Citizen Action Monitor

The US Fed is “turning its massive injections of ‘liquidity’ into a narcotic for Big Business”

Ignored is the fact that ordinary people’s pension and mutual fund savings are being sucked into a speculation vortex —

No 2646 Posted by fw, July 26, 2020 —

Ralph Nader

“The Federal Reserve Board – our unaccountable Central Bank – needs more citizen and Congressional supervision. Fees from financial institutions fund its operations, not Congressional appropriations. It is as secret as it wants to be and that’s plenty. Plus, the Fed can print money at will. In the past several years it has “produced” trillions of dollars that juiced the stock market’s speculation. … Fed Chairman, Jerome H. Powell, has chosen to instill “confidence” in the stock markets and credit markets by injecting trillions of dollars into the financial system to reassure the Wall Street speculators that the Covid-19 pandemic won’t crash the money markets into chaos and bankruptcies. Meanwhile, this huge pile of money looking for some return on investment is being lured into the stock market further driving up price-to-earnings (P/E) ratios into nosebleed territory. … Unfortunately, few economists focus on the stock market speculators sucking money belonging to the people (pension and mutual funds) into the speculation vortex while corporate bosses borrow cheap money, at record low-interest rates, for self-serving unproductive uses. … Such addictions hurt many innocent people back home trying to keep jobs, find jobs, and pay their bills. The House Democrats must hold rigorous public hearings on the Fed which ironically is demanding that Congress provide more immediate relief for ordinary people.”Ralph Nader

Ralph Nader is an American political activist, author, lecturer, attorney, and presidential candidate, noted for his involvement in consumer protection, environmentalism and government reform causes.

In the closing sentence to his scathing indictment of the US Federal Reserve, Nader writes: “Now it is time for various House Committees to publicly question Chairman Powell about the costs of the Fed’s callous indifference to the real economy and struggling Americans.”

But is anyone listening? Will the House Committees act on Ralph’s plea to question Chairman Powell?

Below is my edited repost of Ralph Nader’s penetrating analysis, featuring my added subheadings, text highlighting, added hyperlink and images. Alternatively, read Nader’s original piece by clicking on the following linked title.

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Fed Guarantees Unproductive Debt and Perilous Speculation by Ralph Nader, nader.org, July 24, 2020

Unaccountable US Federal Reserve prints money at will, driving stock market speculation

The Federal Reserve Board – our unaccountable Central Bank – needs more citizen and Congressional supervision. Fees from financial institutions fund its operations, not Congressional appropriations. It is as secret as it wants to be and that’s plenty. (See Secrets of the Temple: How the Federal Reserve Runs the Country [1987] by William Greider). Plus, the Fed can print money at will. In the past several years it has “produced” trillions of dollars that juiced the stock market’s speculation.

An epitome of wasteful “casino capitalism, stock markets have little to do with building the “real economy

Back nearly 90 years ago, the influential British economist, John Maynard Keynes, warned about stock markets veering into speculation and away from investments to build the real economy. Today, he might view stock markets as the epitome of wasteful “casino capitalism.” They have very little to do with raising money for useful investments and everything to do with making bets, as in multi-tiered derivatives, puts, and options to make money from money.

Wall Street gamblers use “other people’s money” to reap huge fees from speculation

Most often using, in Justice Louis Brandeis’s phrase, “other people’s money,” the Wall Street gamblers reap lucrative fees from unproductive speculation.

The Fed’s current chairman injects trillions into financial system to reassure speculators the pandemic won’t crash their reckless game

Fed Chairman, Jerome H. Powell, has chosen to instill “confidence” in the stock markets and credit markets by injecting trillions of dollars into the financial system to reassure the Wall Street speculators that the Covid-19 pandemic won’t crash the money markets into chaos and bankruptcies. Meanwhile, this huge pile of money looking for some return on investment is being lured into the stock market further driving up price-to-earnings (P/E) ratios into nosebleed territory.

The Fed has set the stage for a “constant bailout of reckless bubbles and debt binges”

But Powell, the Fed and the bankers who dominate the Fed and its regional branches have set the stage for this constant bailout of reckless bubbles and debt binges. Powell shrugs and assures the big boys on Wall Street that the Fed will have their back without limits. In return, the corporations continue their unproductive speculation and what the New York Times called a Fed-driven “debt binge.” By keeping interest rates too low, now near zero, they have encouraged non-financial companies to go deeper and deeper into riskier debt ($6.8 trillion and surging). Borrowing has been so cheap that some of this debt was incurred by companies just to buy back their stock! Stock buybacks do not produce anything but higher metrics for executive compensation (See article, Why Stock Buybacks Are Dangerous for the Economy by William Lazonick).

Meanwhile, millions of investors with moderate incomes get almost nothing in interest income

Powell has turned a deaf ear to tens of millions of Americans, with modest incomes, who together have trillions of dollars in money market and bank savings accounts and are getting almost nothing by way of interest income. To make matters worse, these trillions of dollars are chasing fewer listed companies on the stock exchanges. Mergers, acquisitions, bankruptcies, and raising money from cheap debt instead of equity, over the past 25 years have cut the number of companies listed on the New York Stock Exchange by half.

Bottom line, average families have much less to spend, the Fed chairman could care less, and unregulated money lenders rake in high interest charges on loans

The result is less consumer spending. Yet Powell arrogantly says he’s not even thinking about raising interest rates even to one percent. Lenders like this approach because the sky-high interest rates they charge are not regulated.

More money is controlled by “the few”, little goes into productive investments for the “real economy

Note how little all these financial machinations directly help the average families in America. More money is controlled by the few than ever before, but little is going into productive investments in the creation of jobs and services sorely needed in this, shaky “real economy”.

Ignored is the fact that ordinary people’s pension and mutual fund savings are being sucked into a speculation vortex 

Some economists have written that “the stock markets are not the economy.” True enough if they are describing how stocks can soar on Wall Street while the Main Street economy plummets. Unfortunately, few economists focus on the stock market speculators sucking money belonging to the people (pension and mutual funds) into the speculation vortex while corporate bosses borrow cheap money, at record low-interest rates, for self-serving unproductive uses.

The Fed is “turning its massive injections of ‘liquidity’ into a narcotic for Big Business”

The Fed is pursuing a short-term game of guaranteeing corporations against self-imposed riskiness (the Fed is even starting to buy corporate bonds). This authoritarian Central Bank, with its own bulging red ink balance sheet, is turning its massive injections of “liquidity” into a narcotic for Big Business.

And with unconscionable irony, the Fed demands that Congress provides relief for ordinary people

Such addictions hurt many innocent people back home trying to keep jobs, find jobs, and pay their bills. The House Democrats must hold rigorous public hearings on the Fed which ironically is demanding that Congress provide more immediate relief for ordinary people.

It’s time for House Committees to publicly grill the Fed Chairman about the costs of his callous indifference

In May the House Democrats passed a $3 trillion package addressing these needs and sent the bill to a balking Republican-controlled Senate. Now it is time for various House Committees to publicly question Chairman Powell about the costs of the Fed’s callous indifference to the real economy and struggling Americans.

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