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Kim Hill asked “Why…

Written By: - Date published: 4:51 pm, June 12th, 2020 - 31 comments
Categories: Economy, employment, equality, Financial markets, jobs, Living Wage, monetary policy, radio, unemployment, us politics - Tags:

…is the US sharemarket roaring away – up 44% – while economic recovery prospects are grim?” ANZ’s Sharon Zollner’s answer on Tuesday was the Fed printing money, but worried markets were turning a  blind eye to the bad news. The bad news hit today as the sharemarket nose-dived. Wolf Richter’s answer was more to Kim’s point: “Fed bails out the wealthy while America convulses in pain.”

His whole article is worth a read. Here are some bits:

In a Wall Street Journal/NBC poll out today, 80% of the respondents said they feel that the country is spiraling out of control.

So there are some huge multi-faceted problems that need to be grappled with, and that need to be resolved, and people are hurting, and they’re frustrated, and they’re angry, and many are unemployed, and others have jobs that don’t pay enough to meet the rising living expenses, and small businesses are on the ropes, and there’s going to be a lot of pain.

And what does the Federal Reserve do?

It printed $2.9 trillion since early March to bail out investors in highly leveraged hedge funds that were imploding, and to bail out investors in highly leveraged mortgage REITs that were imploding, and to bail out asset holders whose stocks were plunging, and speculators in the riskiest concoctions, and investors of all kinds, and to bail out asset holders of any kind – and the wealthier they were, the more they got – to make sure they don’t feel any of the pain.

That’s what the Fed is doing.

So the Fed printed $2.9 trillion since early March. That’s about $22,000 per household. For the bottom half of households, $22,000 would have helped a lot to get through the crisis.

But this money wasn’t spread to them. It was helicopter money for Wall Street. And it went on to multiply. And most of it ended up with a relatively small number of households. And their wealth increased by the trillions of dollars.

It’s a polemic. He goes on:

In central-bank lingo, this is called “moral hazard”: Bailing out the wealthy and asset holders, hedge funds, mortgage REITs, private equity firms, and huge risk takers, and it’s called “moral hazard” because it encourages this risky behavior because they know that they’re going to get a bailout when it hits the fan next time, and so they do the same thing again and take even greater risks, and it blows up again with even bigger consequences, and they get bailed out again with even more trillions.

Tens of millions of people are out of a job, and many people protest in the streets, seething with anger and frustration. And many of those that didn’t lose their jobs are living from paycheck-to-paycheck, while the fruits of their labor continually get eaten up by rising prices and rents and healthcare costs – the lucky ones that even have healthcare.

But the Fed bails out that concentration of wealth and power so they never have to feel the economic pain, so that they don’t have any skin in any crisis, and so that the wealth disparity continues to surge.

Its not the printing of money that’s the problem. If it went to supporting jobs with a job guarantee, providing a decent health care system, and fixing America’s run-down and obsolescent infrastructure, it would relieve a great deal of the pain that people are curently feeling. I’m not holding out hope – as summer goes on and Covid case numbers keep rising, things are going to get worse for the 99%.

Good on Kim Hill for asking the question though. I hope she keeps them coming.

31 comments on “Kim Hill asked “Why…”

  1. Peter Martin 1

    Is it still roaring?

     

  2. dv 2

    AND it will allow Trump to say LOOKee the sharemarket is fine I did that.

    • Tricledrown 2.1

      The Share Market will need a lot more than US3 Trillion to recover this is classic  speculative behaviour without profit the share market will fall eventually.

      Tricle down = recession heading to a great depression.

      Right Wing govts don't look after main street only Wall street Casino economics for the vulture capitalists.

  3. Ad 3

    About time she asked Ardern and Robertson similar questions.

    At least NZLabour policies are designed to save jobs – even if the policy is imperfect.

  4. Ad 4

    How's everyone's Kiwisaver statement this week?

    • lprent 4.1

      Actually mine went down a lot ~10% from a peak in Jan after covid-19 took hold world wide. Then it recovered. As of 12th June it is 3% higher than it was in Jan. 

      However if someone does have a problem with their kiwisaver, then they need to remember two basic things.

      1. You should be looking at it as being a long term investment – even in my case – when I'm just 4 years off retirement age. Paper profits or losses are just that – fictional paper. Not worth looking at until you realise them.

        Worrying about it on a short-term basis might be good for pundits to write column inches on – but mostly it is a way of  allowing scam artists to help move your money into investments that make them more money. Plus it raises your stress levels on something that matters (in my case) in 4 years.

        I have other things to worry about. Cars while biking. Voters allowing the morons in National to dither away another decade. Why if scared the crap out of my partner with a TIA.
         

      2. The best way to deal with any investment is to balance out where you place new investment money into. Picking up invested money and moving it is a desperation measure because it usually screws your profit returns – one way or another. 

        In my case I have kiwisaver scattered across conservative and balanced through to high growth and getting satisfactory returns from the last decade. I could almost certainly make more nominal returns if I managed it myself. But if I add in what my time costs – then it isn't worth it.

      Don't worry overly on short term – that was the one basic thing that I learnt from doing the finance paper on my MBA. You look at every project based on the potential returns from safer investments  – currently about 0 from interest from banks. And you're only really interested in hitting the market beta unless you want to go and run the companies yourself.

      • Ad 4.1.1

        My far simpler point was that most have seen their Kiwisaver recover similarly – and that is 95% of Kiwis' exposure to the sharemarket is via Kiwisaver. 

        2.5 million New Zealanders are direct beneficiaries of the disjunct between the sharemarket economy and the everyday economy. Including you and I.

        So actually this strong local sharemarket is a good thing

        (whether "fair" or "rational" or even explainable I shall leave to others).

         

    • bwaghorn 4.2

      Mine plugged $7k at the first dip then bounced back so I shifted it to conservative then . 

      It's been fascinating watching shear prices on shearsies, a case study in how the herd behaves  .

  5. Barfly 5

    are u ok mate?

  6. Bearded Git 6

    Kim Hill should be cloned.

  7. Pi 7

    Why do you push the conspiracy that the Fed is not a government agency when it is demonstrably false?

    https://www.federalreserve.gov/faqs/about_14986.htm

    • gsays 7.1

      Good question. I have long thought, incorrectly, that 'The Fed' is privately owned.

      I went and did a google and found out what caused my confusion.

      'The Fed' is a de-centralised bank, with & governers appointed by the President and approved by the senate.

      The 12 regional Federal reserve Banks are privately owned.

      Click to access fed-today_lesson-3.pdf


      From the link: "The Federal Reserve is not a private corporation. It is part private and part public, with its Board of Governors an agency of the United States government.

      The regional Federal Reserve Banks are private corporations acting as agents of the government that are owned by their member banks."

      • Mike Smith 7.1.1

        @gsays

        Thanks for the clarification – I had made the same mistake. I've taken the reference out of the post – I agree it is not particularly germane to the argument.

        This discussion by Michael Hudson with Paul Jay however definitely is relevant.

        • Pi 7.1.1.1

          The key point is that regional fed banks are not private corporations in any real sense – in particular bank ‘shareholders’ in regional fed banks do not control monetary policy:

           

          https://en.m.wikipedia.org/wiki/Federal_Reserve

          It is the federal government (ie the politically appointed board of governors – who like our reserve bank are part of and independent from the government) who controls the fed – and the federal government who earns the vast majority of income (97%) from fed operations.

  8. Maurice 8

    All the 'quantitative easing' fiat money is going into the share/bond markets to bail out the previous holders of those securities. The money has not disappeared but has gone into the hands of those who SOLD the shares and securities. Some where there is a LOT of fiat currency electronically stored away as credits in electronic bank accounts …. some of that is used to 'buy' Government and Private Bonds to recycle the digital totals back to Government; Reserve Banks and private Corporations. It sure ain't ending up in the Hoi Poloi's hands!

  9. SPC 9

    BlackRock Holdings is not a bank, its asset management. Which is why the Federal Reserve works with it. 

    The US government has also given a lot of money to companies so they can pay off their debt – which bails out their lenders.

  10. vto 10

    the world's greatest ponzi scheme

    racing ever faster to its end-point

  11. Sabine 11

    maybe someone should introduce her to this guy: Mr. Mnuchin.

    https://www.rawstory.com/2020/06/jaw-dropping-corruption-mnuchin-refuses-to-disclose-which-businesses-got-taxpayer-backed-bailouts/

    Treasury Secretary Steven Mnuchin told Congress on Wednesday that the Trump administration will never reveal the companies which received loans through the Paycheck Protection Program (PPP). 

     

    but her emails. 

    • francesca 11.1

      Do you honestly think her emails were the  biggest obstacle to the White House?

    • Descendant Of Smith 11.2

      So same as New Zealand with South Canterbury Finance then.

      • Maurice 11.2.1

        Interesting …

        http://robinwestenra.blogspot.com/2012/11/the-alan-hubbard-case.html

        By 2009-10 South Canterbury Finance was bit of a 'last man standing' – the last independent finance company left in New Zealand.

        Briefly though,as I understand it, the new National government saw Alan Hubbard as a weak link.

        What happened is that John Key and his friends, by destroying the reputation of Alan Hubbard and his companies and putting them into receivership, were able to strip the assets under the guise of protecting investors' assets and subsidising the losses with tax payer money (to the tune of a massive $1.5 billion).

        The fact was that not ONE of these assertions was ever tested in court. 

        The SFO removed his records and then, instead of the Crown having to prove their assertions Alan Hubbard was forced into the impossible position of proving his own innocence. Meanwhile the statutory managers were able to feed a compliant media news releases every few weeks that reinforced the perception that Hubbard was guilty of fraud.

        Finally, in 2011, just days before Alan Hubbard was due to have his day in court, he was killed in a car accident. 

        Curiouser and Curiouser … a very deep Rabbit Hole?

        • Pi 11.2.1.1

          The fraud charges will never be tested so unknowable. Chris Lee has his own view (see here for a summary: http://robinwestenra.blogspot.com/2012/11/the-alan-hubbard-case.html) that Hubbard did not steal money from Aorangi – but that Hubbard would have been lucky to avoid fraud charges.

          The blog you reference has it the wrong way around though. The scandal was the Government's decision to include SCF in the guarantee scheme in the first place. This was deliberate politics to SUPPORT (not attack) the South Island, with a heavy dose of moral hazard – transferring risk from South Island depositors to the NZ taxpayer. 

           

          • Maurice 11.2.1.1.1

            Indeed  With National's South Island rural base being advantaged the inclusion of SCF in the guarantee scheme is questionable – at best

  12. Tricledrown 12

    Dos Bill English's biggest bungle $1.2 billion  of tax payers  money wasted because blinglish forgot to sign the bank failure insurance policy update sitting on his desk for 6 weeks

    • dv 12.1

      AND the Natz extended the Govt guarantee in 2010?

      I have a recollection that English brother was exposed financially to SCF.

      I must read Chris Lees Book, billion dollar bonfire.

  13. I believe the sharemarket is just an illusion; You buy a share in the hope that at some later point someone else will buy in at a higher price & so create value for you & any one else before you. The trick is to know when to get off the bandwagon at the right stop. If you are not in the loop of knowledge about a particular share, then you are living in hope.

    • Pat 13.1

      naught but a global casino

    • Ad 13.2

      Your "illusion" currently directly benefits the 2.5 million New Zealanders within Kiwisaver, and a further 1 million in NZSuperauunation which is propped up by the NZSuperFund which is also reliant on the local and international share market. 

      That's 2/3s of the New Zealand population reliant on the performance of sharemarkets. 

      So far this "illusion" has done incredibly well for us.

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