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November 4, 2015


From my perspective, this is what an honest assessment of current Fed policy from Wall Street flacks would look like as told to their therapists:  It’s heads we get free money or tails we get free money irrespective of inflation and employment numbers under the Fed’s seven-year policy and counting, and what miniscule interest we do pay is deductible from our income! Is this a great country or what?  To all you people who have retired or wanted to retire since 2008 but cannot because you depended upon a reasonable rate of interest on your savings to help fund your retirement, better luck next time. Right now the Fed is in our pocket and continuing to fund our banks’ investments and trades (which you will bail out if they go sour), and, of course, we have owned Congress for years with our chump change campaign contributions, which is our best investment of all. Compared with the costs we would otherwise have to pay in capital formation and taxes, our campaign costs are a rounding error on our incomes, so to reiterate, with cheap money and cheap costs and no ultimate responsibility for investments and trades gone bad since our banks have taxpayer bailout protection, is this a great country or what? The only thing better would be to have this policy enshrined in the Constitution so those whining socialist Democrats could not touch it, but we’ll take what we can get today and continue our payoffs to our toadies in Congress for future favors as things still have room to get better.

And continuing: What’s happening is free enterprise at its best, and to those merchants in the real economy who suffer lack of demand for their goods and services because of the hundreds of billions of dollars lost to consumers with the next to nothing interest paid to seniors and others on their savings, our offshoring and wage inequality (which we support since wages are costs) that could have stimulated aggregate demand, what are you, socialists?  Why should the government fund your businesses? That’s state capitalism, the kind practiced in China! We are unalterably opposed to government funding of those engaged in private enterprise, though trickle down investments and funding of banks and corporations by the Fed’s cheap money policy under cover of fighting inflation and unemployment is just fine, and Adam Smith, the father of free market economics, would approve.

My response: Such propaganda wordplay is grossly hypocritical on its face but we are in fact (though  under cover of tax breaks and corporate bankruptcy protection beyond reason) beginning to copy aspects of China’s “state capitalism” model as we taxpayers fund and even insure Wall Street’s banking ventures in trades and investments both here and abroad and whatever other initiatives in which  the boards of such banks may decide to engage –  and with even taxpayers as bailout backstoppers (thanks to a relatively recent amendment by Republicans to the Dodd-Frank Act). The only real difference is that the Chinese funnel their money into a “sovereign wealth fund” for dispersal and investment while we funnel our giveaway money into Wall Street for their activities, activities Wall Street says we must not regulate because the government should stay out of the business of private enterprise. Yesiree! Can you spell gross hypocrisy – and in plain view? What is going on? Is anyone awake? Anyone?

Adam Shell of USA Today thinks we are already on recession watch, noting that Wall Street will be looking for any clues such as whether the U.S. economy can weather global woes like an economic slowdown in China (his choice of dart for the dartboard) and writes that “Wall Street, like it or not, is on recession watch.” Adam could have added ominous signals of impending recession to his dart of choice (Chinese slowdown) other indicia of global economic decline such as the disastrous lack of third quarter growth of our economy, some of the EU states and Brazil in recession, the commodities market crash,  wage inequality, weak hiring here and abroad and other such signals of economic weakness both here and internationally. I see no necessary slowdown in the economy in which you and I live because the Chinese economy is slowing down in any event. They don’t buy that much of our exports.Their current slowdown is instead reflected in the investments by American multinational corporations’ interests there as measured by the Dow. You and I do not live in that economy of paper shufflers and hedge fund operators. I can even see some slight advantage; maybe we can make our own toys for a change.

Neil Erwin of the New York Times opines that “This is usually the point in one of these stories where we would list the silver linings. The trouble is, there aren’t any.” Irwin points out that in addition to the disappointing August and September hiring figures, average weekly hours fell and average hourly pay was unchanged (which means there were less total wages paid to prop up demand), finally falling back on what statisticians use to explain economic anomalies: that data like this has lots of statistical variance and can sometimes “send false signals, even for a few months in a row.” But, he writes, I seriously doubt that is going to do anything to help an economy-watcher maintain that Zen perspective.”

He is right; I am an economy-watcher but I am not impressed with his resort to suggesting that we blame variances in statistical measures for the results obtained from their application. The unfortunate truth is that growth has joined wages in a state of stagnation due to (take your pick from the usual suspects) the slowdown of the Chinese economy, inflation below the Fed’s 2 percent target rate, the devastating impact of the high dollar on American exports and others mentioned above, all usual suspects on Wall Street dartboards designed to explain the chronic underperformance of our economy.

The jobs report for September and the revised job report for August 2015 are ominous harbingers per business writers for the corporate press. We are hiring fewer people month-to-month than we were before the international “global turmoil that upended stock markets this summer.” Shell’s gloomy view is fortified by the third quarter’s puny growth number of 1.5 per cent, a number subject to further revision downward which could put us one quarter away from recession. Shell does not specifically add lack of demand to Wall Street’s dartboard, nor do the others I have quoted in this essay, apparently because they think of it not as a cause but as an effect of downturn. It is both, of course, and is primarily caused by decades of wage inequality. People without money or access to it don’t go to market.

So has Wall Street conned the Fed? Probably. Should interest rates be raised and taxpayer bailout protection of the big Wall Street banks’ trades and investments end? Definitely. Are we headed for recession? Possibly, but we will be better able to answer that question after the last quarter performance of our economy becomes known since the definition of recession is two consecutive quarters of non-growth and we don’t yet have revised figures from our third quarter growth.

Truth be told, the economy you and I live in has been on the brink if not in recession for decades since we have had no growth in wages for not just two consecutive quarters but for many years while the Dow (in the other economy) has roared to historic highs. We know why these two-tiered economies work for Wall Street but not for us, so what are we going to do about it – and when?  GERALD   E


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