the Feds Feed the Rich
by Bill Bonner: When
Governments Spend Wealth Instead of Building It
The Daily Reckoning
proved right again!
Weve been sticking our necks out. We had a strong hunch that
the rich had gotten a whole lot richer not because they were suddenly
greedier or suddenly smarter, but because of the feds. The feds
were handing out money. The rich were first in line.
But we didnt have any real proof
Relatively speaking, the rich have gotten a lot richer over the
last 30 years. The whiners and fixers want to do something about
it. They say the rich werent taxed heavily enough
they werent regulated enough.
That had little to do with it, we pointed out. Instead, the meddlers
themselves caused the rich to get richer.
Whos right? We are, of course
A report from the Federal Reserve Bank of New York suggests that
the bulk of equity returns for more than a decade are due to actions
by the US central bank. Theoretically, the S&P 500 would be
more than 50 percent lower at the 600 level if the
bullish price action preceding Fed announcements was excluded,
the study showed. Posted on the New York Feds web site Wednesday,
the study sought out to explain why equities receive such a high
premium over less risky assets such as bonds. What they found
was that the Federal Reserve has had an outsized impact on equities
relative to other asset classes. For example, the market has a
tendency to rise in the 24-hour period before the release of the
Feds statement on interest rates and the economy, presumably
on expectations Chairman Ben Bernanke and his predecessor, Alan
Greenspan, would discuss or implement a stimulus measure to lift
asset prices. CNBC
How do you like that? Without the intervention of the central bankers,
the rich would be about $7.5 trillion less rich. But wait
theyd be even less rich than that. Well come back to
Lets look at how the rich got so rich. Did they get a lot
smarter in the last 30 years? Did they become a lot greedier? Nah
were in the right place at the right time. They owned stocks just
when the Fed was dumping beaucoup money into the financial system.
We didnt have much proof for these assertions when we first
made them. They just seemed, superficially, correct. The Fed increased
the money supply (M2) 13 times since the early 80s
the Dow rose about 13 times too. It seemed a little fishy to us.
Wages and prices, meanwhile, were held in check by outsourcing.
The US outsourced its consumer and labor inflation to China. So
relatively, the rich got richer
leaving the tired, poor multitudes
to get even poorer.
And now we have proof. Without the intervention of the central
bank, stocks would be at half todays prices.
One scam after another. It is amazing anyone takes economists or
central bankers seriously. And now the same bumblers who caused
the rich to get so rich are still on the job
scammy solutions. Heres The Atlantic Magazine:
in one of the most famous passages from the Federalist
Papers (No.51). James Madison wrote: If men were angels,
no government would be necessary.
the issue [is] how to realize the benefits of market capitalism
while restraining the powerful impulses to cut corners, cheat,
and commit fraud. This ageless question is of special moment in
this polarized political season, in which the role of government
is central. The cases rebut the assertions of the Republicans,
Tea Partyers, libertarians, and corporate leaders who wish to
reduce the reach of law and government and who believe that markets
will always self-regulate people from Ayn Rand and Russell
Kirk, to Ron Paul and Grover Norquist, to Tea-Party Republican
majorities in the House who want to starve government,
to individual and corporate donors to super PACs, all of whom
are today shaping the Republican message.
The cases support people who believe in a mixed economy that
gives a central role to economic freedom and free markets
but a system that also places important legal and regulatory limits
in order to prevent corruption and protect social goods.
Get it? Businessmen and investors arent angels. So government
backed by economists
and opinion leaders
to step in.
And heres Jeffrey Sachs calling for major new central planning
In short, we need new economic strategies to overhaul broken
systems of finance, labour markets, taxation, ecological management,
budget management and investment incentives. Those challenges
cannot be fixed through lowering taxes on the rich or higher fiscal
deficits to create aggregate demand. The new approaches must be
long-term, structural, sensitive to inequalities of skills and
education, aligned with the need for more sustainable technologies
and smarter infrastructure (empowered by information
technology) and congruent with long-term demographic trends. Its
time we moved beyond the Republican Party economics of the 1920s
and the Democratic Party economics of the 1930s, to a new macroeconomics
for the 21st century.
Never explained is how people on the public payroll got to be such
and so smart! If you cut them, do they not bleed? If
you insult them, arent their feelings hurt? If you wave a
$100 bill in front of them, wont they do your bidding?
Diamond hoped so. Moyers and Winship report:
the disgraced financier would no longer be hosting one
of two Romney fundraising events for American expatriates being
held in London later this month. But no worries. The Boston
Globe notes that still among those hosting the events
is Patrick Durkin, a registered lobbyist for Barclays
who has been a top Romney bundler, is one of seven chairs for
the reception and among the 13 co-chairs for the dinner.
Others involved in hosting the events are Dwight Poler, managing
director at the European branch of Bain Capital, the firm Romney
founded; Raj Bhattacharyya, managing director at Deutsche Bank;
and Dan Bricken, a managing director at Wells Fargo Securities.
Each guest at the dinner event will pay between $25,000 and $75,000
for the opportunity to sup with the Republican presidential nominee
on the whole corrupt and degenerate spectacle.
How the feds rigged the system
and how they use the crisis
they caused to rig it even more.
Bonner is the author, with Addison Wiggin, of Financial
Reckoning Day: Surviving the Soft Depression of The 21st
The New Empire of Debt: The Rise Of An Epic Financial Crisis
and the co-author with Lila Rajiva of Mobs,
Messiahs and Markets (Wiley, 2007). His
latest book is Dice
Have No Memory.
Since 1999, Bill has been a daily contributor and the driving force
behind The Daily Reckoning.
© 2012 Daily Reckoning
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