One of the reasons that America’s problems remain unsolved is the blind party loyalty that is eerily similar to the attitude of sports fans … my team does no wrong! In politics, this means that almost half of America can be fooled all the time. This is a climate where winning has become more important than thinking what’s good for America.
Take this popular meme about Obama Recovery:
So what is wrong with this? Okay, there are 6 claims and every one of them is blatantly wrong or misleading.
We will focus on the first claim in this blog post.
Claim #1: “I nearly tripled the stock market”
Okay, as can be seen from the chart below, the stock market did triple from a low of 666 in 2009 to more than 2100 in the first half of 2014.
Did the stock market boom because the US corporations sold more products and increased their revenues or profits three times? Did the average American’s income go up by 3x? Or did Joe Schmoe see his bank balance triple in those years?
Answers to all those questions: NO.
The stock market boomed because, since the Great Financial Crisis of 2008, the Federal Reserve Bank (“Fed”) has kept interest rates close to 0% (the infamous ZIRP or Zero Interest Rate Policy). So, from December 2008 to December 2015 – for 7 years – corporations were borrowing trillions of dollars and buying back their own shares! Hence the stock market boom.
When the stock prices go up, the CEOs and the big investors make tons of money … while loading up the corporations with debt. Privatized profit and socialized debt.
Thanks to the Fed’s ZIRP, public pension funds cannot get safe 5% returns as they did in the past. Thus, public pension funds are being lured into investing in the stock market by the big financial firms. The stock market may very well crash soon, which means that millions of retired people are going to see their benefits being cut in the coming years.
Another popular strategy for a corporation to show growth is to simply buy another corporation using borrowed money (LBO or Leveraged Buyout). There have been trillions of dollars of these M&A (Mergers and Acquisitions) – examples include American Airlines + US Airways, Facebook + Instagram + WhatsApp, Dell + EMC etc.
Finally, the stock market truly benefits the Top 1%, or really the Top 0.1%. More than half of all Americans have no money invested in the stock market – not even through mutual funds or retirement funds.
The Top 1% of America owns close to 40% of the wealth in the stocks and the next 9% owns another 40% (source).
So, to summarize, we shouldn’t celebrate this stock market performance, because:
- It is the result of Financial engineering and bad debt
- It doesn’t reflect the true health of the economy or the corporations
- This boom in stock market has made little difference in the lives of 90% of Americans
- M&A of giant corporations are actually bad for the economy, since they stifle competition, reduce the number of jobs and result in mass layoffs
- All we have here is a stock market bubble that stalled in 2015 and will crash soon*.
* The Fed raised the interest rate by a paltry 0.25% in Dec 2015, but they are already having second thoughts. People are even talking about cutting the interest rate back to 0% or even lower into Negative Interest Rates (“NIRP”). Whatever it takes to keep the illusion alive. So don’t underestimate the madness of the banksters. But more financial engineering will only: A) postpone the time of the inevitable crash, and B) make the crash harder and more devastating for the economy.
Read Part II of this series debunking the other claims in that Obama Recovery meme…