The Fed-Wall St complex
Stocks keep rising? Well, of course they do…
Our contention has long been that the Fed-Wall Street complex has gained control of the nation’s money, and uses interest rates and money printing to enrich itself. It makes hay when the sun shines. Then, when clouds roll over, it puts the inevitable losses onto the public. Heads, I win. Tails, you lose.
The whole scam came into focus when the Fed let it be known it will continue to promote inflation. Rather than squeeze it out by holding rates at reasonable levels (the real rate on the Fed’s key loans is only about 1%), it has announced that it will make credit cheaper. Officials signalled that they expect to cut their key interest rate three times in 2024. That fuelled a rally on Wall Street.
The only plausible reason for cutting rates anytime soon – with inflation still on the loose, stocks near record highs and the Fed’s key rate barely positive – is that it benefits the people who control the Fed and the financial system; that is, the big banks and investment firms on Wall Street. In the case of the banks, the higher rates of the last three years have left them with more than $600bn in losses on their core Treasury bond holdings. As for Wall Street, it is not only among the largest holders of stocks and bonds, it is also their leading purveyor. It makes its money selling financial assets, not buying them.
Owning stocks is not normally very attractive to the common people. They have no way of knowing which business is a good one and which is not. They have neither the time nor the expertise to study balance sheets and amortisation schedules. In more honest times, they put their money into a bank, earned a respectable interest on it, and let the “big swinging dicks” in the financial industry take their chances in the stockmarket. Then, along came the fake dollar (no gold in it), and along came the Greenspan Put (he promised investors they wouldn’t lose money), and Bernanke’s big Wall Street bailout of 2009-2022, and the average guy came to believe he could make money by just “being in the market”.
The patsy saw the fabulous success of the stockmarket generally – from 950 to 38,000 in 24 years, and the incredible success of the latest tech stocks, with Nvidia going from $4 to $940 in just ten years. Naturally, he wanted in. And, of course, as long as the Fed was actively promoting the stockmarket, stocks rose. Even so, the rise was always less than it appeared. In terms of gold, it takes about 19 ounces of gold to buy the leading 30 Dow stocks today – and it took 18 ounces to buy them (the 30 Dow stocks of the period) in 1929. All investors really earned were the dividends, and often the top stocks don’t pay dividends.
Still, with the Fed pumping up financial assets, every day was payday on Wall Street, and the rich got much richer. “Since 1989,” says analyst David Stockman, “the net worth of the top 0.1% has soared from $1.8trn to just under $20trn. That’s a gain of $138m per household. By contrast, the aggregate net worth of the bottom 50%, or 66 million households, has risen from $0.7trn to $3.6trn. That’s a gain of just $44,000 per household. Accordingly, the top 0.1% gained 3,100 times more net worth each than the bottom half of America’s households.”
Recently the House passed – sight unseen, at 3am! – another lollapalooza of spending: $1.2trn for this and that. The Senate rubber-stamped it and sent it to Joe Biden’s desk. More than 1,000 pages of boondoggle and payoffs, that no one bothered to read. More money for Wall Street! Higher stock prices! Makes us proud to be American.
“As long as the Fed actively promotes stocks, they will rise”