The Wall Street Journal reported this Thursday “Stock and bond prices tumbled after stronger-than-expected economic data …” Why would good news about the economy cause the stock market to fall? The sentences continue: “… raised investor anxiety about a pullback next month in central-bank support for financial markets …” The gulf between these two economies drove this morning’s stock market story. It’s also driving the long-term depression-like misery, which holds millions of Americans in its grip. This is not the playing out of some divinely decreed order. The financialization of the US economy is the result of very deliberate governmental choices. Unless different choices are made going forward, we will continue to become a “Bankistan” whose wealth and economic fate is increasingly hijacked by Wall Street. Richard (RJ) Eskow Campaign for America’s Future / Op-Ed Published: Friday 16 August 2013 Never before has the manipulation of money counted for so much and the real-world economy of people and consumer goods counted for so little. The ‘Bankization’ of America Post a Comment Resize Text + | - | R Plain Text Print SHARE Email The share of our national income, which goes to corporate profit, is the highest it’s been since they started tracking it in 1929, while the share going to people – as salary and wages – is the lowest. And the percentage of that corporate profit which goes to Wall Street is also the highest on record. We’re becoming a financialized economy. Never before has the manipulation of money counted for so much and the real-world economy of people and consumer goods counted for so little. And none of it is an accident. When Wall Street catches a cold … The Wall Street Journal reported this Thursday “Stock and bond prices tumbled after stronger-than-expected economic data …” Why would good news about the economy cause the stock market to fall? The sentences continue: “… raised investor anxiety about a pullback next month in central-bank support for financial markets …” Investors had been relying on the Federal Reserve to keep pumping up the stock market’s record run, but some mildly favorable economic reports raised fears were raised that the Fed’s market-friendly interventions might come to an end. “We’re getting another knee-jerk reaction to fears of tapering,” a market analyst told the Journal, referring to the Fed’s monthly purchase of $85 billion in bonds. As Reuters reported last month, “Many on Wall Street believe the Federal Reserve’s monetary policy is behind record corporate earnings and the stock market’s surge to all-time highs this year.” When Wall Street catches a cold – when it even might catch a cold — the economy catches pneumonia. Reality Bites Meanwhile, the “real” economy – the one where people live, and work, and buy things – has suffered even as Wall Street and the stock market have boomed. That trend continued this week too; Wal-Mart announced disappointing sales and lowered its projections. Its Chief Financial Officer observed, “The retail environment remains challenging in the U.S. and our international markets, as customers are cautious in their spending.” Cisco also lowered its sales expectations. As the Journal article notes, these announcements added to the fear that the Fed’s interventions might wind down. This stock market story illustrates the gulf between a stock-market economy increasingly driven by the banking industry – an economy which has been booming, today’s news notwithstanding – and a human economy wracked by consumer fears, falling wages, joblessness, and low-level jobs for a growing number of people who are working. Help us speak truth to power. Donate what you can afford to support NationofChange. The gulf between these two economies drove this morning’s stock market story. It’s also driving the long-term depression-like misery, which holds millions of Americans in its grip. This is not the playing out of some divinely decreed order. The financialization of the US economy is the result of very deliberate governmental choices. Unless different choices are made going forward, we will continue to become a “Bankistan” whose wealth and economic fate is increasingly hijacked by Wall Street. Financialized The Federal Reserve’s data on corporate profits were helpfully compiled by a contributor to the investment site The Motley Fool, who notes that financial profits were 11 percent of total corporate profits in the US back in 1947, the first year these numbers were compiled. These profits soared in the first decade of the 21st Century. After taking a hit in the crisis of 2008 – a crisis that the banking industry caused – they rose again and are now at record highs. Their share of total corporate profits has risen from 11 percent to 42 percent, as of the latest report, and the Fed expects them to keep rising. Here’s how that looks: 2013-08-15-CORPFINPROFITS.JPG Article image The money nowadays isn’t in manufacturing, or retail, or any of the other traditionally jobs-producing industries. The money now is in money. How did this happen? A series of policy decisions enabled this explosive growth, including the deregulation of Wall Street; the repeal of Glass-Steagall, which separated bank customers’ money from money which the bank could invest for its own profit; runaway banker salaries and bonuses, which prompted the “best and the brightest” to flock to Wall Street and apply their ingenuity to flouting the rules; and government’s increasing unwillingness to indict bankers for criminal behavior. And then, when banker criminality and incompetence created the crisis of 2008, the government rescued them without being held financially or legally accountable for their wrongdoing. The Federal Reserve continues to pursue stimulus policies that moderately help the economy as a whole, but which emphasize the economic health of banks and publicly traded corporations over that of companies that hire workers – and therefore increase the consumption of consumer goods.
Posted on: Sun, 18 Aug 2013 00:26:54 +0000
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