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Our make-believe economy is here to stay

The Federal Reserve and global central banks are remaking the world's economy in an effort to save it, but have created something of a monster.

Why it matters: The Fed-driven economy relies on the creation of trillions of dollars — literally out of thin air — that are used to purchase bonds and push money into a pandemic-ravaged economy that has long been dependent on free cash and is only growing more addicted.

• However, most of the money gets stuck at the top — winding up in the accounts of large corporations and highly paid executives, while leaving behind small businesses and everyday Americans.

What's happening: Stocks are hitting all-time highs while millions remain out of work and on unemployment insurance. That's not a coincidence.

• Companies' lean bottom lines (i.e. shortage of expensive workers) are a major reason investors are so bullish on equity prices.

How it works: It's cheaper than ever for companies to borrow money because the Fed has set interest rates at effectively 0% and has promised to buy unlimited government bonds and an unspecified amount of corporate bonds. So companies have issued unprecedented debt and loaded up their balance sheets.

• But they're not using their Fed-backed cash piles to hire more workers or increase salaries. In fact, many are doing the opposite — driving down their "operating leverage" by "cost cutting through labor force reduction and refinancing of debt," notes John Lynch, chief investment officer at Comerica Asset Management.
• Add to that years of companies buying back their own shares to juice stock prices higher, and "we essentially have more dollars chasing fewer shares because of buybacks and [the Fed's] liquidity increases," Lynch tells Axios.

Between the lines: It's a Goldilocks environment for stocks, but a bearish one for workers.

• Because executive pay is largely determined by companies' stock prices, it's much more lucrative for top execs to buy back their stock than it is to hire more workers or invest in projects that require a larger workforce.

*** CHART here in the article shows an increase in the FED's assets (bond/stock holdings) from less than a trillion in 2005 to $7.2 Trillion in late 2020. This is just money pumped into stocks and bonds...

The big picture: Even with all the Fed has done, the economy is still too weak to stand on its own, economists argue.

• "It’s easy to forget how weak much of the underlying economy is when we see a booming stock market and good data coming from areas such as housing and manufacturing," Robert Frick, corporate economist at Navy Federal Credit Union, tells Axios.
• "But with sectors of the economy such as travel, restaurants and lodging still beaten down by the pandemic, and more than 10 million Americans unemployed who had jobs in February, those low interest rates and other Fed supports are obviously needed to keep the economy from slipping back into recession."

Watch this space: During his testimony with the House Financial Services Committee Wednesday, Powell assured Congress that the Fed would remain on its current policy path "well into the future."

The bottom line: "The socialization of debt by the Fed is fundamentally reshaping how the quote 'free market' system works," Scott Minerd, CIO at Guggenheim Partners, told Axios last month.

• "And as Milton Friedman said, nothing is so permanent as a temporary government program."

https://www.axios.com/make-believe-economy-27a5a019-6798-4dd5-b674-e4dd914d73c0.html

We already have a socialist country for the wealthy and corporations! All these pull yourself up by your bootstraps types are completely clueless as to what has been going on for more than a decade of propping up the stock market.

I only have one question for the people who say we can't do medicare for all or free college... Who is going to pay for all of these free money handouts to the rich? Certainly not the rich... Did your taxes go up to pay your share of $7.2 Trillion?

NOPE. Our whole economy is a shell game ran by the wealthy and well connected to keep YOU broke and struggling while they live high on the hog. Wake up.

The hills are aliiiiive, with leftist propaganda.

Not sure how it’s “leftist propaganda” when one could factually argue that we have a huge gap in earnings backed by financial and economic policy which favors the 1%.

If we only could stan for the 99% as much as the democrats stan for the donor class and corporatists.

Again, I’ll wait for evidence that says I’m wrong.

You do realize that's the exact same thing Trump supporters use in their claim that Trump won the election, right?

Again, please provide evidence that the Democrats care more about “woke” social policy that doesn’t make white people feel uncomfortable and economic policy that favors the donor class and corporatists.

So you want me to disprove an accusation? You do understand that's not how this is supposed to work, right?

your problem is that you fail to realize that economic policy is going to ALWAYS favor the 1%.

whether its here, the "socialist" utopia countries in europe you and Bernie keep mischaracterizing, or good ole commies like Russia and China, economic policy is always gonna favor people with the money and influence.

look around the world, and look at history. no matter what region you choose to highlight, the stock market is inevitable. the stock market is gonna keep going up regardless of who's in charge. the wealthy are gonna grow their wealth regardless of who is in charge.

even russia, who likes poisoning people and having mysterious accidents close to balconies, know that their wealthy russian businessmen need to make money in order for their economies to keep running.

the point of government is to limit the income inequality.

^^ that aspect, we will always agree on.

how we go about tends to be where we split. as much as i rail about corporations sometimes, this country is nowhere near as lopsided as one would think. yes, there are structural changes in the system that need to change. yes, capital gains tax can absolutely be raised.

but the nonsense that you and OCD tend to preach would collapse the economy. the answer isn't to swing the pendulum completely the other way. the answer is to balance it out.

everyone already knows you're wrong because you clearly didn't pay any sort of attention in econ 101 or 102 while you were at toledo.

can we strengthen worker benefits/compensation and public healthcare?

yes.

can we raise the federal minimum wage without destroying the economy?

yes.

can we get rid of billionaires? no.

can we triple the tax rate and still be the economic powerhouse that got us to where we are in the FIRST place?

no.

Why the hate for the stock market going up? A large part 0f the middle class have 401K as their main retirement savings. They depend on the stock market growing.

Yep, Especially since millions of those working middle class folks lost their jobs and aren’t contributing funds into them now. They need it in their pockets soon.

And, you know, unions are invested in the stock market. People with pensions are invested in the stock market. Even public employees are invested in the stock market. Now, maybe they don't know it, but they are.

Yep. Including police unions who use the funds to protect corrupt cops.

Boy, I'll tell you, whenever I want a laugh, I know exactly where to go.

I don't want to get rid of billionaires, I want them taxed and treated like the rest of us. They should pay a larger percentage IMHO but I'd be happy if they paid the same percentage without all the loopholes.

Churches should be taxed too. But only for money not used to help people in the community. If some looney preacher needs a personal jet to keep the 'good lord' from calling him home, he can damn well pay the max tax allowed on it. If he is planting a community garden or buying property for a safe haven kids activity center... tax them nothing on that money.

And FYI, progressives are NOT leftist. Leftist are further left. Progressives are just to the left of libs.

And when did I ever call for triple tax rate? I'm against all taxes bro. The only reason I want to cut big insurance out of healthcare by socializing medicine is that they take 30% of our healthcare dollars to do what a damn software program could do in a well built system. 30%! The overhead for managing Medicare/Medicaid is only about 11%. So roughly 19% or more is profit for denying people critical healthcare. Profits based on blood and lives in a healthcare system... what could go wrong with that? smdh

And yes, taxes would be the vehicle we used to collect healthcare personal contribution, in lue of people paying premiums to insurance companies. IMHO that is not raising taxes, it's saving money on healthcare.

As for capital gains... it should be abolished and all passive income and or investment profits should be treated as income and taxed as regular income. I do support tiered tax brackets with a top income tax being higher than lower income levels. I don't think we should tax the rich out of existence, that's too far left for me. BUT don't mistake that for me not seeing the rich and big corps as a major part of the problem. Capitalism only works if it is well regulated and people are looked out for by the government, period. When unbridled capitalism is allowed to run wild, you get what we have today. The oligarchy.

As for whatever else you are referring to as nonsense, I would say it's not nonsense at all but it just doesn't fit you worldview or justifiable actions in your OPINION. I see things different, but when I was your age I saw things much more from the right than you do now. Time, experiences, and dare I say wisdom, they all have a way of changing your views on some things. I've seen enough people die needlessly to demand a better healthcare system. I've seen enough homeless people to demand something be done to help them. I've seen enough working people get screwed by no fault of their own and end up bankrupt or out of business to demand a level playing field and greater opportunities for them. etc. etc. etc.

So my nonsense, is something you may come to believe over the years. Or you might experience something that pushes you right and you could be the next Trump's lapdog. Nobody knows. But calling my thoughts, or the stuff I share nonsense is nothing more than you being small minded about ideas and philosophies. Just like Pit thinking his way is the middle and 'most' American... what the ef ever. I just think when people, no matter their politics, vote against their own best interest, then at that point they are FOOLS. No ideology is worth betraying yourself, ever.

Also, I'm just some guy on a fanboard. I don't make these policies. I might have some ideas here and there, but for the most part I pick what makes sense to me to share here. Looking out for the working class and the poor over profits always makes more sense to me in every situation. That does not mean I'm anti business or anti America. It means I care less about money motivation and profits than I do people. But I guess that is nonsense.

Edit: Oh and btw, Pit's incremental change argument is BS too. If he was being butt raped by a guy named bubba every single day, he would be cool with rapid sudden change in that situation. Just like POC are sick of being murdered by cops, yet those who enjoy their privilege think that the POC are just whining. It's all a matter of perspective, if it was me being raped or murdered, I want it stopped now and don't give a damn if it causes a little pain or makes somebody uncomfortable elsewhere. But people like Pit want it to be incremental (hoping it blows over) because then they don't have to commit and take a stand.

That represents 15% of the money there. ALL of the other goes to people or corps that already have more money than god. AND in my personal opinion, the gambling in the markets (speculation) inflates prices on everything and leeches money off the poor and working class. This in turn makes it harder for them to be productive and prosperous themselves. Allowing the markets to control government is slavery. jmho

But I would support a highly regulated trading platform that focused on making sure consumers are protected and profits do not harm others in a significant way. And I agree that no matter where, the rich will always try to increase their wealth passively. But in the words of so many of you, money for nothing or Free money does not exist. I just want to know who is paying the price for those passive profits.

Good Article and I say - not really propaganda, just a reality check for people. I recommend that people look up some Ray Dalio videos and listen to what he says about debt cycles, currencies, and how that relates to the rise and fall of world powers.

The 0% interest rate is important. It signals the end of a debt cycle and now the Fed has to go to its next tool which is printing money and buying assets in order to prevent deflation. This is a process that Dalio refers to as deleveraging and it can happen in different ways. Failure to deleverage correctly will result in depression type of events. One of the other tools that countries can employ is austerity measures, meaning, they can raise taxes on the wealthy and use it to help reinflate the economy and they can focus on policies that reduce waste. I doubt you see this happen, in fact, I think you will see the worst case scenario happen which is all the wealthy are going to start flowing their capital outside of the U.S.

I think the most important takeaway for me has been that this time it is not business as usual. We have been talking about Government debt and the wealth gap for decades, but it was always a problem to deal with later. The end of the debt cycle means it is about to get ugly. For example, how are all of these pensions that assume 6 to 7% investment returns going to make payments when the 10 year bond is paying out 0.87%?

Too big to fail was the last straw for me. While millions of everyday folks took huge hits that they may never fully recover from, our government protected the rich and big corps like they were the golden goose. This economy and every economy is driven by the working class, period. If you don't take care of the working class you are just looting.

They are only going up because someone is willing to pay more for the companies' stock. The companies are not increasing their earnings in a way that reflects the price increase. Eventually, there is a top and the retirement fund left holding the bag is in trouble. It's like a game of hot potato.
This is caused by two things right now. 1. Bonds are trash. A bond returning 1% is earning less than inflation which Powell has said should be over 2% the next few years. 2. The Fed is directly purchasing securities.

Don't forget that if those $7.2 trillion had been pumped into the bottom of the economy, working class people would be better off, companies would be making more profits, and none of this would have been so drastic or even necessary in some cases. I struggle to find major negatives in a bottom up stimulus. It absolutely does not keep people from wanting to work.

Would have helped, but keep in mind, the Fed is not part of the government. They are not going to give away money. They lend money and will purchase assets, but they don't give anything away. We could also say that it would have been helpful if Bill Gates, Jeff Bezos, and Mark Zuckerberg started giving away their personal money to help people out, but that is not going to happen.

Bill Gates has given away over $50 billion in his lifetime... Jeff Bezos has given over $10 billion... his ex just announced giving away $4 billion this month... Zukenberg has given away over $45 billion... could they be donating more to charity? sure... but they've donated over $100 billion of their own money to various charities over the years...

And that's nice for the causes that they care about that receive those checks. I am sure there are a lot of scholarship funds, pet shelters, and scientific research efforts funded by those donations. What OCD and I were writing about was specifically related to stimulus for all Americans for an economic recovery, and much like the Fed, I don't see wealthy individuals or private companies stepping in to fill the Governments role in providing stimulus funding to the people.

Not saying your wrong, just clarifying my position.

The FED, another shell game, gets it's authority to create money out of thin air from the US Government and the treasury. You will never prove to me that those purchases of bonds will EVER be recouped. They, the government via the fed, are pumping money into the markets to keep the elite from economic harm. It's socialism for them and austerity for everyone else. An article the other day talked about how much Trump's and Kushner's business got in aid, and it wasn't a lousy $1200 one time bro. Why did they need or receive that? Was it to pay the illegals they have working for them or the regular employees? Not that kind of money. It was a free money grab and the most powerful, least needy, all filled their pockets.

So even though I understand what you are saying and agree with you that that is the way it's supposed to be/work... I doubt any of that is really what is happening or has already happened. It's a shell game.

EDIT:

Another thing, a year or so ago there was a scandal about the pentagon not being able to show where over a Trillion dollars went. A TRILLION with a T. I don't remember heads rolling or anybody finding it... The government just sent more money to them that they created out of thin air.

If you or I had lost a Trillion of government money, they would have spent Ten Trillion (if needed) to investigate and find out the where, what, when, why, and who of every detail. Then we would go to jail forever if it was truly something we did. With roughly 24 Trillion in at the time, this Trillion dollars represented a lot of the deficit... yet we found out NADA. We heard NADA. Why? Because it's all a damn shell game.

Excactly how do you think the government can afford to spend excessive amounts of money on stimulus?

I think stimulus is a joke. 1200 or 600 isn't going to keep people paying the bills for more than a month. And any amount above that is going to be huge and unaffordable to the government.

You want to complain about them creating money out of thin air, well, that exactly what they will have to do to pay for more stimulus checks.

All that does is weaken the dollar in international markets.

Today I had to pay a british law firm 3K pounds for a task I had them do. And it worked out to 4K usd. That's an expensive difference. We can't afford to let the dollar weaken in a global business world.

Small business is the largest employer in the united states. And the most vulnerable.

They need assistance more than someone needs a one time 600 check. The focus needs to be on small business to keep afloat and so they keep everybody employed and paid and not suffering.

Gotcha... I agree.. I think many will/have donated to Covid relief funds but to 'fill in for stimulus checks' there's no way...

How do they afford anything? They create money. And that's not really the issue. The issue is why are they cool with pumping 7.2 trillion into the market to keep it up for over a decade but they can't do more for the working class that is struggling? I mean if you are cool with them handing out 4 Trillion to the elite 1%, while telling the 99% that all they can do for them is a $1200 check and a few weeks of unemployment, I think that is a joke.

And your exchange rate really hasn't changed much since covid, so what you paid for UK lawyers has nothing to do with any of this that I can see. So I guess I'm either not getting why you think that is relevant to the conversation or what I am missing on why it's relevant.

However, I 100% agree with you that the checks and stimulus was useless for stopping any pain. I also agree that creating all this money weakens the dollar against other countries, except they are doing the same things in those countries but giving more to working people. And no matter how you look at this, the elites and corps got a bailout they didn't need while the rest of us got scraps and austerity. Sure 15% of the market is 401Ks, pensions, mutual funds, etc. for the working class. But that leaves 85% owned by corps and elites. Why do so few need so much while everyday Americans suffer? And the cares act put even more money in their pockets. It was the third handout that helped working people. The elites got to go to the money well 3 or 4 times. How can you justify that?

I'm not a dumbass. I understand that businesses needed money to keep going during the pandemic. But spend some time looking into the money and you will be like WTH! Deep pockets were lined while regular people got the shaft... again. It's not hard to understand where I'm coming from; just treat people equally when it comes to this kind of emergency. OR don't bail anyone out at all and let the market determine winners and losers. But this one sided transfer of wealth to the top must stop. And people should expect more from this government in times like this. Certainly not these huge money grabs for the already super rich.

Explain this. How did the 1% get 4 trillion dollars gifted to them?

Personally I feel that if they must hand out money to people, then it should be on a hardship basis. People with jobs who are making 30K+ do not need a handout.

Unemployed do.
Minimum wage/low paid do.
People with excessive numbers of children do.

Not so much people who have the same job they did when covid started.

I agree, but that doesn't help people forced to stay home. And they tried that small business thing and look what happened! Big ass companies swooped in using their connections and scooped up the money before the average small business owner could even figure out how to apply! The government even refilled the pot and most small businesses still got nothing or not enough. It was a money grab, I just don't know how else to explain it.

Meanwhile the brunt of it all was felt in families that worked in those businesses. When a business shuts its doors, the business doesn't starve, the people who worked there do and the owner take a big hit. But the paperwork that created the business making it an entity does not go hungry. That's why your stimulus is better going directly to those people.

In a perfect world, you give aid to the employers who take their small slice and pass it on equally to the employees and their families. Then everybody is provided for and both business and employee survives without major harm. The greed of business will never let that happen on scale. The greed of big business wouldn't even let the money get to the small businesses that needed it! How is any of that good for working people?

Also, it doesn't matter if 85% of the stock market is owned by elites. It has no bearing on the ability of the working class to use the stock market as a retirement tool.
Your homegrown conspiracy theories don't really change that.

What are you even talking about?
Can you link to some article that explains this because you are way too vague and not making sense.

This article will start to show you, but you will have to do some research to find it all. I've been reading articles like this since the beginning. And each contains bits and pieces of all the money that was handed out.

https://www.washingtonpost.com/graphics/2020/business/coronavirus-bailout-spending/

It's hardly a conspiracy theory but with you talking like that to me, screw you and your questions. I wanted to help you understand but it's all way over your head. You act like you didn't even know the fed was propping up the stock market, so you obviously don't follow any financial news. Now if you come off your trumpian high horse and want to have a real convo, I'll be happy to talk more. Until then, BYE.

You can't handle a disagreement? You literally said, previously, it was only your opinion.

https://www.washingtonpost.com/business/...ds-help-or-not/

I don't mind disagreement, that conspiracy theory remark was not that.

I’d agree. I was actually really enjoying the conversation between you two before that barb came in.

There is a ton of info out there Eve. If you are really interested in learning, read about it. It would take days to find all the tidbits and answer all your questions while you brow beat me with snide comments. I'm not up for that kind of hassle right now.

Bottom line is the government is doing everything for the corps and elite while giving you the finger. Small businesses and working people all being told to pound salt. Read up on it.

Out of that article this is the only point I find concerning.
I agree that businesses should not be taking money if they aren't impacted.

They should only be getting loans if they can prove a hardship.

This is why I don't find the restaurant and hotel examples in that article offensive. They used the money to remain solvent. They might not be able to keep all the employees if there isn't enough sales. Would you rather see the business go under and fire everyone instead?

So bailing out the creditors, pumping money into the markets, and doing almost nothing to insure that PPP money helped employees get through the pandemic so employers could stay afloat and retain them doesn't bother you?

There are no guarantees in the stock market or business that you won't lose... but two major downturns in a row, they didn't take the hit because the government bailed them out and this is after they continued to mitigate losses for a decade in between the two crises!

Where do you think those losses went? Who is paying the price for helping them like this? Think about that. And if every penny of the deficit could be tracked, I'd bet the majority of it went to those same 1%ers.