In recent weeks, the Associated Press (AP) has portrayed the dizzying heights being attained by the stock market, in combination with a slight drop in the official rate of unemployment, as evidence of a gradual economic recovery. Better days, we are told, are almost here again. While right-wingers might perceive such reporting as a left-wing tactic to ward off the spending cuts of sequestration by emphasizing the fragility of the recovery, surely the most salient issue here is whether there really is a recovery and, if so, who exactly is doing the recovering. The AP came dangerously close to inviting such an inquiry by noting that 80% of the stocks are owned by just 10% of the people, but this passing nod to objective reporting soon gave way to familiar, moronic flag-waving. What’s good for the market is good for America: when the Dow reaches record highs, we should all be proud of our nation’s accomplishments, just as we are when Michael Phelps brings home another collection of Olympic jewelry. Sadly, this is yet another case of mindless patriotism crowding out any prospects of genuine understanding. The apparent health of the American stock market is illusory and dangerous; far from being a cause for celebration, it should fill us all with dread and loathing.
Enter the Corporate Thought Police
While the implicit pro-corporate bias of the AP’s trope at least requires a little reading between the lines, the same can not be said of the outrageous corporate cheer-leading of Jay Ambrose. Presented by the Leesburg Daily Commercial in a sickening tag-team with the odious Cal Thomas on March 13th, Ambrose snarls like a well-trained Rottweiler at those who dare to question the equitable implications of his masters’ bulging portfolios:
Corporations have not had an easy go of it…. Yet even with the worry of catastrophic debt default, the coming of the ultra-burdensome Affordable Care Act… and still other regulatory deathtraps… corporations… have managed to earn credible profits… by do[ing] more with less labor…. Brave, bold profits… set them up for a sterling future of expansion and – let’s all say hallelujah – hiring sprees.
Investors see this, they begin to have hope where there was very little, they invest more, stock prices go up and the left sneers. The supposition, as economically uninformed as it is ideologically inspired, is that the stock market is just a way for the rich to get richer.
[M]eanwhile, the free citizenry and a private sector of amazing energy and ingenuity are edging us in the right direction. The government obstructs, but we the people keep doing our best to overcome.
This statement of corporate propaganda, while perhaps remarkable in its degree of melodramatic sycophancy, is little different in substantive terms from any number of plutocratic salvos lobbed at the readership by the Leesburg Daily Commercial. The narrative that private businesses alone create the nation’s wealth, trotted out during the last general election in the “you didn’t build that” fiasco, is used here to explain the performance of the stock market. But in this case, the distortion of reality is even more breathtaking and dishonest than it was last summer, for the stock market’s current high has far more to do with deliberate government action than the supposed virtues of capitalism.
The AP’s proposition that the rising stock market reflects promising economic fundamentals is no more accurate than Jay Ambrose’s corporate brown-nosing. As Charles Biderman explains:1
[T]he reality is that stocks have neared all time highs for just two reasons. The first and most important is that the Federal Reserve has been consistently debasing the currency by creating $4 billion of new money via computer keystrokes each and every day and some of that money has been increasing the demand for equities.
The second reason why stocks are so high is that companies have accumulated a huge cash hoard earning nothing sitting on balance sheets. That’s why companies are using some of that cash to shrink the number of shares outstanding.
So we have more money chasing fewer shares. The end result is that stock prices go up. So what if the U.S. economy is not growing? Remember, Las Vegas magicians do not use magic. They use misdirection to deceive the audience.
Misdirection is the name of the game at the Fed these days. In the past a rising stock market had some relationship to an improving economy. But not this time. This time it is all a charade.
While the right wing’s attack dogs bemoan the national debt, little is said about the Federal Reserve’s creation of a similarly gargantuan sum of money in a much shorter time span. Desperate to prop up the financial sector, as if painting a grotesque caricature of Alexander Hamilton, the contemporary Fed has been buying both government bonds and mortgage-backed securities at staggering rates, thereby pushing huge amounts of liquidity into financial markets. Never mind that the trash being purchased from the banks at book rates has almost no real value, or that the trillions of dollars in question would have done more for the real economy if placed in the hands of consumers who would spend them in their local communities. All that matters in the American kleptoverse is that the very actors who almost destroyed the real economy be made whole as quickly as possible. And just as the banks’ profiteering entailed risks for society as a whole, so to does the restitution of the banks’ balance sheets by the financial engineering of the very institutions that are – at least in theory – supposed to safeguard the public interest.
As the investment website Zero Hedge observes, picking up on reporting from Agence France Presse, the Fed’s policies threaten the stability of the global financial system and the real economy:
The Institute of International Finance, which groups 450 banks, said that if central banks continue to flood money into the global economy, then any future bid to get it under control could itself destabilize the financial system. “These conditions — quantitative easing, very low interest rates — cannot last forever, but the risk is that financial markets have become addicted to them,” it warned.
“The longer central bank liquidity is relied on to hold things together, the more excesses and distortions are being accumulated in the financial system. An eventual unwinding of these excesses will become a destabilizing risk event.”
“Much of the recovery so far has… been heavily reliant on ‘easy money’ conditions fostered by central banks,” the IIF said in a statement.
The IIF said the US Dow Jones Industrial Average had hit an all-time high this week more because of relaxed international monetary conditions than thanks to any recovery in the real economy.
We will allow Charles Biderman to spell out the implications:
Not to be outdone by the Internet stock bubble, the housing bubble, or the sub-prime mortgage mess, they [the Fed] are now working on the government and bond bubbles. By being enablers of government largesse, they are promoting much more Gov spending than would otherwise be possible. Like ALL other bubbles before them, these too will go BANG! one of these days because any other result would require more competence than the Fed has so far demonstrated. Because of the sheer size of these bubbles, they will be far messier and [more] dangerous than any of the previous bubbles. In fact, they have the potential to devastate the US economy, destroy the US dollar as a viable currency, and topple the US government.
Thus, the equitable issue of which Americans are benefiting from these bubbles – an avenue of inquiry that Jay Ambrose would close off as excessively “ideological” – is actually a bit of a sideshow. Of course the gains are accumulating to the top of the wealth distribution; that’s where they always go in our land of opportunity. But those gains rest on shaky foundations and are likely to be short-lived. The real story here is the everlasting tragedy of an institutional framework that will risk everything in order to make those gains possible. If we are going to fly flags to commemorate this turn of events, let them fly at half mast.