Even as household incomes continue to sink and the recovery sputters, the stock market is soaring: Since the start of the year, the Dow has risen 22 percent and the S&P 500 almost 26 percent. Which means the richest 10 percent of Americans who own 80 percent of all shares of stock are doing better than ever. Why the disconnect between the real economy and the financial one? Even though most consumers dont have enough dough to fuel a solid recovery and cause businesses to expand and hire, big corporations are (1) lifting profits by continuing to cut jobs and/or wages and benefits; (2) using their spare cash to buy back their own shares of stock, thereby raising the price of the remaining shares; and (3) borrowing money at rock-bottom rates (courtesy of the Fed) to buy even more shares or invest directly in the market, also boosting profits and share prices. Such disconnects between the real and financial economies always end badly. When will this bubble pop? As soon as the Fed pulls in the reins. Janet Yellen, Obamas nominee to head the Fed, indicated at her Senate confirmation hearing Thursday shed maintain the Feds easy-money policy for the time being. That would make sense if the economic gains were more widely shared, and average working people could easily refinance their mortgages or get other loans at the low rates. But the major beneficiaries of the Feds easy money are big corporations, Wall Street, and the very rich -- which is why the disconnect is becoming so perilous.
Posted on: Sat, 16 Nov 2013 18:10:19 +0000
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