Dear Mr. Berko:
Why has the stock market continued to make new highs while unemployment remains high? Why has unemployment remained high when the Federal Reserve adds $85 billion a month to the economy? And why has the gross domestic product stayed flat with all this new money in the economy? Where is this heading?
— FL, Cleveland
Dear FL:
Those are often-asked, good questions. It suffices to say the market will continue rising as long as the Obama administration compels the Fed to dump its $85 billion monthly stimulus into the big banks’ pockets. The administration still believes that this avalanche of free money will encourage banks to lend cheaply to businesses, which ideally use that cheap money to employ more workers to produce more products for the consumer, whose subsequent purchases ideally would improve the GDP.
Well, something happened on the road to Grandmother’s house, because those trillions of dollars of Fed largesse never reached the consumer’s pocket. Banks have issued fewer and fewer loans, and credit hasn’t gotten cheaper. Investment bankers have been pocketing all the cash, and little has been invested to create jobs. Rather, Wall Street’s brokerages and hedge funds have used the stimulus to trade the market, to improve balance sheets, to subsidize iffy business deals for their pals and to pay off underwater loans. And in the process, the Dow Jones industrial average has leapt to new highs. Cheap money has been used to facilitate mergers, foster acquisitions to replace high-interest debt with lower-interest debt, repurchase corporate stock, and acquire apartments, office buildings and industrial real estate. A pittance has been used to create jobs, and the stock market has continued to record highs.
Goldman Sachs, Merrill Lynch and JPMorgan Chase have used stimulus money to create initial public offerings, finance leveraged buyouts, and purchase distressed resources and income-producing assets rather than expand employment. So the market has risen to new levels, and that rising market, fueled by Wall Street’s cupidity, inexorably has spewed more dollars into the velvet purses of the 1 percent of Americans who currently own 95 percent of the country’s wealth. Nobody at the Fed seems to care that our infrastructure is in shambles. Our bridges are crumbling; our seaports and airports need significant upgrading; our nation’s water and sewer systems need extensive repair; our rivers and lakes must be sanitized; our hospitals, libraries, schools and major highways require extensive maintenance; and our public transportation systems are inadequate. That is where those trillions should have been allocated. Even my neighbor’s two Rottweiler’s, Abbott and Costello, bark their agreement.
Shovel-ready jobs would quickly increase employment and put hundreds of billions in middle-class pockets to purchase goods and services from tens of thousands of small neighborhood businesses. The stimulus hasn’t reached Joe the Plumber, Mrs. Grabowski, Uncle Cleve, Sally, Grandma or the Sanchez family. And except for their new cars and recently purchased toys (iPads, smartphones, TVs, etc., bought with borrowed money), Americans are a ruck stuck in the muck. Look about your city. Note the recently closed restaurants, empty car lots, strip center vacancies, shuttered neighborhood businesses, empty office buildings and unoccupied homes. The consumer has been porked. His income is lower today than it was before the recession began; he has borrowed the limit from his 401(k) plan; his debt reached record levels this year; Visa and MasterCard are his friends; and he realizes, sadly, that he has diminishing control over his family’s future.
The middle class is vanishing and becoming increasingly dependent on government assistance (Google “Cloward-Piven strategy”), which some believe is the government’s goal. The new normal for government is to control as many resources as possible and covetously increase its size as more resources (health care, education, workplace environment, wages, gun control, food programs, housing, banking, pensions, mineral rights, etc.) come under its dominance. So with a growing number of resources under control, the government can allocate them to more Americans, who become increasingly dependent upon its dominion. What a wonderfully simple concept. Relieved of our responsibilities, we can cheerfully look toward government for our paternal care and happiness. Everyone votes for Santa Claus.
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Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com. Visit Creators Syndicate website at www.creators.com.
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