America Convulses in Pain, Fed Bails Out the Wealthy

What’s so insidious about the Fed’s bailouts of investors in hedge funds, mortgage-REITS, stocks, bonds, leveraged loans, and other often risky assets? The destruction of capitalism.

By Wolf Richter. This is the transcript of my podcast last Sunday, THE WOLF STREET REPORT. You can listen to it on YouTube, and you can find it on iTunes, Spotify, Stitcher, Google Podcasts, and others.

We’re in an economic meltdown like I’ve never seen before. Tens of millions of people have lost their jobs – and so suddenly, that the government data to track them has fallen into chaos, with different agencies reporting data that is all over the place and contradicting each other. None of these systems were designed to track this type of sudden collapse of the labor market during a pandemic.

Then there are the many small businesses that have had to shut down or lost most of their customers and revenues. And these entrepreneurs have no idea if they can make it through this period.

Over the past three months, about 110,000 people in the United States have died from the coronavirus. That number is still growing every day at a rate of about 1,000 deaths. But the efforts to slow the spread of the virus and save lives have caused enormous economic damage.

And people’s frustration and anger with racial injustice has boiled over, and they’re frustrated and angry over a host of systemic issues, including the inequality of economic prospects, and there have been big protests every day around the country for well over a week.

Just now, there was a protest march going by our place here in San Francisco. They had police escorts on motorcycles and cars. They were chanting “black lives matter” and other phrases, and clapping and waving, and holding up cardboard signs with various messages written on them. They were of all races – and I would say that the majority was young and white. These people woke up.

And there has been widespread looting earlier in this phase – in my neighborhood, all the drugstores were systematically looted a week ago at night by a convoy of cars that drove from store to store, and there were no protests anywhere near.

The looters came for the money and reacted to the horrendous economic inequality in this country, to the mind-boggling wealth disparity, and to the whole bizarre system that encourages a private equity firm to raid a company and loot it, and burn its creditors, and destroy its jobs, and then walk away a capitalist hero as the company collapses as nothing but a shell, which is what private equity firms have done repeatedly all over the place, including with Toys ‘R’ Us.

In a Wall Street Journal/NBC poll out today, 80% of the respondents said they feel that the country is spiraling out of control.

So there are some huge multi-faceted problems that need to be grappled with, and that need to be resolved, and people are hurting, and they’re frustrated, and they’re angry, and many are unemployed, and others have jobs that don’t pay enough to meet the rising living expenses, and small businesses are on the ropes, and there’s going to be a lot of pain.

And what does the Federal Reserve do?

It printed $2.9 trillion since early March to bail out investors in highly leveraged hedge funds that were imploding, and to bail out investors in highly leveraged mortgage REITs that were imploding, and to bail out asset holders whose stocks were plunging, and speculators in the riskiest concoctions, and investors of all kinds, and to bail out asset holders of any kind – and the wealthier they were, the more they got – to make sure they don’t feel any of the pain.

That’s what the Fed is doing.

So the Fed printed $2.9 trillion since early March. That’s about $22,000 per household. For the bottom half of households, $22,000 would have helped a lot to get through the crisis.

But this money wasn’t spread to them. It was helicopter money for Wall Street. And it went on to multiply. And most of it ended up with a relatively small number of households. And their wealth increased by the trillions of dollars.

The Fed’s huge purchases of Treasury securities in March was a hedge-fund bailout. As the Treasury market went haywire with the 10-year yield first plunging then spiking, hedge funds that had huge and highly leveraged bets on Treasuries began to blow up.

That the Fed’s massive Treasury purchases were a backdoor bailout of highly leveraged hedge funds was confirmed in an editorial by William Dudley, former president of the New York Fed. These hedge funds, he wrote, “were caught in an untenable trade of being long cash Treasuries and short Treasury futures.”

He explained: “When volatility was low, these positions could be leveraged up to generate attractive returns. But when the pandemic hit and volatility soared and those trades lost value, margin lenders who financed the positions asked for more equity.”

These were the margin calls that hedge funds couldn’t meet. And hedge funds were forced to sell their positions.

Dudley added, “This led to fire sales, with many sellers and few buyers. The result was a climb in Treasury yields, a widening in bid-offer spreads and a sharp drop in liquidity in what is normally the most liquid market in the world.”

And so the Fed bailed them out through the “backdoor” by buying vast amounts of Treasuries that pushed up their prices and pushed down their yields. And this action made sure that the people whose money was tied up in these hedge funds didn’t have to pay the price for the risk they took. They were made whole entirely, even as tens of millions of Americans lost their jobs.

The Fed’s huge purchases of mortgage-backed securities in March came when prices were plunging, as mortgage forbearance and huge job losses were putting mortgage payments at risk. And that was a bailout of highly leveraged mortgage-REITs, Dudley said.

“As volatility soared, real-estate investment trusts that invest in mortgage-backed securities were forced sellers as they struggled to meet margin calls,” Dudley said. “Again, the Fed purchases helped limit their losses.”

And then there is the bailout of “heavily indebted corporations,” as Dudley put it.

“This is significant because many corporations took on lots of debt by choice,” he said. So the Fed set up these special purpose vehicles, or SPVs, to purchase corporate bonds and leveraged loans, which pushed up their prices, pushed down the yield, and allowed these over-indebted companies to borrow in the market that was suddenly chasing yield as yield was evaporating.

“These actions also protected investors in high-yield mutual-bond funds,” Dudley said. “Had the funds been forced to sell amid plunging prices to meet large redemptions, this could have set off a chain reaction in which falling prices begat more sales. Both the asset managers and the retail investors who bought shares in these junk-bond funds escaped bearing the cost of their actions,” he said.

In central-bank lingo, this is called “moral hazard”: Bailing out the wealthy and asset holders, hedge funds, mortgage REITs, private equity firms, and huge risk takers, and it’s called “moral hazard” because it encourages this risky behavior because they know that they’re going to get a bailout when it hits the fan next time, and so they do the same thing again and take even greater risks, and it blows up again with even bigger consequences, and they get bailed out again with even more trillions.

Tens of millions of people are out of a job, and many people protest in the streets, seething with anger and frustration. And many of those that didn’t lose their jobs are living from paycheck-to-paycheck, while the fruits of their labor continually get eaten up by rising prices and rents and healthcare costs – the lucky ones that even have healthcare.

But the Fed bails out that concentration of wealth and power so they never have to feel the economic pain, so that they don’t have any skin in any crisis, and so that the wealth disparity continues to surge.

There is an elephantine long-term problem with these bailouts. People took these risks because they wanted the returns. Bailing them out and making them whole destroys the discipline of capitalism – and it destroys capitalism itself.

What you’ve got left is a messed-up situation where asset holders reap all the gains and rewards and returns, and when these bets hit the fan, the Fed shuffles the losses and risks into the other direction, which in the end crushes the fruits of labor of those who have to work for a living as they end up having to pay higher prices for everything, from healthcare to housing.

With these bailouts, the Fed confirms that there is no level playing field. And it purposefully and with premeditation increases a wealth disparity that is just out of this world.

The stock and bond markets had been immensely inflated by mid-February, when the reality of the pandemic sank in, and these stocks and bonds sold off, and markets crashed, as they should.

In the broader context, capitalism and its markets started to function properly in late February and early March. This crap that should have blown up long ago was finally blowing up. Ludicrously overvalued stocks were finally being somewhat less overvalued. Ludicrously overvalued bonds were finally less overvalued. Toxic mortgage-backed securities were still trading, but at much lower prices. If a hedge fund blows up because a highly leveraged bet didn’t work out, well, so be it. This is how capitalism should work.

The government provides an essential safety net for support. If those hedge fund managers lose their jobs because their hedge fund blew up, they can apply for unemployment insurance. That’s the only safety net they should get. What’s good for the goose, is good for the gander.

Asset holders and the wealthy were starting to feel the pain – not just people that don’t have any assets.

But no way, for the Fed.

By means of a slew of programs, the Fed has handed $2.9 trillion so far to Wall Street. Asset prices soared – bonds, stocks, mortgage-backed securities, leveraged loans, the whole schmear. People that owned them made many trillions of dollars in two months even as tens of millions of people lost their jobs and people protested in the streets.

The Fed bailed out and made whole those that hold assets. The more assets they hold, and the wealthier they are, they more they got so that they don’t have to feel the pain, and so that they don’t have to feel the anger, and so that they can continue to accumulate wealth and power while the rest of the country is screaming.

This is the largest wealth transfer in the history of mankind, and it increased by a huge amount the already huge wealth disparity. Thank you Fed halleluiah.

People who don’t hold assets, the people that depend on their labor to get through life, they got totally screwed.

I cannot think of a more heinous act that the Fed under the leadership of Wall Street insider Jerome Powell could have concocted.

And to top it off, we have to listen to the Fed’s and Powell’s insidious copy-and-paste propaganda.

At least Janet Yellen, when she was still at the San Francisco Fed in 2005, acknowledged that this principle was a tool of the central bank and was called the “wealth effect” – that’s the term she used in her paper at the time – that a central bank’s goal is to make the wealthy wealthier, and that this would trickle down and increase consumer spending and create inflation – meaning loss of purchasing power – for everyone else.

There were subsequent papers by other Fed officials that also described the “wealth effect.”

Ben Bernanke made the wealth effect the official reason behind the bailouts during and after the Financial Crisis. He explained the wealth effect in an editorial in the Washington Post in 2010.

The “wealth effect” means purposefully adding to the wealth disparity: Making some people immensely wealthy, concentrating money and power, and making everyone else pay more.

At least Yellen and Bernanke were honest about their insidious policies. With Powell and the current Fed, we have to listen to propaganda.

The phrase they copy-and-paste into everything to justify their bailouts of the wealthy is, and I quote: “…to support the credit needs of American households and businesses by fostering the functioning of financial markets.”

Which is unadulterated BS propaganda. Financial markets were functioning just fine, it’s just that prices were a lot lower, and if there were no buyers at those prices, there were lots of buyers at lower prices. That’s how markets are supposed to function.

So what the Fed has engineered is the biggest most sudden wealth transfer from labor to capital, from the many to the few, and the more assets they hold, the more they got. And those not in the privileged capital class, the Fed tells them, you’re screwed.

The Fed needs to shut these money-printing bailouts down and let markets sort this out and let the wealthy have some skin in the crisis – so it’s not just the people who have to work for a living that always pay the price in every crisis, while the rich can get even richer.

Congress could and should impose a lockdown on the Fed. But lawmakers belong to the same capital class that is getting made whole, Speaker of the House, Nancy Pelosi, at the top. They’re among the rich asset holders, and no way that they’re going to shut down the Fed’s scheme, when it has made them so rich. They certainly don’t want to have any skin in this crisis – or in any crisis. They too want to be bailed out each time it hits the fan.

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  203 comments for “America Convulses in Pain, Fed Bails Out the Wealthy

  1. George W says:

    The destruction of capitalism.

    Capitalism without risk is not capitalism.

    Wolf, thanks again for all you do!

    • Suzie Alcatrez says:

      The problem with capitalism is that sooner or later you run out of other people’s money.

      • Wisoot says:

        Money created on a keyboard does not run out.

        • William Wightman says:

          Money cannot be created on a keyboard. Money has intrinsic value and lacks third-party risk. Currency can be printed and has no intrinsic value and eventually it is valued at zero.

      • zagonostra says:

        That’s not how the money printing press works, the 0’s and 1’s on their electronic printing press never run out…

      • Sheila Washington says:

        OPM’S

      • Lisa_Hooker says:

        Suzie – you stated is the definition of Socialism, not Capitalism. Capitalism is when (eventually) one person owns everything.

        • Mark_2 says:

          @Lisa_Hooker
          “Suzie – you stated is the definition of Socialism, not Capitalism. Capitalism is when (eventually) one person owns everything.”

          I’d suggest it’s the same for both capitalism and socialism/communism. It seems like a cycle that when things get bad you [sometimes]1 have ethical/moral heros that dominate leadership and influence important aspects of social/political/economic infrastructure. Things get better and then conditions begin to degrade as new generation forget lessons of the past. Singapore might be a good example of this yet. Rags to riches to ???
          1. I want to leave “sometimes” out but I’m not as well read as I would like. Feel free to support or shred the argument!

      • Portia says:

        LOL. nice one. hope The Iron Lady is rolling in her grave.

      • Mark Dowie says:

        Suzie,
        That’s the best quote I’ve seen about capitalism in a long time. Is it yours? Can I quote you?
        Mark

      • hendrik1730 says:

        No. In its present form, they just PRINT it, at will.

    • leanFIRE_Queen says:

      Sooner or later the pricing mechanism will deliver. Just like today: the stock mkt was down 6%.

      LOVE IT! Nothing will fix the current peak of asset inequality as the mother of all crashes coming to the US equities and US real estate bubbles.

    • M says:

      Great article. I would not call what we have now capitalism, unless you put the words “corrupt” or “crony” in front of it. I have been told not to criticize the “Federal” bankster Reserve anymore, because I could face negative career repercussions if I did.

      However, as this and other articles in this website and others have pointed out, the taking of US taxpayers’ legal tender without their knowledge of consent (with only the consent of politicians who have received enormous bribes/”contributions” from the banksters and financiers to allow it) has escalated into the tens of thousands of dollars per person per year. Reportedly, if the “Federal” Reserve of the banksters had never been created (and only an independent, regulated government agency to help, regulate and oversee the banks and banksters had been created instead), all Americans would be much wealthier people.

      The “Federal” Reserve had to be deceptively named and secretly created with deceptions that it would “regulate” the financiers and prevent more misconduct. What is amazing is that it has successfully parasitized America for nearly a hundred years.

      E.g., in countries without similarly parasitic equivalents to the banksters’ “Federal” Reserve, the people enjoy the same or greater standards of living compared to Americans. Without ultra low interest rates to benefit the banksters, savers will see their investments grow significantly with time.

      E.g., Europe does not have the physical resources as the USA; however, Europeans have better living conditions, can take very long vacations each year, have much better healthcare, and have far smaller, national liabilities.

      Since its creation, the “Federal” Reserve banksters have slowly sucked out the wealth out of the USA like leeches that you do not know that you have acquired on a hiking trip suck out your blood. Before, many people also believed that leeches were beneficial parasites.

      Even now, too many Americans foolishly believe that the parasitic banksters behind the “Federal” Reserve care about the USA or Americans. They do not realize that they need the USA to remain alive while they continue to quietly suck out its wealth; there is no generosity there on the part of the banksters.

      • John says:

        The power of the banksters’ “Federal” Reserve will only be broken if wiretaps are conducted of all directors and banksters on a daily basis and the results published. Moreover, while I like deputy district attorneys and deputy attorney generals, who are almost all honest and nice young people, keep in mind that politicians head and control all prosecuting offices.

        None of those offices will seek wiretaps or take action against the powerful, because the politicians in control of those offices will never, ever risk their careers against such powerful people by even conducting wiretaps. If you know any such young, deputy prosecutors, they may also tell you the same in private and in person, away from other persons.

        We need some national prosecuting agency that is professionally run by well-compensated, career prosecutors, who are not looking to make their names in some flashy, serial murderer case to investigate the powerful — and ideally have nothing to do with run of the mill, flashy kidnapping or ordinary-crime prosecutions. I read about a proposal for an independent, federal, national ministry of justice that could conduct such prosecutions on its own, perhaps with the help of its own investigators, since the FBI and other LE agencies cannot offend the politicians they serve, who currently run most prosecuting agencies, including state and federal agencies.

    • Andrew says:

      Agreed; a big thank you to Wolf for all your hard work. Nice precise of that obscene wealth transfer.

      • RunSome2 says:

        So true. If confronting China is the international issue of our time, the Fed-sponsored wealth gap is the domestic issue of our time. If only we had people running for public office who get this. What’s really funny is that so many people interpret our issue as a failing of capitalism when in fact the problem is that for the rich we actually have socialism at work so that they can share their losses with the rest of us.

    • John Bridger says:

      After the Fed said it would use Blackrock to buy corporate credit I covered my shorts and shut down my trading account. There is no point trading in a soviet style market.

  2. Stuart says:

    By looting the economy to the tune of $ 2.9 trillion, and pennies to those who really need it, we see Socialism for the rich and Capitalism for the poor. How anyone can support this system, in all it’s cruelty, is beyond my ability to comprehend.

    • Phoenix_Ikki says:

      Because the “common sense” answer for the masses is this is better than Fedualism? Make no mistake, what we have now is not exactly the pure definition of capitalism. It’s mix of the worse from socialism and corporatism.

      Decades of painting socialism or anything remotely socialistic as the ultimate boggieman, you’ll be forgiven to think that neolibral capitalism is the only answer to how we govern and run our economies.

      • Tim says:

        You could have coined a useful term there ‘Fed-dualism’ to represent the wealth effect.

        All for one, but none for all.

        ( I think you mistyped feudalism, but in doing so got something better! My apologies if you meant the above all along)

        • Phoenix_Ikki says:

          No apologies needed. Good catch and as much as I like to pretend I cleverly came up with that, it was a honest typo but now that you pointed it out..I like it. Maybe it was a freudian slip typo afterall.

      • wkevinw says:

        Remember 2000 and 2008.

        Eventually the prices get discovered.

        However, the Fed has ammo.

        The ammo is not infinite.

        In the end the market always wins, even in “socialism”.

        Sometimes it takes decades.

        • Wally says:

          I’m thankful to Mr. Richter for responding to my comment about drawing a line in the moral sand. I do appreciate all the info he gives us that you cannot find anywhere else. It is invaluable. I guess everyone plays a role and has a different moral compass. That is not a judgement just an understanding that we all play roles. Regardless, I’m extremely appreciative of his hard work.

    • SanibelGuy says:

      Wolf, you sound more and more like AOC and I fully agree with your analysis. The current mess can only be fixed by reversing Citizen United and instituting radical campaign finance reform. You’ll be the judge how likely this will be with both parties beholden to the 0.01%. Tinkering on the edges won’t cut the mustard.

      • Wolf Richter says:

        SanibelGuy,

        I want capitalism to work. Risks need to be borne by investors. Losses need to be paid for by investors. Bankruptcy laws and other forms of debt restructuring, raising equity by selling shares, etc. — all these things are part of how capitalism should function.

        If a company with a functional business model runs out of money and needs to restructure its debts, there are ways to do that, including handing part or all of the company over to creditors. This is usually done under the rules of our bankruptcy code. It works just fine.

        But the Fed bailouts destroy capitalism.

        It’s good that hedge funds exist. But bailing out hedge funds – which are gambling institutions for the wealthy rather than productive businesses – should be considered a high crime.

        • VintageVNvet says:

          AGREE,,, ”like, totally” kin of the canines dudes and dudettes!!
          I too, although enjoying my SOCIAL security — after paying into it for over 60 years — Really and Truly want real capitalism to work, if for no other reason than that my grandchildren get to decide what to do with the results of their labor, or even lack thereof.
          After starting my career as a capitalist selling newspapers on a corner, including running in and out of traffic at age 7, I really was a rich youngster at that age relative to all my friends with more well to do parents who got a quarter allowance a week.
          Selling all 25 of my papers for a nickle was serious hard work, with lots of vocal/verbal advertisings needed to attract customers interest, etc., etc…
          I got 2 Cents per paper, and could give back any unsold papers when the delivery truck came back before dark.
          Mostly a contractor or consultant since, and I want anyone who wants to ”hustle/work hard” to be able to do so, without some nanny state operative stealing the value of their work.
          This current situation is far from capitalism, so LET’S
          CLEAN HOUSES,,, SENATE TOO!!! Vote them all out ASAP…

        • Portia says:

          I can’t agree that it is good that hedge funds exist. If they were not predatory in a mobbish way, maybe.

        • Wisoot says:

          Wolf regarding your high crime comment Brooksly Born tried to do as you say, make it a high crime.

          Brooksley E. Born is an American attorney and former public official who, from August 26, 1996, to June 1, 1999, was chairperson of the Commodity Futures Trading Commission (CFTC), the federal agency which oversees the futures and commodity options markets. During her tenure on the CFTC, Born lobbied Congress and the President to give the CFTC oversight of off-exchange markets for derivatives in addition to its role with respect to exchange-traded derivatives, but her warnings were ignored or dismissed, and her calls for reform resisted by other regulators. Born resigned as chairperson on June 1, 1999, shortly after Congress passed legislation prohibiting her agency from regulating derivatives.

          As head of the Commodity Futures Trading Commission [CFTC], Brooksley Born became alarmed by the lack of oversight of the secretive, multitrillion-dollar over-the-counter derivatives market. Her attempts to regulate derivatives ran into fierce resistance from then-Fed Chairman Alan Greenspan, then-Treasury Secretary Robert Rubin and then-Deputy Treasury Secretary Larry Summers, who prevailed upon Congress to stop Born and limit future regulation.

          Alan Greenspan served as Chair of the Federal Reserve of the United States from 1987 to 2006. Immediately after leaving the Fed, Greenspan formed an economic consulting firm, Greenspan Associates LLC. He also accepted an honorary (unpaid) position at HM Treasury in the United Kingdom.

          On February 26, 2007, Greenspan forecast a possible recession in the United States before or in early 2008. Stabilizing corporate profits are said to have influenced his comments. The following day, the Dow Jones Industrial Average decreased by 416 points, losing 3.3% of its value.

          In May 2007, Greenspan was hired as a special consultant by Pacific Investment Management Company (PIMCO) to participate in their quarterly economic forums and speak privately with the bond managers about Fed interest rate policy.

          In August 2007, Deutsche Bank announced that it would be retaining Greenspan as a senior advisor to its investment banking team and clients.

          A short history lesson in corrupt institutions in how to manipulate for your own ends. Still walking as free men?

        • cb says:

          Wolf said:”I want capitalism to work.”
          ___________________________________-

          Capitalism has worked.

          I would prefer free markets to work.

    • Lisa_Hooker says:

      Stuart – It is easier to comprehend when a hedge fund investment is yielding>20% instead of the 0.1% your bank pays on your savings. Do you play golf and tennis with the right people? How many pairs of white bucks do your own?

      • Wally says:

        You know, Wolf, I really love your work but what I am about to say will get me barred so I will just remove myself once I’ve said it to save you the trouble. The problem in this world is not just the Fed it is people like yourself that rail against this con but still participate in it. How can you profess that this is a travesty and, yet, celebrate your profits when you short a corrupt system? Isn’t that like a drug addict complaining that the dealer should go to jail for making too big a profit? I truly love your work but cannot embrace your lack of conscience. Good luck and take care.

        • Wolf Richter says:

          Wally,

          I participate in capitalism by doing what I can do, including running my little business and trying to make a profit. I participate in politics by voting. There are tons of things I don’t like the way they’re conducted in this country. That doesn’t keep me from investing, working, or voting, or trying to do my little thing to make it better.

        • sunny129 says:

          ‘celebrate your profits when you short a corrupt system?
          ????
          Why not short and profit from a system which is corrupt to begin with and built on debt and leverage? Who is getting hurt? You or the corrupt system?

          I see NOTHING wrong there! Why harp on Wolf?

          I shorted the system in 2007-2008 and made nice profits but that was under the mkt where price discovery was allowed. Not any more. Been in the mkt since ’82 (now retired) and never believed in this surreal mkt. Investing is superseded by swing trading(in options)

          Btw many(retail) investors are hesitant, cannot and will not SHORT the mkt. With permanent put by Fed it is NOT so easy.
          But fundamentals will prevail ultimately with the popping of this 3rd largest everything bubble. Corona is accelerating that event!

        • Portia says:

          Some people are allowed to complain, others not so much.

      • monday1929 says:

        To Wisoot above, I believe Larry Summers also managed to insult Brooksley Born during that episode. Not sure if that was before or after he lost several billion for Harvard, with his vast intelligence.

  3. Ricardo says:

    Hit the nail fully on the head. Thank you Wolf. This should be reprinted all over the land.

  4. Cobalt Programmer says:

    History is bound to repeat itself. First time its a tragedy. Second time its a comedy…

    1. Trickle down economics
    2. Tax cuts for the wealthy
    3. Austerity measures
    4. Layoffs are on the table (even if the company received bailouts)
    5. Social security will be worthless in value
    6. Recession/great recession/depression is on the horizon
    7. Racial tensions
    8. Bail out to the wealthy again
    9. Hyper inflation, weimar republic and world wars…

    No matter how much money is printed or wealthy bailed out, business model like Telsa and uber cannot be profitable. Consider the current Corono lock-down, riots (peaceful protests), unemployment and the emerging second wave of virus will add fuel to the fire. Even the previously profitable businesses like airlines, restaurants and gyms cannot make money now and the foreseeable future. A completely bankrupt car rental company, HTZ gets stocks pumped to a near high levels because Robbing good traders are just-bored. Financial experts are now squeezing their brain to figure out why this happens?

    • sunny129 says:

      De-leveraging DEFLATION first, before any inflation!

      Massive debt over hang in ALL sectors of our Economy (+global economy) Servicing the debt will become hard even with ZRP!

      Japan is trying for inflation for nearly 3 decades!
      Global debt to GDP is 255 Trillions/100 trillions

  5. John says:

    Wolf, you pretty well addressed the issue, and I certainly applaud you for that.
    But you failed to address just who is on the hook for that 2.9 trillion?
    I am pretty sure its those who pay taxes. And those receiving the lions share pay little to no tax relative to their incomes vs. ordinary citizens.
    Its not just the pain of seeing the huge wealth gap now, but its guaranteed to get worse in the years ahead.

    • rhodium says:

      Tax payers indirectly paying asset holders (those who own the bonds)? Yeah that’s how it’s supposed to work. The lower and middle class are nearly too stretched to support the consumer economy as it is though let alone pay more in taxes. No, the fed will just keep on monetizing, this ends with inflation of some type. Who pays the debt is anyone who holds the increasing quantity of dollars that have no intrinsic value.

      Most inflation has been in assets though, because as income disparity has blown up, the rich are the ones who vacuum up all the dollars in circulation. Where is the marginal propensity to consume for the rich? Beyond some of the typical things like big houses and fancy cars, the extra on top piles into other and additional assets, stocks, bonds, fine art, land, real estate, venture capital for some. That’s where the inflation has been and that may be where it stays (only it may be quite extraordinary). Asset inflation definitely and probably general inflation too will outpace wage inflation though, which is why the “tax payer” is any wage earner and anyone who holds onto their dollars too long. With these incredibly low yields on bonds that includes bond holders as well since real returns on the safest will almost surely be negative.

      • sunny129 says:

        The lower and middle class are nearly too stretched to support the consumer economy as it is though let alone pay more in taxes”

        ‘nearly too stretched’ – you mean DEBT financed life style, a self inflicted injury. Shouldn’t live beyond one’s means!

        They will be DEBT slavs in a RENTIERS Economy!

    • cas127 says:

      “But you failed to address just who is on the hook for that 2.9 trillion?
      I am pretty sure its those who pay taxes.”

      See, that’s the sneaky part, the part that has more or less let the G run this self-serving scam for so long.

      Taxes don’t have to rise 1-for-1 to pay for the G’s habitual idiocy…if they did, taxes would be much higher on everyone by now (the legacy of earlier G f-ups).

      But when you can print a currency at will, backed by nothing, “government” means never having to admit they f’d up…they just print more to cover up fiascos.

      Hiking taxes would create a political uproar.

      DC lifers would all fall – politicians and political class alike.

      But simply printing fiat…that substitutes citizen inflation (because the ratio of “money” to real assets is hugely increased) in the place of government debt (requiring taxes).

      And, from the sewer view of DC, the beauty of inflation is that it can always be blamed on some politically useful villain (speculators! landlords! investors!..).

      Because the G is not taking the wealth *directly* in taxes (although it is acting as a global forger), it doesn’t get blamed.

      And it gets straw villains to boot.

      Even though the G’s massive forgery created the inevitable consequence of inflation in the first place.

      China’s huge surge in competitiveness since 2003 or so, would normally have led to much lower US consumer prices.

      But Fed ZIRP (serving DC interests) has essentially stolen all those possible savings (trillions) by creating an offsetting inflation…keeping prices “stable” even as it allowed the habitually indebted G to go astronomically further into debt, while “magically” cutting the interest rates the G had to pay in half.

      All because the Fed can print without any real asset backing, then lend that invented money to the G at any cost (even zero…which has more or less been the 1 yr rate for the last 10 yrs).

      Despite the G having more than doubled its debt…and default risk.

      • Just a thought says:

        Thanks Wolf. Spot on as usual. I too worry about how this nightmare movie will end and how the USA will get out from under all of this debt and the system of inequities that have been created by crony capitalism. The rest of the world is in much the same situation. But I think I have finally hit upon the mother of all bailouts solution….it will be a new set of alphabet soup securities…let’s call them ZPERPS…zero coupon perpetual bonds. They will be issued by various governments around the world, all at the same time and all in agreed upon amounts after a weekend of frantic phone calls and meetings. Who are the buyers of such nonsensical bonds, you ask? Well, Central Banks, of course. They will all put them on a shelf (more accurately as digits in their systems), never to be seen or heard from again. The funds will of course be used by treasury departments the world over to retire all covid-19 government issued debt. Careful calculations will have been made by central bankers so that there is no impact on the relative value of currencies aroind the world. It will be the biggest do-over of all time and it will happen in about 12 months I think.

      • RD Blakeslee says:

        “China’s huge surge in competitiveness since 2003 or so, would normally have led to much lower US consumer prices.”

        It did.

        Look at WalMart’s cheap Chinese consumer goods,

        • Trent says:

          you are missing his point, without the government printing unbacked dollars those prices at walmart would have been even lower.

        • Brant Lee says:

          Just cheap made. Marked up 400%. No one gets this. For the price tag, it could all be made in the U.S. for a still decent mark-up, same price on the shelf. American consumers are not getting any discounts. Just retailers.
          All goods, besides food, have inflated prices beyond measure.

        • Portia says:

          Brant Lee, but you see the workers would have to get paid much more than Chinese workers, and the American corp elite think that’s like eating rotten sushi, ugh! They go to China and other places to have their goods made by people with no lives other than making peon wages and living in terrible barracks. That really makes them feel like they are getting the best bang for their buck. Imagine having to have healthy factory conditions, health care, sick leave…how could they survive??/s

    • RAJ says:

      Economist here. It isn’t technically people who pay taxes who are on the hook for the 2.9 trillion; the government doesn’t need to raise taxes because the 2.9 trillion was simply printed. The people who are on the hook are those on Main Street who were hurt most by the coronavirus and resulting economic impacts. That’s because the coronavirus hurt them, and the Fed is doing almost nothing to help them.

      What’s even more insidious is that not only isn’t the Fed helping them, but they can’t help them because if they were to pump that much money to Main Street, we would get inflation (we aren’t getting it now, expect in asset prices, because the rich people receiving the money are investing it instead of spending it). And when there’s inflation, Main Street will receive printed money, but they won’t receive wealth because the decline in the value of money will cancel out the money they got.

      Unless of course, the Fed fights the inflation by raising interest rates, which would get Main Street to put part of their money in savings accounts. But if the Fed does that, then the rich would do it too, which would trigger crashes in the stock and bond markets, and ultimately culminate in a transfer of wealth from Wall Street to Main Street. That can never happen of course…

      • wkevinw says:

        RAJ- excellent description of what can happen.

        This is roughly what did happen from ~1946 (peak)-1982: stock markets in real terms were down ~3% total (~40 years!) (without dividends). Between 1966 (peak) and 1982 stock markets were down ~70% (of course there was a big bond bear market too- inflation, etc.)

        This can happen again.

      • Portia says:

        Hi Raj, things have changed with the bank shenanigans pretending that CLOs are off the books when they aren’t, etc. And Powell seemingly oblivious.
        I recommend and excellent article with your indulgence that lays it out much better than I can:
        “The Looming Bank Collapse” Frank Partnoy, The Atlantic

  6. polecat says:

    RichA$$ Set-holders indeed ..

    #KneebendsToWallStreet

    Things will not end well, no matter how big the Lie!

  7. timbers says:

    If you can’t make the stocks go up, you’re not worthy of being Chairman or President. Just ask the 1%, they own most of the stocks.

  8. Ron Kallhoff says:

    We the people have been forgotten stand up we drain the swamp no one else wolf u r a true patriot silk under ware never last check history

  9. William says:

    Totally agree your comments. The questions I have been wondering are:-
    (1) Why have there been no organized speaking out of these heinous acts, by those with a clear mind, or those protesting on the streets?
    (2) How will all these end- (a) a tsunami of inflation, which will make the rich even richer or (b) a devastating depression, which will kill off those who are not rich?

  10. Accountability says:

    I agree with most of this, with one big caveat. Most people without assets Choose to be that way! We are a renter economy! There are huge numbers of people who choose to spend insane amounts on renting a tiny place when they could own a home elsewhere and pay far less. People lease cars, another awful financial “decision.” Your article on Illinois is a perfect example. The state has been so grossly mismanaged for so long the entire state should suffer some serious pain. Sadly it will never happen. The smart ones are getting the hell out (at a rate of 1 every 5 min!)

    If I work hard and make solid financial decisions to prepare for my families future by being an asset holder, I am exactly who should be bailed out during a crisis such as COVID-19.

    The ones who make terrible decisions, like getting 200k in student loans to major in non-marketable things, should not be bailed out. The huge numbers of people who choose not to save anything, rent everything, and then are “shocked” when things get more expensive, should not be bailed out.

    Finally, yes, there are a lot of Insanely overpriced stocks of companies today. The idea that a company can be listed on the stock market, be worth 100s of billions and NEVER actually make money is crazy. When those stocks crash, no bailouts, it’s called risk reward for a reason.

    • Suzie Alcatrez says:

      Blessed are you who are poor,
      for yours is the kingdom of God.

      • VeryAmused says:

        “Look poor people, we realize you are poor and we are taking advantage of you. But we have this sweet book we…errrr…God wrote that says everything is okay because when you die you will get the good life. So you have that going for you.”

        ffs

      • Mark_2 says:

        Perhaps God isn’t the problem. Difficult to tell with the PR firm he uses!

    • cb says:

      Accoutability says: “If I work hard and make solid financial decisions to prepare for my families future by being an asset holder, I am exactly who should be bailed out during a crisis such as COVID-19.”
      ______________________________________-

      If the financial decision was solid, why would you need the bailout?

      (some responsible people choose to rent, rather than risk capital on an asset they might not be able to hold on to)

      • RD Blakeslee says:

        “If the financial decision was solid, why would you need the bailout?”

        Right on! the person I know best’s financial health has been continuously conserved, one decision after another, starting in his youth two-thirds of a century ago.

      • cb says:

        Actually, my shot is sort of cheap. Our system forces many people, in the race against inflation and forever being priced out, to take risks on the hope they can get ahead.

        Our FED are evil, larcenous bastards. – pushing us to a rentier society, where those in first get to enslave latecomers.

    • Wisdom Seeker says:

      Accountability – wrong. There should be no targeted bailouts at all. The only democratic way to print bailout money is equally to everyone.

      If you were in fact prudent and made good financial decisions, you’ll get by and continue to grow your assets. Some of which are harvested from the less-prudent, but that becomes their fault.

      If you bought junk bonds, profit-starved unicorns, or that amazing collection of just-short-of-BBB speculative stocks…. you weren’t being prudent, you were part of the moral-hazard-lemming-herd heading off the cliff together. Those people need to be taught to make better financial decisions.

      It’s not enough to save and “invest”. The investments have to be in sound businesses that aren’t monopolistically exploiting workers and customers alike simply to enrich a precious few owners.

      It’s time to establish a populist-capitalism, one that actually brings mass prosperity to the people.

  11. MonkeyBusiness says:

    So now Hertz wants to issue 1 billion dollars in NEW equity.

    A true ROFL moment.

    • MCH says:

      Oh yeah, new equity in bankrupt stock. Let’s gather the Robinhood crowd and lap that stuff up.

      • MonkeyBusiness says:

        The Robinhood crowd also need to learn that actions have consequences.

        It also did not escape my attention that Barry Ritholtz, i.e. Mr Bailout Nation himself also took a bailout.

        This nation is filled with too many virtue signalling monkeys.

        • doug says:

          Totally agree on BR hypocrisy

          But he wrote a whiny note about why it was prudent!
          So there is that…

    • Mark_2 says:

      “If you don’t know who you are, this is an expensive place to find out.”

      -“The Money Game”

    • MonkeyBusiness says:

      Quick update: the judge has allowed the stock offering to take place.

      Truly ROFL.

  12. MCH says:

    WARNING, WARNING, your Wolf-o-lution is not approved.

    We at the Fed, the media, and the people in charge urgently require you to cease and desist.

    Failure to do so will mean mandatory reeducation in your home , where we will install TVs in every room, these will be tuned to MSNBC, Fox News, CNN, on a rotating schedule 24 hours a day until you decide to follow program with the proper and approved narratives.

    The benefit is that you have a wide spectrum of choices in terms of range of approved revolutionary activities that you can engaged in.

    BAHHHHHHHHHHHHHHHH

  13. mtnwoman says:

    Wolf, for us financial illiterates, can you explain how the Feds action hurts the plebes?
    Thru inflation?

    I hear counter arguments that if the Fed DIDN’T do this it would be financial armedgeddon and also wipe out the plebes (along with the 1%).
    What woulda happened if the Fed just sat back and did nothing, or did a lot less?
    Thanks, trying to learn.

    • MonkeyBusiness says:

      Inflation? How about slavery? As powerful as the Fed is, even it can’t create actual demand in the real world short of giving everyone money. Destruction of demand means that people will lose jobs and can’t pay their mortgages, etc. That allows the rich to scoop a variety of assets at rock bottom prices, eventually owning EVERYTHING. Pretty soon you’ll be competing in the Hunger Games with the other plebes just to eat.

      Here’s what Thomas Jefferson said:
      “If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their Fathers conquered.”

      The American Dream has finally come true. But don’t worry, as people here will tell you, America has the cleanest dirty shirt or some ****.

      • lenert says:

        “It’s A Wonderful Life.”

      • Zantetsu says:

        Thomas Jefferson never said that. Look it up.

        • Wisdom Seeker says:

          That doesn’t matter. If he had discovered a banking cartel ruling his economy, he would have agreed with it.

          My suggestion? Rewrite it to be even catchier, and we’ll get wolf to publicize it as Zantetsu’s Law of Economics!

    • Cas127 says:

      At least with regard to the Treasury bonds that the Fed printed money to buy, if the Fed didn’t intervene, Treasury interest rates would have continued to spike up (since very, very few non Government actors would want to lend to those imploding hedge funds).

      So, in addition to saving those brain dead hedge funds, the Fed also made sure that the Government’s borrowing costs stay close to zero (despite DC’s astronomical accumulated debt).

      Which means that next year’s deficit doesn’t explode even more than it is already going to…because a big chunk of the true cost of the bailout is “magically” converted into inflation (because the mere act of the Fed printing trillions does not add a single real asset to existence…it merely grotesquely engorges the ratio of dollars to real assets).

      So the Fed money printing perpetuates the illusion of normalcy, by keeping interest rates “stable”…and therefore keeping DC’s and every corporate debtor’s annual interest payments from soaring (with the consequences for profits, employment, etc.).

      But it does so at the cost of ultimate inflation – because, again, the Fed can only print paper used to buy real assets, not create actual, real assets.

      • Wisdom Seeker says:

        Re ” if the Fed didn’t intervene, Treasury interest rates would have continued to spike up”

        You have that totally backwards. Treasury yields were spiking DOWN, hard, before the bailout. The question was whether they’d go negative even. So sellers of long-term treasuries booked huge profits.

        That’s because the only obviously creditworthy borrower was US gov, since they could always print the money to pay off the loans. Everyone else was in credit-freeze shock wondering if they were going to get paid by their counterparties, clinging to every dollar they could grab to make sure they made their own vital payments.

    • Wolf Richter says:

      Just about everything gets a lot more expensive, even if it doesn’t show up in the official inflation figures. This includes housing, the biggest item of all. In other words, the purchasing power of labor gets destroyed.

      • MCH says:

        a funny thing about expensive, I liked Dreyer’s ice cream, or I used to. In 2007, when it was one sale, 1.75 quarts of Dreyer’s would be $2.99 in Safeway. Then by 2009, I noticed that the price hadn’t changed, but that 1.75 quarts became 1.5 quarts.

        Inflation. It’s just not as obvious when it doesn’t show up on the sticker price unless you look closer sometimes.

        • Thomas Roberts says:

          That’s called Shrinkflation.

          Soup I think, is probably the food item, which has showed the most massive increase in price per amount of food; Over the last 20 years.

        • Trent says:

          Old Spice bars of deodorant have suffered from this the past decade, among many other things. Also the shift in software (think office, adobe) where you used to own it, but now its a service you pay for monthly, strikes me as another form of shrinkflation.

        • Clete says:

          Breakfast cereal, too — I find that the store brand is almost identical at a third of the brand name price.

        • Lisa_Hooker says:

          Yeah, I noticed that when my 12oz beer bottle turned into an 11.5oz bottle. Don’t mess with the beverage of the poor.

        • polecat says:

          Lisa Hooker,

          After I a brew batch of mead, or beer, if that’s my preference, I rack it into 16oz. bottles (which I reuse, repeatedly) because I enjoy inflation the polecat way ‘;] ..not the likes of Jerome and the corporate cronies he caters to…

          My point being, that one has to find ways to work around the complacencies we’ve all been subject to .. through the wonders of Bernaysian propaganda .. to purchase, at inflated prices, the many basics one can create themselves, if one is determined. I pay a fraction (brewers yeast, malt, hops, and such – for the beer .. (in the case of mead, the honey & fruit come courtesy of the bees & moi ..) So I end up with a generally satisfying concoction, at a smidgen of what it would cost compared to buying something comparable from a grocer or bar!
          Does this mean everything must come by one’s own hand? no, of course not! But, the more control one has in their own laborsund and r their own control, the more satisfied themselves will be.

          jm2cents – cheers!

        • Portia says:

          Polecat–now it makes more sense than ever to buy local, the more *local* the better. People around me are suddenly gardening and crafting avidly. More bicycling.
          You make me want to try mead again.

  14. Tom Stone says:

    We have a national Election coming up in November and I expect it won’t be run as well as the recent Primary in Georgia which was a clusterfuck.
    We may not see the “Results” for weeks.
    Also keep in mind that we are going to see an explosion in the homeless population when unemployment runs out in July and eviction moratoria expire.
    If things go well it will only be 4 Million.
    During a Pandemic.
    Yes, we have “Total Information Awareness” and yes we have militarized police and the National Guard.
    They will be deployed, but anyone who thinks it will be controllable is delusional.

    • Cas127 says:

      One possible marginally less apocalyptic outcome…landlords won’t evict millions if there aren’t millions to take their place (and there aren’t).

      Best guess…something like mortgage workouts/extend and pretend/etc…

      Rents could actually be lowered, with the “shortfall” tacked on to the end of the lease term, etc.

      Again, an outright eviction costs landlords money (*zero* rent vs. reduced rent) unless they can find a replacement tenant very quickly…does that seem likely with tens of millions unemployed?

      • Thomas Roberts says:

        I don’t think it’s likely that millions will be able to live rent free or suddenly get lowered rents.

        Tenants even if they can pay, if they have less money than usual or if they think they can get away with it, often stop paying, altogether. At first they usually start paying less or late, until they completely stop paying, or pay very little. However, they still cost utilities, which depending on the state, can sometimes be dumped onto the landlord, even if they are in the tenants name. If they are still getting some money, but, stop paying; and if know they could get evicted they’ll potentially damage property, cause problems with other tenants, or do things like call the city inspectors on you to “get back at you”. Alot of people were getting more money from unemployment than they usually get, but, because they couldn’t get evicted during the lockdown, stop paying rent, this happened all across the country. People of all ages, income classes, races, and male or female, do all this stuff.

        Most houses and apartments are rented with slim margins and you cannot float a bunch of people, especially as, they still cost utilities and damages. These costs outweigh eviction fees.

        If you lower rent prices for some, you’d often have to lower it for all, and then you are screwed. The only way rents could come down is with subsidies of various kinds. As the mortgages or construction fees and utilities are out of landlords control for existing properties and the margins are usually slim.

        Preventing evictions would cause massive problems for landlords, utilities companies, and the cities.

        The only good solution would be to extend unemployment, people would have to be able to get at least like 80% of what they used to get if it’s long term, but, definitely not more than 100%.

        In the long term, the only way to reduce unemployment would be a combination of reducing income inequality, reindustrializing America and reducing the amount of hours people work in a year, so that it takes more people to do the same things.

    • Stuart says:

      General strike now.

    • RD Blakeslee says:

      Based on U.S. military leaders’ recent public statements, the military may refuse to deploy under this president.

      • Lisa_Hooker says:

        RD – then there’s the other side of the coin. Can you spell junta? Might be our best option for reform as what we’ve been doing isn’t working.

      • polecat says:

        Not that I disagree with your sentiment ..

        But they wouldn’t under the Pelosi$’, the Schumer$’, and the Biden$’ of this formetly great country ??

        A ‘two-sided’ dystopia tis the coin of the Realm, after all ..

        just saying..

        • Portia says:

          Polecat- If that triumverate and their cronies were not making out like bandits under this admin’s policies, He would have been out so fast his head would spin.

    • LouisDeLaSmart says:

      \\\
      I fear this election will be different then the ones before. As money runs out and people get more and more frustrated…huggghhhh…I sometime wish Wolf wasn’t right about his predictions.
      \\\

  15. Paulo says:

    Thanks Wolf for the thought and energy that went into this presentation.

    regarding: “That’s about $22,000 per household. For the bottom half of households, $22,000 would have helped a lot to get through the crisis.”

    22k is the amount a minimum wage earner (default fed rate) working full time will earn in an entire year.

    Or, this gem: “A study conducted by the Brookings Institute found that 53 million Americans between the ages of 18 and 64 (or 44 percent of the workforce) yearly earn a median average of $18,000”

    And people wonder why there are protests and dissatisfaction?

    I wonder why it took so long? (Cue the usual anti union comments/response in 5,4,3,2……)

    A new take on Which Side Are You On (Ani DiFranco)

    Thirty years of diggin’
    Got us in this hole
    The curse of reaganomics
    Has finally taken it’s toll

    Lord knows the free market
    Is anything but free
    It costs dearly to the planet
    And the likes of you and me

    I don’t need those money lenders
    Suckin’ on my tit
    A little socialism
    Don’t scare me one bit!

    We could do a whole lot worse
    Than Europe or Canada
    Come on Mr. president
    Come on congress make the law
    …………

    So are we just consumers
    Or are we citizens
    Are we gonna make more garbage
    Or are we gonna make amends

    Are you part of the solution
    Or are you part of the con?
    Which side are you on now
    Which side are you on?

    • RD Blakeslee says:

      … Sleep on the left side. Deaf in that ear, need the right ear awake to detect home invaders …

    • Lisa_Hooker says:

      We’re consumers. That’s the System.

      • Portia says:

        Lisa-don’t you mean “Takers”? LOL. Need debt to consume. Can’t pay debt. Default. Bankruptcy. Rinse and repeat.

  16. thechaser says:

    Thank you Mr. Richter. I appreciate your unabashed commentary that squarely addresses the criminal acts undertaken and approved by the highest executive authority in the USA, President Trump. I voted for McGovern in ’72 and Reagan in ’80 and have never looked back to my protesting Democratic ways of the late 60’s and early 70’s. And now, the Republican President and a Republican Senate have sold the American republic down the proverbial dream for their desire for re-election. The subordination of the Fed now irrevocably linked to the Treasury dept has defined the path of utter destruction of the world reserve currency this nation has so much received the benefit thereof.

    • chris says:

      Does anyone know why China still holds onto it’s massive U.S.T. loans to the U.S ? Looks like a form of insanity to me.

      • Kent says:

        1. China needs US assets as collateral to borrow dollars for imports.

        2. China desires to grow skills and income for its population. In order to do that it has to grow industry and export more than it imports. So its essentially buying a middle-class nation capacity by trading for paper instead of real products.

        3. So not insane. Just different goals than we have. Us: maximizing quarterly earnings to increase stock prices. Them: long-term growth in population skill-sets in manufacturing and engineering.

        • Lisa_Hooker says:

          The US is run by lawyers. China is run by engineers. What did you expect would happen?

        • cas127 says:

          “So its essentially buying a middle-class nation capacity by trading for paper instead of real products.”

          This.

          The CCP gvt made the decision about 25 years ago that in order to build up internationally competitive productive capacity in China, it would need to largely “lock up” (for domestic Chinese invt) whatever proceeds its export industries could generate (rather than allowing them to be recycled into the consumer exports of other nations…which would have brought intl trade accts into closer balance).

          The CCP operationalized the “lockup” with various tools…more or less mandatory conversion into Yuan of export proceeds, non convertibility of Yuan, etc.

          (As a byproduct of these “capital lockup” policies, the CCP has ended up with about 3 trillion in foreign currency reserves…the export proceeds it received in exchange for the Yuan it printed as part of the mandatory currency conversion process. The CCP has to do something with those FX reserves…US treasuries made the most sense since it pumped up the value of the USD, further feeding China’s export machine).

          These had the effect of “locking up” capital within China, accordingly dropping Chinese interest rates, and therefore super, super charging domestic Chinese investments in factories, etc.

          Thus you have the world of today…

          An ocean of new-ish, world competitive Chinese factories taking advantage of astronomical economies of scale, to pump out goods at almost unbeatable low incremental costs.

          And those factories got built because the CCP subverted intl free trade by forcing export proceeds into domestic invt rather than allowing their recycling into US consumer exports.

          Which would have lowered the US’ huge trade deficits.

          China “took the debt paper” of US Treasuries in exchange for China’s huge trade surpluses, rather than demanding/allowing US export goods in immediate/near term exchange.

          Instead of immediately paying for Chinese goods with American goods, the US “paid” on credit…the huge accumulated US trade deficit, manifested in trillions of US Treasuries held by China.

          China was disciplined, forgoing consumption for 25+ years, to build domestic capacity (rather than buying foreign exports).

          The US was degenerate (largely because of US political leadersh*t) paying for its excess consumption, not with US goods exports, but rather debt (*that* is the essence of perpetual trade deficits).

          For 25+ years, the Chinese gvt has been playing chess, while DC has been playing…with itself.

        • VintageVNvet says:

          WONDERfull summary cas,,, could not even get close these days to your very good use of the words, and, especially the implications for wisdom for all of WE the PEEDONs going forward.
          My former ‘mantra’ re China, used to be, “don’t buy anything from China, as ever nickle sent there will eventually come back as a bullet, meaning the actual metal in those days, now long ago….
          These days, they very likely already OWN outright SO much of USA, because of the methods and results you cite, that I have been encouraging my grandchildren/grand nieces and nephews to become fluent in at least “Mandarin”,,, better if not that only but/and also ”Cantonese” and other local ”dialects” of that language, so they are able to communicate with their new owners/oligarchy.
          Some want to think this is something new, but, in fact, it has been going on for many centuries/thousands of years…
          BTW, Lisa, not arguing with your comment re engineers, but please provide support for that…
          thank you,

        • Ensign_Nemo says:

          @VintageVNVet:

          Look here:

          https://en.wikipedia.org/wiki/Politburo_Standing_Committee_of_the_Communist_Party_of_China

          and then click on the hypertext links for the names of the members to see their biographies.

          Cutting and pasting from Wikipedia, “Xi studied chemical engineering”, Li K. “earned a Doctor of Philosophy (PhD) in economics in 1995”, Li Z. “studied night school at the Hebei Normal University”, Wang Y. “earn[ed] a degree in political administration at the Central Party School”, Wang H. “was named professor of law at age 30, becoming the youngest law professor in the history of the university”, Zhao L. “studied philosophy”, Han Z. “work[ed] as a senior administrator at the municipal chemical engineering college”.

          That’s two out of seven who have a background in engineering. There was previously a group of nine who were all engineers.

          https://en.wikipedia.org/wiki/Historical_membership_of_the_Politburo_Standing_Committee#16th_PSC_(2002%E2%80%932007)

          “All nine members of the 16th PSC are university trained engineers.”

          By contrast, out of 539 Congress members in December 2018 (including nonvoting members from the District of Columbia and various islands), eight were engineers, and 218 listed law as a profession (more than one profession could be chosen).

          https://fas.org/sgp/crs/misc/R44762.pdf

          During the 16th PSC, I recall that there was a period of time when the nine members of the Chinese PSC had more engineering degrees than all of Congress.

      • Mel says:

        Seems to me that if they call the loans in, they get paid in US$, which are exactly the same thing, except for the interest rate. Probably they’re already buying everything their supply of dollars will buy. They’ve bought a lot of gold over the years, faute de mieux.

      • Wisdom Seeker says:

        China needs to maintain a huge foreign exchange reserve to keep the renminbi reasonably fixed relative to the dollar. Their track record with the renminbi is poor. A few years ago there was a lot of legitimate doubt about the survival of the currency peg, and the forex reserves were dwindling. I expect future shenanigans as well, since the Chinese economy is even more debt-riddled than the US and their accounting makes ours look downright transparent.

        • Jonathan says:

          Yawn, that same old tired PRC collapse theory that has been predicted to happen every year since 1949.

    • neplusultra says:

      Reagan started us down this path so…

  17. Crush the Peasants! says:

    I’ll run counter to most of these posts by saying that I applaud the stabilization and rise in asset prices. I can understand why folks vilify the ultra wealthy, but everyone with assets benefits, including working stiffs with 401k’s. Yes, the more assets you have, the more you benefit. But what about retirees who saw 1/3 of their wealth evaporate due to the Wuhan virus? What about families investing to send their kids to college? Why is restoring their wealth a bad thing?

    • Stuart says:

      Nothing, as long as the money comes from the Bezos/Gates gang and we cut the Corporate Welfare, I mean Defense budget in half.

    • Bobber says:

      50% of the stocks are owned by the top 1%. This is your answer.

    • John says:

      What about if the MORE assets you have, the LESS you benefit?
      I can hear you squealing already. All for you and nothing for anyone else, correct?

    • Portia says:

      I think the real trouble started with Gramm – Leach – Blilely, AKA the Financial Services Modernization Act of 1999.
      “A year before the law was passed, Citicorp, a commercial bank holding company, merged with the insurance company Travelers Group in 1998 to form the conglomerate Citigroup, a corporation combining banking, securities and insurance services under a house of brands that included Citibank, Smith Barney, Primerica, and Travelers. Because this merger was a violation of the Glass–Steagall Act and the Bank Holding Company Act of 1956, the Federal Reserve gave Citigroup a temporary waiver in September 1998.[3] Less than a year later, GLBA was passed to legalize these types of mergers on a permanent basis. The law also repealed Glass–Steagall’s conflict of interest prohibitions “against simultaneous service by any officer, director, or employee of a securities firm as an officer, director, or employee of any member bank”.”

      And it just snowballed from there.

  18. Finster says:

    Much agreed, Wolf, and eloquently put. Even within the capital markets there is gross injustice. Younger workers trying to accumulate assets for retirement are also irreparably harmed by sustained high asset prices. They must buy them with scarce dollars they work hard to earn, only to find they’re competing with another buyer with infinitely deep pockets. Where is the real benefit? High asset prices hurt buyers just as much as they help sellers. Artificially high asset prices for this generation mean artificially low returns ahead.

    Also left out in the cold are older retirees who have already endured years of financial repression, unable to eke out more than a microscopic yield without taking imprudent risk with their life savings. Just when they start to catch a break, in steps the heavy boot of Uncle Fed to snatch away any whiff of yield and stamp out what little remains of their investment income.

    Not to mention that the capital allocation function of free markets has been responsible for producing some of the highest living standards in history. As capital markets are hobbled by central planners, so too will be living standards. It’s no accident that the meager productivity growth of the last decade coincided with aggressive central bank intervention.

  19. RepubAnon says:

    I expect the 401(k) issue colors Congress’ thinking as well. If the stock market drops to zilch, it’ll scare lots of upper-middle class folks

  20. BlowingBubbles says:

    “It would be very easy to end the Federal Reserve System. Congress would write the following bill. The president would sign it.

    The Federal Reserve Act of 1913 and all subsequent amendments to that act are hereby revoked.

    The gold that belongs to the United States government, and which is kept on deposit with the Federal Reserve System, is hereby transferred to account of the United States Treasury.

    If the Federal Reserve System has made any secret agreements with other central banks regarding the ownership of that gold, those arrangements would become legally null and void. The Fed would own no gold of its own to deliver. Ownership would revert to the United States government.

    If other central banks wanted to sue the Federal Reserve System, an exclusively private entity acting on its own authority alone, to recover any gold the Fed had promised to deliver, they would have the right to do so. If they really thought the Fed could deliver on those agreements merely because a court ordered it to, they could hire lawyers and sue.”
    — Gary North

  21. BlowingBubbles says:

    Of course, Congress would never write a bill to end the Federal Reserve System, as you pointed out. “Congress could and should impose a lockdown on the Fed. But lawmakers belong to the same capital class that is getting made whole, Speaker of the House, Nancy Pelosi, at the top. They’re among the rich asset holders, and no way that they’re going to shut down the Fed’s scheme, when it has made them so rich. They certainly don’t want to have any skin in this crisis – or in any crisis. They too want to be bailed out each time it hits the fan.”

    • BuySome says:

      It would seem simpler if the Supreme Court suddenly had an enlightened awakening and reviewed the Act. Presumably it was concocted under authority of the General Welfare clause, for which they might find a reason to strike it down (like, not general enough or not for the public welfare). They hold very strong authority to pull up and review any lawsuit filed that holds major constitutional questions of immediate concern. It’s just a question of what conditions might cause a few old lawyers to have an epiphany…I won’t say anything more that might put me on the no fly list, but I might consider adding a cattle prod and charcoal to my shopping list this week.

    • Wisdom Seeker says:

      Unamused is right about this – we would first need a populist bipartisan revolt to clean the swamp in Congress. The corrupt establishment won’t just do the right thing on their own.

      • MCH says:

        But, but, but, what about all of those wonderful people in Congress now… those who are fighting for our rights… kneeling to show just how sensitive they are to the plight of the… the… the… well, the somebody.

        Surely they desire to survive.

        Seriously, a populist bipartisan revolt is just not possible as long as the population remains as uneducated as they are… all the while being told how special and unique and deserving they are.

  22. Rexx Rock says:

    I think if you have money its time to get out of dodge.With a strong US currency leave for any one of these places.Thailand,Vietnam,Malayasia,Bali,Mexico,Georgia,Phillipines and Columbia.Great people,culture and cheap living.The fed and government will destroy the middle class .Just do it !!

    • Stephen C. says:

      @ Rexx Rock, that WAS our plan (wife and I), to be enacted in 2022. We have now moved up our move date to 2021, as soon as travel/entry restrictions are lifted. One problem is, will they ever be lifted for Americans? Second problem, which is much more important, the plan relies on the dollar maintaining its relative value against Southeast Asian currencies. Was thinking of buying some gold once I got settled abroad. Can’t imagine trying to carry it from here, through TSA. Thoughts?

      • mtnwoman says:

        Cambodia, Thailand, Vietnam have beautifully handled COVID-19. So much better than the USA. I wasn’t expecting that.

        Since Canada and NZ are out of reach, the SE Asian countries are looking more attractive. Btw, beautiful 23, 24kt gold is easy to purchase there (at least used to be when I was in SE Asia 20yrs ago).

        Good question tho about taking PM from USA to another country.

  23. Breta says:

    Shouldn’t Powell be the richest man on earth, by far? I’m serious.
    Anyone who has the ability to create such enormous value! values? Digits?
    On second thought, never mind… Punish him. Don’t reward him.
    Free markets – free money markets – free money to save free markets – or something like that…

  24. AUSSIE says:

    Good article,
    But we must not forget that our developed
    World outsourced most manufacoring jobd and replaced them with serving jobs like Barista Lots of people here in Australia actually think that Barista is a good job. That is just a joke. Coffee shops everywhere. Nobody wants to work in the dirty manufactoring industry. Most jobs gone to China where in one city Dongguan 65 % of all world shoes are being made. Australia had to say Thanks publicly to China to being so kind to sell us Test kids for config -19 test. Of course the Rich and there friends Politician made it happen: deindustrialisation.
    And the Result is now much more Unemployment. China in the meantime increases their markets like steel etc.. This crises would be much less severe if we manufactor most ourselfes. Full time jobs in manufactoring instead part time in Coffee shops and Mc, Donald. At least Trump isvright there. And people waking up here in Australia as well. Our local manufactoring and construction industrie was not shut down during the Pandemic.

    • MiTurn says:

      In a more perfect world, Australia would sell China steel rather than iron ore.

      • VintageVNvet says:

        10-4 MT,,, and SO similarly in all the places, INSIDE USA, that have, still, in spite of the looting for the last couple of centuries,,, ALL,,, or almost all the resources needed for ALL, or, again, almost all, actually needed in USA manufactured products to be actually manufactured right here in USA.
        IMO, that this is not actually happening is mostly due to the very clear understanding of our elites/oligarchs/owners/rulers, who predicted, accurately so far, that some ”hitler like” demagogue would be somehow elected in USA, and could take over the entire world because of the clear dominance of USA manufacturing as of 1946-55.
        These folks have been playing, ”the long game” for many centuries, and see trends that most of us Peedons never see. We can only hope that they are able and willing to ”Up their game” enough to provide the foundational basis for ALL to go forward in peace and prosperity from this clearly challenging period…
        Otherwise, look once again to see those ”horsemen,” mentioned SO much in the last couple of centuries, to once again be let loose on the lands, and to be sure, it will be ALL lands.

    • Crush the Peasants! says:

      Aussie, The views you stated are quire aligned with Trump’s and Peter Navarro’s.

  25. Memento mori says:

    I think a distinction need to be made, Fed has no mandate to spend, only to lend, and if you pay attention to Powell he keeps repeating this at every speech.
    This is important because what is happening is basically companies are loading on more debt which needs to be paid back eventually.
    This happened also during 1929 and Fed took a lot of flak for it but eventually it made the depression worse.
    If believe the Fed will make the recession worse.
    Wake me up when Powell or his cronies start writing articles about how Congress should give power to spend to the Fed, until then we are going to have a deflationary mayhem that Fed can’t stop no matter how many trillions they lend.

    • chris says:

      Perhaps the’ loans’ will be turned into gifts later, when no one is looking

      • Frederick says:

        Let’s hope NOT . That’s just the kind of crap that will cause us half dead boomers to get off the couch and pick up pitchforks. I think 😀

      • Mel says:

        As far as I know, Congress has said right out that many of these stimulus loans are forgivable or non-recourse. So it won’t matter whether anybody is looking or not. But it’s Congress that is authorized to stipulate things like that, not the F.R.Banks, like Powell says.

        • Lisa_Hooker says:

          I’ve read some of the proposals by the Fed for various SPVs. The Fed explicitly states in writing that some loans are non-recourse.

        • Portia says:

          Moochin says he thinks no one needs to know where that $500 bil went.

  26. Cas127 says:

    Wolf,

    Just to make sure that I’m getting the details right…is that $2.9 trillion figure money already out the door at the Fed (to buy hedgies’ Treasuries, banks’ MBS, etc.) or is that just the authorized/announced possible amount of future purchases?

    There are so many different programs going on at the Fed and the Treasury separately, everything tends to blur together, including actual program expenditures vs. program authorized amounts.

    I ask because not that long ago we were talking about how many of the programs’ had not really bought much of anything.

    And I tend to think of Treasury purchases by the Fed as a special category (although not an excusable one) since DC’s own rotten finances are a motivating factor in a way that they are not with other bad asset purchases (MBS, etc).

    (Although, of course, they simultaneously, if secondarily, bail out fellow debt frauds/fools, in the private sector).

    If the Fed lets Treasury rate spikes stand, then next year the G’s deficit soars beyond even what it is going to do anyway.

    That is a much worse outcome in DC-land than the sub rosa inflation creation (borne by citizens, superficially imposed by everybody-but-DC) triggered by the Fed printing money to gut the rate spikes.

    • Wolf Richter says:

      Yes, that $2.9 trillion is “out the door,” that’s how much the Fed has already printed and handed out since early March. In theory, there is no limit to how much more it could print and hand out. But it has now stopped adding to that pile (as of yesterday’s balance sheet).

      • Cas127 says:

        Wolf,

        Could you break down how much of the 2.9 trillion out-the-door went to buy US Treasuries, MBS, etc.

        I think you have done this in prior weeks…it helps, because different asset class purchases can have different motivations (public v. private sector bailouts, which interest rates get manipulated downward and by how much, etc) and can have significantly different macro-economic impacts.

        For instance, I think a case can be made that the bailout of the hedgies via *US Treasury purchases* could actually be more of a byproduct of the Fed bailing out the US Treasury…since US Treasury interest rate spikes, if left to stand, cause next year spikes in US budget deficits (due to DC’s astronomical accumulated debt)…whereas Fed printing “just” creates sub rosa inflation imposed on all worldwide USD holders.

        Smart (if degenerate) hedgies can put themselves in a position where they “can’t lose” by aligning their superficially “risky” investments with the long entrenched economic pathologies of the G (led by the degenerate *and* dumb).

        In other words, it might be that in order to save itself, the G had to act in such a way that saved the hedgies.

        And the hedgies realized that before they made a single invt.

        Of course it is moral hazard, but it extends well beyond the hedgies…to the crooked banker in the game of Monopoly fiat, the US gvt.

  27. Engin-ear says:

    The reality depicturing seems accurate to me. Thanks Wolf.

    And I understand the reproaches directed at FED.
    FED offers a controlled state of decay for the economy.

    But what immediate alternative does anyone offer?
    A worldwide reset? 20 years of apocalypse?

    • BuySome says:

      Complete replacement of the money system and laws to prevent all of the ongoing abuses. Absolute regulation of financial institutions with real world punishments for those who would seek to undermine this Republic from within. True safety nets not based upon maintaining the status quo of class structures, but on keeping citizens from falling to levels that are shameful for the age they live in. Prioritization of what our national resources be used for when we release them to markets. Shall I go on?

      • Engin-ear says:

        Yes, please.

        I understand your list of features, it sounds healthy indeed, I would vote for it.

        But how much is the fish?

        What is the probability of sliding to Mad Max world?

        How much money, human lives, years to build your dream?

        I am not saying it is irrelevant or impossible, I am saying that without plan such initiative is just a fruitless hope.

        • BuySome says:

          Yes Mad Max is a problem we inherited from Harry Truman when the buck stopped and he dropped it. So, 48 hours to inform the world that the bullshit stops or we will be very serious..we get on that phone and settle it right now that everyone backs off from this ongoing engagement and the gunfights cease. Immediate agreement on a healthy respect for all containment of disease, insect and plant invasions….non-negotiable. All existing wealth will be guaranteed up to 5 million current value, fully adjusted to new money value…we’re bringing back the weight that coinage held one hundred years ago. (It’s a long swim back to where your ancestors may have started.) 18-24 months to mobilize a work force put to building a new country not based on any more piles of wood or steel sticks…with a long term exchange program to eliminate or convert the useless crap we have built and properly use our soils for what they were intended. There are always lives lost in everything…I think we can keep it on curve well below the percentages of the past civil war, but we might need to put a few suits on a chain gang. It will take 10-25 years to catch up to where we should have already been. It’s either that, or we keep right on handing this down until they actually do blow themselves to hell…and they will, ’cause they love pushing buttons to find out what they do.

        • Engin-ear says:

          @BuySome

          Thanks for sharing your thoughts.

  28. Steppenwolf says:

    Hahaha capitalism exposed as the fraud it ever was.

  29. John says:

    Wolf,
    I see what you are saying. Moral hazard would fall on pensions and many other things. I believe there was no accountability during and after the financial crisis. People were just let go, after the MBS’s. No policing or consequences for these people. They are back with leverage probably thirty to one or higher. Now policing being called out for defunding departments. There is none with the S.E.C. Remember the no uptick rule? Wtf!?, was that!?

  30. Kent says:

    Here’s the harder article to write Wolf: what changed? The Fed didn’t always act like this. I remember when the S&Ls were deregulated in the ’80’s and they subsequently blew up. The Fed didn’t bail anyone out. The S&Ls were just marched through bankruptcy.

    So what changed that suddenly made it okay to bail-out the investor class?

    • lenert says:

      The Securities Modernization Act of 1999?

      • Trent says:

        That and S&L’s weren’t big enough to endanger empire. Remember this all boils down to power and who holds it.

        • Cas127 says:

          And how they will act to preserve that power.

          And how they will try to hide/obscure/displace those dark acts.

        • VintageVNvet says:

          True that Tnt,
          a good comment as far as it goes;
          —- OTOH, a lot of the 80s S&L debacle and it’s resulting indictments were the result of the bushie clan thing they were more on top of the game than they actually were at that time.
          May have been some ”paybacks” for grandpa bushie being such a nazi guy in spite of the clear good work of GHW during WW2, although i think he also raised some hackles during his tour in the CIA, etc., before becoming VP and P,,, and that, again, is most likely why he did not get the support of the oligarchy to have a second term as pres.
          As it has become very very clear that our oligarchs /owners /rulers do NOT want us to know much if any, until at least 50 years later,, WE the PEEDons, can only speculate about that one, and it will be exactly the same with this event, the actual facts of this one will be readily available in approximately 2070…

    • lenert says:

      Senator Byron Dorgan was ignored and we got what he predicted.

    • Petunia says:

      Secularization became the biggest money maker on Wall St. and Allen Greenspan didn’t have the nerve to regulate the explosion of debt needed to feed secularization. Controlling the derivatives markets would have stopped all the bubbles and all the bonuses on Wall St.

    • sierra7 says:

      “So what changed”?
      A very wealthy and powerful individual in our gov that stood before the American people and threatened Congress with a large “bazooka”…….a standoff that he won….remember him????
      That was the moment we lost all we thought we had……….
      It’s really been “downhill” since…..and it will continue with spurts of FED infusions until there will be none left and it will be “into the ‘revert to the means’ abyss”.

  31. BaritoneWoman says:

    Hopefully, what we see now and in 2021 is the death-knell for Reaganomic, supply-side, trickle-down, Milton Friedman shareholder capitalism. It’s been 50 years in the making and it’s past time for the snake to shed this skin.

    Hopefully, what will emerge in the US, starting in 2021 is STAKEHOLDER capitalism, as is practiced in Western European and Scandinavian countries. What one might think as “socialism” is actually stakeholder capitalism at work out there.

  32. timbers says:

    I’m reading some folks want to do a new bankrupt stock issuance for Hertz. Not a finance lawyer, but seems like another example of peak Fed induced bubble-ism. So much money in the hands of those who don’t need it, and no where to go.

    Maybe they should make a Netflix sit-com about this?

  33. Lasse says:

    Wolf,
    Thank you for great summary. Would be awesome to understand what will happen next. I just cant believe this could go on forever.

  34. Gee says:

    Doubling down on 2009, just 11 years later, and after the most epic runup in equities ever. Just doesn’t get any better than this (for the 1%)

  35. Timothy Hagios says:

    The crisis is bankrupting so many companies that it’s hard to choose which to invest in. Maybe I’ll diversify by investing in all of them.

  36. Augusto says:

    The American financial system has been hijacked by a collection of fraudsters who make themselves rich by controlling the financial and legal system. The problem is they have set things up in such a way that if you try to remove them or changes things, the economy, if not society, comes apart. I honestly don’t see any easy way out. In my mind, you either go for real reform and a hard landing or you continue the status quo where they never stop taking a little bit at a time, all the time, pushing little people down lower and lower. These people are at heart misers, they love money, its part of the physical being, they will never stop wanting more unless you stop them. They will take your homes, your jobs, your freedom, your families, they will financialize everything and put it in their pocket, leaving you with less than nothing, and then sell that too…in a new ETF…..

    • Chauncey Gardiner says:

      Good comment, Augusto. So, what to do?… formulate a 12-Step National Recovery program? As with other such programs, seems to me the first step toward national recovery is to acknowledge our national problem, which you articulated in your initial observations.

      Absent our collective failure to succeed in such an endeavor and chart a different course, there is some likelihood that unlike FDR’s New Deal to address the Great Depression of the 1930s, the ETF to which you alluded will bear a label strikingly similar to that of a hypothetical Public-Private Partnership “Steady Employment Recovery Facility” (SERF) ETF.

    • VintageVNvet says:

      Good summary Augusto; agree with most of it, but have 3 other ideas of what are possible solutions:
      1. Revolution in the streets, the very ”hardest landing,” with military taking part ON BOTH SIDES, many deaths, possibly even some sort of ”ethnic cleansings” including any and all ”special” groups.
      2. Military take over/junta,,, probably less overall damage than 1, if for no other reason than the accomplishments of USA military to provide and promote extensive ”equality” and, especially, equal opportunity to all.
      3. Oligarchy actually recognizing/accepting their place, and taking the steps necessary for USA, and likely most nations of globe following, to enhance ”real” democracy.
      Mark Cuban, as a newbie oligarch has proposed something like this, most likely because he has had ”the word” from some of the/his more seniors,,, So this does actually be possible…
      Suppose there are some other probabilities between these and otherwise, but, at this point in time, IMO WE the PEEDONs can only hope that at least some of the thousand(s) years old conflicts of our owners will be resolved to the benefit of all of us before Gaia does us all once again.

    • Old-School says:

      Stockman says the problem can be laid at the Fed’s doorstep. Zero rates encourage leveraged speculation, not prudent capital investment in real productive activities. Now we are drunk and it would hurt if we stop drinking all of a sudden.

  37. DR DOOM says:

    The Federal Reserve bestowed $565 billion on 10 revolving door Fed / PE parasites. The head parasite is ex-Fed member Fischer at Blackrock. They get an assured $75 billion and whatever else they can skim off the $565 billion. The skim will resemble an excavation when the parasites are through. The 10 people hold not Merit other than the Merit they bestow on themselves and being a connected parasite. These 10 have spent their careers hollowing out Americas Industry. And what is Congress position on this theft? Congress is busy picking out the right scarfs to wear around their snouts for a pandering photo-op.

  38. NoFreeLunch says:

    “horrendous economic inequality in this country, to the mind-boggling wealth disparity” Wolf, please don’t fall into the fallacy that what you see in SF is true everywhere else. The average home price in the large city I live in is $190,000, which is affordable to most who work here. There is plenty of room.

    • MonkeyBusiness says:

      Last time I looked, America is bigger than SF and your city. The destruction of the middle class has been pretty well documented. There are cities along the rust belt with incredible poverty. They used to do VERY WELL. Remember, American families used to be able to get by with just ONE breadwinner.

      If I go to Disneyland, I might also be convinced that there’s no suffering in this world. With logic like that, this country has no hope.

  39. Agnes says:

    Good article!

    Where does the power come from? Pull back the curtain: Blackmail. You don’t get into the upper club unless you are blackmailable. If you tattle? Arkanside. They’re simple people really.

  40. joe2 says:

    Geez Wolf, you sound like a revolution is justified. Getting philosophical in your old age.
    Unfortunately all it means is that the warlord positions and spoils are up for grabs as the current placeholders weaken through corruption.
    Fortune favors the bold, the meek do not inherit.
    Meet the new boss, same as the old boss except for the rubble.
    We shall see. But I believe in reverse evolution of intelligence and the wisdom of old gained through sacrifice is long gone.

  41. Fred Flintstone says:

    Yep……5 year plans up next.

  42. BlowingBubbles says:

    “According to the Fed’s December 10-11 meeting minutes, its emergency repo loans amounted to “roughly $215 billion per day” flowing at super cheap interest rates to the trading houses on Wall Street. That amounted to approximately $6.23 trillion cumulatively in loans to these “highly liquid” banks. As of today, that figure stands in excess of $9 trillion in cumulative repo loans and the program is ongoing.

    And then there’s that alphabet soup of emergency lending programs that the Fed has since rolled out to bail out Wall Street banks in a replay of the bailouts of 2007 to 2010.
    We’re simply not buying the idea that these six mega banks with $202 trillion notional (face amount) in opaque derivatives are going to provide the strength we need in this storm. It’s long past the time to break up these banks and restore the Glass-Steagall Act where the casino trading houses are separated from the federally-insured, deposit-holding banks.” (Courtesy of WallStreetOnParade)

    • Wolf Richter says:

      BlowingBubbles,

      You quoted:

      “According to the Fed’s December 10-11 meeting minutes, its emergency repo loans amounted to “roughly $215 billion per day” flowing at super cheap interest rates to the trading houses on Wall Street. That amounted to approximately $6.23 trillion cumulatively in loans to these “highly liquid” banks.”

      This is effing brain-dead ignorant BS. These people that wrote this have no freaking idea how repos work — never had.

      Quit posting this effing BS on my site.

      TOTAL AMOUNT OF REPOS OUTSTANDING = $167 billion as of Wednesday not “$6.23 Trillion.”

      Look it up yourself: https://www.federalreserve.gov/releases/h41/current/

      Or better and easier yet, look at the chart below, which shows total repos outstanding every week since Sep 2019:

      • The Rage says:

        Lets remember increasing repo’s did not work. There is a limit to what the banking system needs and it was withdrawn.

    • Wisdom Seeker says:

      Blowing, thank you for helping me put WallStreetOnParade on my Media Hall of Shame / Do Not Read list!

  43. Norma Lacy says:

    Very well said Wolf. I would call it a delightful rant, but it is so horribly true. The only place you pulled your punches that I can see is you called it a “wealth transfer” No, it’s called stealing.

    Yet there are still many people who cannot be convinced that “theFed” is not a federal agency on a white horse. It is a consortium of crooks.

    to Kent: what changed was Clinton. Repeal of Glass-Steagall, and some wide open barn doors in the commodities market which lead to Enron for example. Larry “the garbageman” Summers had his dirty little hands in there along with some notable crooks from Citibank if I recall correctly.

    to DR DOOM well said.

    to joe2 I fear you may be right sir.

    • lenert says:

      Not so much a wealth-transfer as the accumulation of the income transfer that occurred in the 80’s with the privatization and securitization of damned near everything? Labor’s share of income has gone down. Wages have been flat relative to productivity for decades. Union membership has declined. The minimum wage has been raised once in like 30 years. Meanwhile the financial sector has doubled as a share of GDP, dividend yields have been half what they were during the golden age and CEO compensation went from two orders of magnitude to 4 orders of magnitude relative the average worker. The only thing that’s really grown is executive compensation.

  44. Person X says:

    It’s really infuriating that we never hear any mainstream news talk about what the Fed is doing to make people understand because they would be furious if they really knew how it worked.

    It’s also infuriating to hear the right mis-characterize giving us healthcare and a few other 1st world benefits as some ridiculous form of socialism like Venezuela instead of Switzerland etc. while thumping their chest about free markets when we have complete corporate socialism stealing all our money that could easily provide those things and more if appropriated with any sense of fairness.

    • Portia says:

      Person X, I know you have excellent intentions. This is how I understand it:
      I was the youngest of four kids and the only girl. I was also a lot younger than my next oldest brother. I was routinely left out and kind of treated like the family dog when family decisions were being made. My brothers also complained all the time that I was getting stuff they never got, my life was easier,and I was a spoiled brat. I kept my head down and bided my time to “get out”, but I learned to my dismay that there is no “out”. So I learned to go through back ways to find out what I needed to know. This is considered cheating. My attitude at 65 is, Bugger all, ya’ll. The information is out there, and you will find it if you are really interested. Just don’t expect anyone to acknowledge you in any way shape or form.
      It’s not all terrible, I made space in my life for others who are inspiring and life-affirming.
      It’s the Patriarchy, go around it is my advice.

  45. worm wood says:

    The question/issue of reforming the Federal Reserve seems profoundly important and profoundly difficult.

    To my mind the Federal Reserve is a perfect institutional representation of a modern type of power(which gradually emerged over the past 400 years) consisting of a close interlacing of a type of state political apparatus with private economic transactions.

    MMT theorists are now in the process of arguing that the issuance of public debt by the Treasury Dept. to the non-governmental sector is primarily the result of special pleading by the Wall Street financial community, resulting in a type of Corporate welfare (investment opportunities, trading profits, commissions etc.).

    The logical consequence of this type of argument is to prioritize State investment (simply budgeting state determined priorities and spending it supposedly for the public good and not for the good of Wall Street).

    The end result of this type of thinking( if instituted) would seem to be a greater and greater centralization of State power with the Federal Reserve functioning as the primary agent of such centralization.

    If you combine such State centralization with identity politics can the gulags be far behind?

    • Bert Schlitz says:

      Sorry, but there is little “state centralization”. Your sound like a typical movement conservative who loves global capitalism and doesn’t really respect your country. I don’t see much identity politics outside fig leaf junk that will be forgotten in 2 months. Nobody cares about racism, including white progressives, who’s biggest issues this election are the virus(duh!!!!), economic policy and environmental policy. Stuff blacks care about is down to about 6-7 on the list and everybody I know including movement conservatives under 50 support police reform.

      Worm Wood, this is typical mess you have created for yourself. Market concentration is centralizing and that is a feature, not a bug of capitalism. Before the Fed, after the Fed. Stop making excuses for the capitalists. They created the “Federal Reserve Banking” system and boy did they ever. Its changed a lot over the decades though. The 1920 Fed was different than the 1940 Fed and the 1960 Fed was different……..you get the message.

      • Worm Wood says:

        Bert:
        Which institution in your opinion has more power: the Federal Open Market Committee of the New York Federal Reserve Bank or the Central Intelligence Agency?
        As far as I understand it, the FOMC is the most important executive body with the Federal Reserve System. To my knowledge this committee is where the crucial monetary-political decisions are made. This committee regulates money supply and the discount rates, operates in foreign exchange markets and above all trades in securities and national bonds.

        I believe the negotiations of this body were initially made available to the public six to eight weeks after their deliberations with internal memorandum and analysis remaining secret for five years. After 1966, when Congress tried to get more transparency, the executive of the FOMC stopped taking complete minutes of the sessions of the committee altogether: a privilege that, I believe, is granted to no other institution of government, including intelligence agencies. In this way the FOMC could not be forced to release minutes that did not exist and its resolutions cannot be revised by someone or some institution more powerful.

        You mistake may be in trying to stuff my implicit political perspective into some kind of traditional “right” or “left” continuum.

        I would like to believe that I am attempting to present a more sophisticated political analysis of key institutions (like the Federal Reserve System and the CIA) which actually run our country and which must, at a minimum, be substantially reformed.

    • The Rage says:

      Uh, what MMT? MMT is debt free money. If you are borrowing, your not using MMT. I am not sure what the point of this post is. You sound confused and a little bewildered.

      • Worm Wood says:

        Rage:
        I agree. I believe you misunderstood my original post.

        In part, I was simply repeating a recent argument by Bill Mitchell (prominent MMT theorist) on how the entire tradition of issuing public debt to the private sector came into existence (he believes it was primarily special pleading by the private finance industry–what he then labels corporate welfare)

        MMT does, indeed argue that such issuance of debt is unnecessary–all you need to do, if you have your own fiat currency, is budget the expenditure and go ahead and spend it.

        But I do believe that they also argue that governments may issue debt or raise taxes if either is necessary to control the potentially adverse economic impact of the additional demand created by spending additional money.

        If an MMT regime was to somehow come into power what do you think about institutionally granting such tremendous power solely to the State sector?

    • Bobby Dents says:

      Capitalism is centralizing itself. Considering that, public investment is being reduced. Doesn’t support your argument.

      The Fed knew by 2007 the debt bubble exploded too far. They know if the ponzi drops, capitalism will be exposed. If the Fed financed all future public investment, the Fed system won’t exist anymore and the banks will be nationalized. Think worm, don’t live by bias. Identity politics would not be that government’s thing.

    • lenert says:

      Gulag – you mean like Ferguson?

      How much body armor and tear gas can we trade for some IRS and SEC enforcement?

  46. Bert Schlitz says:

    Wolf, this “bailout” is very unimpressive. They have let a lot go down in bankruptcy and are pushing a correction in the market.

    I call this the “market clearing” from the 2008 recession. Alot of bad hands will be gone by 2022.

  47. lampoon says:

    Enjoy your writing, so really looking forward to your comments on the Hertz “IBO” just approved by a no doubt incredulous bk judge. Pass the popcorn.

    • Wolf Richter says:

      The Hertz stock sale is going to be an interesting show to watch. If they can pull it off and raise enough money, they might not need to be in bankruptcy, and they might pay off their creditors and rescind the bankruptcy filing. Raising cash by selling a gazillion shares is a good thing for the company and the creditors. If they can raise enough money to get through the crisis, it will have been an incredible move. Not sure how this will work out for the buyers of those shares, though.

      • Portia says:

        “Not sure how this will work out for the buyers of those shares, though.”

        GoFundMe has come to capitalism.

  48. Robert says:

    “And there has been widespread looting earlier in this phase – in my neighborhood, all the drugstores were systematically looted a week ago at night by a convoy of cars that drove from store to store, and there were no protests anywhere near.”

    Seems at least 100 businesses were attacked in Manhattan. The police mostly did nothing. How bad was San F hit?
    Did the police just watch?

  49. Mark says:

    How come that with all those thousands of protested and Rallies around the world, not even one was directed at the people who are responsible for the inequality. -billionaires houses and Mega cooperates HQ-

    If BLM were really acting in the name of social justice, those were suppose to be their first target on their lists.

    Small businesses and workers are suffering from the regulations created by corrupted politicians and mega cooperates which control them.

    I am all in for millionaires, but no one in the world should be a billionaire. No one should have this kind of power.

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