The US authorities are forced to support the real economy – and not just the financial industry, as before. Unfortunately, they only have a limited number of tools at their disposal. See what’s going on, dear reader?
We are entering a new phase. Until now, the Federal Reserve has served as a cushion for the stock market. This has created a huge transfer of wealth, moving from average individuals – with few financial assets – to “the rich”, who own most. But it was false wealth.
That is, the US stock market could easily be halved. In a flash, some $ 17.5 trillion in “wealth” would disappear. A few short-sellers – who bet on a price drop – would make money.
But most of the $ 17.5 trillion would disappear altogether. Pouf! Flew away. Because they have never been real they have never been an honest reflection of the true value of American business.
Slackening off Between March 1 and June 1, the Federal Reserve added $ 3,000 billion to counterfeit Wall Street bills. Bouncing on this trampoline of counterfeit money, stock prices have taken off again and reached all-time highs. This despite a fall in GDP and growth in earnings per share. In other words, there was no reason for the hike – other than the influx of new money from the Fed. But then, from June, the Fed eased off. Her balance sheet – which measures the amount of money she sends to Wall Street – has gone down.
Last week, the markets had a slack: if this decline continues, the Fed will react as it has done for 30 years: it will increase the dose, putting more and more counterfeit money in the trough and fattening again stock market indices. (There’s another interesting thing about the markets, too. Indices are heavily weighted in favor of the bigger stocks – the ones that make the headlines and catch the interest of “Robinhood” type traders. The four biggest stocks, for example – Apple, Amazon, Google, and Microsoft – are now worth more than the GDPs of every country in the world except the United States and China. Apple is worth more than the entire Russell 2000 index, which covers US small and mid caps. Most stocks, however, remain in the red for the year.)
A sham recovery Now a new phase is beginning. The authorities will be forced to do for the real economy what they have been doing for the financial industry from the start. It must be said that they cannot allow a substantial recession to occur – especially not if they themselves have caused it. They will have to fix the situation. And what do they have at their disposal?
Exactly the same thing they used to support Wall Street – printing money. This will produce the same result: a dummy “recovery”. But we are going faster than the music. In addition to the fall in stocks, new evidence is emerging that the “recovery” of the real economy is not taking place. No “V”. No “U”. We are no longer dealing with an “L”. “The trade deficit [des Etats-Unis] grew nearly 19% in July, “Barron’s reports.”
On Wednesday, the Federal Reserve’s Beige Book showed that many layoffs linked to the pandemic are becoming permanent. “Why isn’t there a quick recovery? That’s what we’ll see tomorrow.