Call me a bad conservative. I don’t cheer this past year’s stock market gains. I don’t enthusiastically crow and pump my fist every time the Standard and Poor’s breaks a new record. I don’t breathlessly watch CNBC to see the day’s gains, listening mindlessly to commentators in custom-tailored suits with shiny gelled hair pontificating about what a rise in the futures market of Chinese copper means. Oh, sure, the few times I check my 401k balance, I’m pleased. But when the closing bell rings and the champagne corks pop and the Financial District bursts into song and dance, I’m more or less indifferent–perhaps less. Perhaps I’m even pessimistic. It’s because we’ve seen this movie more than a few times before. The wildcat banking of the mid-19th century, the frequent panics of the
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I don’t cheer this past year’s stock market gains. I don’t enthusiastically crow and pump my fist every time the Standard and Poor’s breaks a new record. I don’t breathlessly watch CNBC to see the day’s gains, listening mindlessly to commentators in custom-tailored suits with shiny gelled hair pontificating about what a rise in the futures market of Chinese copper means.
Oh, sure, the few times I check my 401k balance, I’m pleased. But when the closing bell rings and the champagne corks pop and the Financial District bursts into song and dance, I’m more or less indifferent–perhaps less. Perhaps I’m even pessimistic.
It’s because we’ve seen this movie more than a few times before. The wildcat banking of the mid-19th century, the frequent panics of the fin-de-siècle, the Roaring Twenties, Jimmy Carter’s cardigan-covered stagflation, Alan Greenspan’s handiwork in suppressing interest rates to fuel a housing bubble that popped in the fateful autumn of 2008–we live in a cinema where the feature show is never different. America, its economy and its workers, its labor and capital, are stuck in an involuntary pas de deux with some guy named Dow Jones.
The so-called “Trump boom” that’s sending stocks ever skyward was suspect from the beginning, but not for anything the President’s done. Trump’s tax-cut act, his most significant economic policy so far, has no doubt loosened some restriction on the market, freeing up money that would otherwise float down the river of Acheron into D.C.’s dead coffers. That’s certainly been a boon to traders whose job consists of playing god with other people’s dreams of retirement.
But Trump wasn’t president when Federal Reserve chairman Ben Bernanke took Greenspan’s prime-pumping philosophy and injected it with hyperbolic steroids. Like Stalin to Lenin, Bernanke took the inflationary fever dream to its logical conclusion: a bond-buying extravaganza. Unfortunately for inflationists, Steine’s Law eventually kicks in, as it did for Bernanke.
As economist Frank Shostak explains, the Fed’s unprecedented balance sheet expansion engineered by Bernanke in the wake of the financial crisis began to slow down sometime towards the end of 2011, hitting its lowest mark by mid-2017. Shostak writes, “After rising to 14.8% in October 2011, the yearly growth rate of AMS [Shostak’s measure of the money supply] entered a downtrend until, by June 2016, it fell to 2.1%. The Federal Funds rate target was then lifted from 0.25% in November 2015 to 1.25% by June 2017.”
When the Fed lifts its “federal funds rate,” it’s actually increasing the general interest rate charged by banks through a variety of measures, typically by selling long-term securities like mortgages and government bonds. This, in turn, stops the flow of money to banks, and of cheap credit to borrowers.
This fiddling with the average interest rate is how the Federal Reserve controls the money supply, which can induce or quell economic growth.
Sounds simple, right? A bunch of egghead economists gather around a large oak conference table to decide whether or not to juice the economy. What could possibly go wrong? (Don’t ask Lehman Brothers that question.)
Obviously, when the blow-up happens, all the guilty parties turn tail, run, and deny. It’s never the fault of the money-printers jiggering around with interest rates. It’s never big bank executives pushing employees to ride an unsustainable wave. It’s never politicians who quietly practice the “what’s good for Wall Street is good for Main Street” ethos.
For some reason only elites understand and little people don’t, it’s the latter who pays the price for the enrichment of the former.
So no, I’m not pleased as punch with the stock market’s record gains. I understand the President is, and it’s a glowing triumph to point out each historic high like it’s reflective of a job well done. But Trump, I’m afraid, will rue the many times he’s pointed to Reuters headlines to justify his presidential performance.
Already, the air is leaking from our over-inflated balloon of confidence. The market’s recent losses, while not yet catastrophic, portend to a larger fall down the road. David Stockman, an inveterate doomsayer and former budget director under President Reagan, says the biggest calamity is yet to come. “This is the craziest financial bubble we’ve ever had. This is a suckers’ rally like never before,” he recently told Neil Cavuto of Fox Business. Once the Fed begins to seriously unwind its balance sheet, all bets are off.
Chances the Bernanke gambit pays off are about the same as Hillary Clinton ending up in the White House in 2020. An economy with a decade-old addiction to monetary easing won’t sit still once the needle is removed. When the market does go south, and the Wall Street rats abandon ship, I’ll be like Wendell Berry, cheering, “Long live gravity! Long live/stupidity, error, and greed in the palaces/of fantasy capitalism!”
Then I’ll check my 401k balance again and wonder why the rest of us have to suffer for the myopic attitudes of the few.
An addendum is necessary to all of this: the stock market as a definitional concept is sound. The Austrian economist Ludwig von Mises was once asked at what point does a country cross the threshold from a market-based economy to socialism. His answer: the existence of a stock market.
What could be more capitalistic than the buying and selling of capital on the open market? Except I’m still trying to figure out why taxpayer bailouts of bank executives isn’t some obscene form of socialism.