail industry has actually added more than 1 million jobs since 2010, according to the Bureau of Labor Statistics. In the part of the sector controlled by private equity, however, the picture is quite different. Over that same 10 years, retail companies owned by private equity firms (buyout specialists) have shed 597,000 jobs.
More care and concern for the working class, I guess, according to the New York Times.
The list of unintended (and under-reported) negative effects of cheap credit on companies, on workers and on society is nearly limitless:
- Companies are now loaded up with $10 trillion in debt, or 48 percent of GDP. This is an increase of 52 percent from its last peak in 2008 (there’s that year again), when the debt figure comprised 44 percent of GDP.
- Zombie firms. Twelve percent of global firms — and 16 percent of US companies — are now “zombie firms,” meaning their profits are lower than the interest payments on their debt. This is according to the Bank of International Settlements, the central bank of central banks. The continued “existence” of these firms stifles the growth of newer, more efficient firms, and such sclerotic firms are unlikely to hire.
- Innovation. An analysis of 1,545 leveraged buyouts completed from 1997 to 2011 found that new patents fell off by between 33 and 38 percent in the third year after a leveraged buyout. Companies were quite simply too saddled with debt to continue innovation.
So there we have it: The legacy of basing an economy on cheap credit is on the macro side a record of bubbles and busts in the wider economy and on the micro side a slow but steady hollowing out of companies and of the economy in general.
So what, possibly, does the New York Times offer as a basis for its claim that the Fed’s recent cut is all about us, the average schmucks? Let’s go back to the article:
“Some of the changes are superficial. Mr. Powell, previously referred to as “chairman” in the Fed’s post-meeting releases, is now a gender-neutral “chair.” The 17-member policy-making body is as diverse as it has ever been, with leadership roles held by two openly gay members, five women, one black member and one person with Indian heritage. The powerful Federal Reserve Bank of New York flew rainbow flags outside for pride month this summer, for the first time.
A visit to the Federal Reserve Bank of Atlanta’s Instagram account shows that it is following up its #dogsofthefed campaign with a #humansofthefed one, complete with inspirational stories and not-so-candid snaps.”
Me, some dumb-ass blogger writing his third entry, can with a few hours on the Internet eviscerate the idea that low interest rates help average Americans. And I have not even talked at all about how low interest rates HELP rich Americans get richer.
But The New York Times, with limitless budgets, the deepest contacts, and supposedly the highest journalistic standards in the country, gives us rainbow flags and doggie pictures.
How can anyone conclude anything but that this organization — entrusted with shining the light of truth on complex issues to help the American people find their way — is actually utterly devoted to getting us lost.
You can probably figure out on your own why this is so.