Trump Is Picking Winners And Losers In The Pandemic Economy
Just ask the Federal Reserve and the Treasury.
The stock market recovery is truly a wonder. Since March, the market has already recovered more than half of its losses from the record highs earlier in the year. How is this possible when there are now about 40 million people unemployed? Yes, people have received some stimulus money, but if you still have a job, that money went into the bank. If you don’t have a job, it was spent long ago. Many people are still waiting for the first check.
So there must be something else supporting the prices of stocks and bonds, and in turn, the investors.
In recent days I have read that the Federal Reserve is printing money and using it to buy bad or risky investments from the rich. While most of us have to go to Congress to get help, very sophisticated, very wealthy investors who supposedly understand risk are getting a great deal of help from the Fed.
At the Unz Review an interview with Michael Hudson, an economist and a historian with 60 years of experience in the financial sector, tells us that the Federal Reserve is buying corporate debt. They are buying assets that had been losing value as the pandemic got underway with lockdowns and record unemployment. According to Hudson, the Fed has $10 trillion that it has been using to prop up the holdings of the top 10%.
Note that this isn’t some conspiracy theory. At Marketwatch and numerous other business news outlets, they are covering the same events, they’re just using euphemisms so that the rest of us won’t feel left out. They know it’s smoke and mirrors, but they’re not letting on to the ordinary worker what’s really going on.
Note here that the same process to create money is being used by the Congress and the Fed. The money that we use as a medium of exchange in America only has as much value as we believe it does. And right now, the Fed isn’t helping small businesses. They are supporting investors who have bought corporate debt knowing full well that those companies can’t pay the debts back without income. Contracts are sacred, right?
Recall now how Trump used to criticize the Fed for raising interest rates. You’d think that Trump would like the American economy to be based on a free market, right? Yet we all saw him expressing his unhappiness about higher rates. There’s been nary a peep from Trump about the enormous intervention by the Fed in the economy when the fed is helping the rich sit on their money.
At Propublica, we have word that one rather inconspicuous official at the Treasury is making bank on the bailouts. He is but one of many top administration officials with a conflict of interest. The headline?
Deputy Treasury Secretary Justin Muzinich has an increasingly prominent role. He still has ties to his family’s investment firm, which is a major beneficiary of the Treasury’s bailout actions.
Here is what is so galling about this story:
When lockdowns crippled the economy in March, the Treasury and the Fed launched an unprecedented effort to buy up corporate debt to avert a freeze in lending at the exact moment businesses needed to borrow to keep running. That effort has succeeded, at least temporarily, with credit continuing to flow to companies over the last several weeks. This policy also allowed those who were heavily invested in corporate loans to recoup huge losses.
Again, we see the government stepping in to help the most sophisticated investors in the country. These people are so rich, they don’t have to work if they don’t want to. They could just park their money in a Vanguard 500 fund and sell off less than the growth in their accounts with an average rate of return of 5% a year. They could live on a tidy sum each year and still grow their money.
Here is a plausible scenario: You have $10 million. You park it in a Vanguard 500 fund. Your account “earns” $500k a year. If you want basic income, you sell off 20% or $100k, of your earnings for a year and you could live very comfortably in a small town anywhere in the United States. Think Park City, Utah or Jackson Hole, Wyoming. You pay 20% tax on that sale each year. The rest appreciates with the principle investment, a sort of compound interest on your investment. You could sit on that for 20 or 30 years and watch the world go by.
There is just one problem. Most of this “investing” assumes that other people have income and that they’re working to support your passive investment income. During the pandemic, “income” has stopped for a very large chunk of the working population. Many people can’t make rent or the mortgage.
Most people have not really been educated on how to save money and keep it. Before the pandemic, half of the people could not manage a $400 emergency without going into debt. And that debt will still incur 29% interest for the consumer. Meanwhile, big businesses can get a loan from the Fed with very low rates. When the fed buys a junk bond from an investor, they aren’t even making a loan to the investor. The investor walks and leaves the taxpayer holding the bag.
In that interview with Michael Hudson, he made one very interesting point about all of this: The game is over. What game?
The idea that the debts can be paid. The idea that somehow you can put money aside, and the money will grow for you. It will give you interest. The money will somehow be pushed into the stock market by buybacks without much income and push up stock prices. The idea that you can put in a million dollars and have the money go up through stocks or bonds or real estate without having the economy grow at all.
Oh, yeah. That game. And if there has been any growth at all, who has been the biggest recipient of any income growth in the economy? The top 1%. The help they’re getting from the Fed is on top of an economy already rigged to distribute income upwards.
Anyone who tells you that Trump favors a free market is either ignorant of the way that Republicans like to have the government intervene in the markets, or they are conveniently leaving out the relevant facts. Republicans love government intervention in the markets, just so long as the money is distributed upwards. They think this is a virtuous cycle.
I can recall the arguments against Bernie Sanders as nominee for the Democrats. So much talk about how the GOP would pounce on Sanders’ record as a democratic socialist, the higher taxes that Sanders would seek to make law, and how he wants to give free health care to illegal aliens. I can recall how they emphasized the word, “socialist” as if somehow that would be his undoing in a presidential election.
Republicans who claim to fear Sanders as a socialist president have nothing to fear. We already have a socialist president. It’s just that this one promotes socialism for the rich.