The Stock Market and the Economy

A couple days ago in the Energy Open Thread, our resident progressive clown equated the stock market doubling during Obama’s term (as opposed to “tanking” at the end of Bush’s second term) to be a dynamic he wanted to see more of in a second Obama term.  I have no idea how many regulars here follow the markets closely, but I do, so I got a chuckle out of Bozo’s uninformed comment.  It also got me to thinking that the damage Obama’s and the Fed’s monetary and fiscal policies have inflicted on the average American had the makings of an interesting discussion.

In the course of my research, I ran across an op-ed from a little over a year ago that spells out in layman’s terms precisely what’s happened.

Does the United States still have a stock market?  Not really. In a real market, when there are more sellers than buyers, prices decline. And vice versa of course. That is called “price discovery”; or used to be. Since January of 2010 investors have withdrawn a net total of 81 billion dollars from U.S. stocks and funds, this week marking the 33rd consecutive week of outflows, while stock prices have staged a missile launch upward that started in mid-July.   Floyd Norris of the New York Times confirms that outflows have remained at record high levels over the last four years.  (as a side note, that outflow trajectory continued through most of 2011 as well) Some of the funds withdrawn resulted from industry insider selling, and much of that was re-invested in commodities and emerging markets. But a substantial amount, according to Charles Biderman, CEO of Trimtabs, was withdrawn by middle-class Americans to pay monthly bills.

In an unprecedented interview on CNBC, Biderman stated that the Federal Reserve is no longer denying the fact that it has been rigging U.S. markets nor is the Fed making any effort to hide it. An unrelenting and counter-intuitive rally has ensued, with stock prices gapping up at 4:00 AM night after night and never looking back. Even before the Fed initiated its POMO (Permanent Open Market Operations) injections of outright treasury buys in a program euphemistically titled “Quantitative Easing 2″ (a.k.a printing money out of thin air) the Fed’s daily zero percent loans of taxpayer money to Goldman Sachs and J.P. Morgan were used almost exclusively to buy stocks – and then sell them again within minutes or even seconds. Investment banks use high frequency trading computers (HFTs) programmed to essentially steal money, one penny at a time, from any retail investor foolish enough to believe he could make money by trading or investing in stocks. Their computers, operating at speeds no human with a laptop could match, front-run orders, ensuring a profit on every trade. Wall Street investment banks have the right, unlike everyone else, to trade in increments of 1/1000 of a penny, allowing them to deny order fills by keeping the price 1/1000 of a penny below the bid. It is one of many questionable and even illegal practices engaged in by what the internet bears cartoons refer to as the “the Goldman Sack” and “the JP Morgue”.  The web cartoons have gone viral, as they say, and served to educate the uninitiated in the grand-theft-stock-market game being run by the Fed and the Wall Street gangs.

The writer concludes with this:

Where will the U.S. economy be when QE2 ends?   It will be where it is now, as the Fed’s money printing, while raising the costs of essential food and energy, has had no notable effect on job numbers or salaries. What it does do, with every uptick in the Dow Jones Industrial Average, is increase the wealth of those who are already wealthy.

To get a mental picture of just what this current crew in power has done to our monetary base, one really has to see it in chart form.  In July, 2009, Richard Anderson, Vice President of the St. Louis Fed, had this to say about the mercurial rise in the monetary base (which has continued almost uninterrupted since):

Monetary Policy Implications of Nontraditional Programs

In several speeches, Fed Chairman Ben Bernanke has emphasized that nontraditional policy focuses on reducing stress in specific financial markets, that is, on credit easing. The focus is apparent in the types of securities purchased, including commercial paper, mortgage-backed securities and privately issued asset-backed securities.

Be this as it may, the programs nonetheless have greatly increased the monetary base—and portend, if not promptly reversed when economic activity revises, higher future inflation. When will confidence return to the economy, such that banks feel able to accurately assess the riskiness of loans and borrowers feel confident in their ability to repay? When confidence returns, will financial markets be roiled as the Fed reduces its assets and the monetary base? Finally, the Fed now has an additional policy instrument not previously available: the payment of interest on deposits at the Fed.5 Can it be used to forestall undesired increases in bank lending?

Recent increases in the monetary base are far greater than any previously in American history (even adjusted for the size of the economy), surely a “noble experiment” in policymaking. Will these policies be successful without accelerating inflation? The epitaph to this curious case of monetary base expansion is yet to be written.

The one truly amazing aspect of everything that’s happened in the last 3 years is that they’ve been able to keep the ball in the air as long as they have.  How much longer?  A functional crystal ball would come in real handy about now.

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40 thoughts on “The Stock Market and the Economy

  1. Amazona

    spook, as you are so much more informed on matters fiscal, perhaps you could add your opinion on the Fed’s low-interest policy.

    I had heard that it was an economy-killer, but then the other day caught the tail end of a commentary by Hugh Hewitt, in which he said that if interest rates were to go up even 1 % the addition to the national debt would cripple us.

    I’ve been on the go and haven’t had time to look up the numbers, but I did wonder, when I heard this, if the Fed is now in the position of doing what they think might be the lesser of two evils, keeping the interest rate down along with the problems that may cause rather than letting it rise and making the Obama debt even more of a problem.

    In an election year, but I’m sure that is just a coincidence. // sarc off

    1. RetiredSpook Post author

      a commentary by Hugh Hewitt, in which he said that if interest rates were to go up even 1 % the addition to the national debt would cripple us.

      Amazona,

      And therein lies the dilemma, and the main reason Bernanke has promised to leave the rate at or near zero until 2014. My guess is, though, that a lot depends on who wins the presidential election this fall. I’m betting if a Republican wins, you’ll see a crash, and, if Obama wins, you’ll see sideways movement for his entire second term; similar to what’s happened in Japan for the last 20 years. What we need is an organized de-leveraging. In the early 80’s, a 22% prime ripped the band aid off the economic wound pretty fast. At zero % interest, it’s going to take a looooooong time. I’d be interested in the Count’s take on this.

      Personally, I think the political aspect of the zero interest policy cannot be overstated. The perception that Bozo fell prey to, that the doubling of the stock market is a reflection of positive economic growth as a result of Obama administration policies, will also fool a lot of American Idol-type voters. Of course, a Middle East war coupled with $5 or $6/gallon gas could change the entire dynamic.

      1. bozo

        This is great! I don’t think stock market performance means squat when it comes to jobs, health and life fulfillment, but unfortunately a giant portion of our savings and retirement benefits have been horrifyingly embedded into it. As I have mentioned before, all fiat world currencies are being pummeled by criminal Wall Street banksters against the value of real stuff, and this is nowhere better reflected than Wall Street. But patsies like CalPERS and every mandatory 401(k) investor/employee is stuck with what is, and nto with what should be.

        Bush’s market tank was devastating to fixed income retirees, and Obama’s fix is only half the disaster of Bush’s crony banksters and their Palpatine Paulson.

        What gives me the greatest hope, though, is your condemning of flash trades (HFTs), a prime demand of Occupy, along with ending “questionable and even illegal practices engaged in by what the internet bears cartoons refer to as the “the Goldman Sack” and “the JP Morgue.” If you also want political corruption investigated, then you’re right there with Occupy. If you want an end to taxpayer bailouts, and “leaders who accept responsibility and accountability for their actions, and who have value sets that prompt them to care more about those they represent than they do about themselves” then we are all not that far apart.

      2. Count d'Haricots

        Well, bozo, that was singularly incoherent, even for you.
        Especially indicative of numbskullary was this statement, “ Bush’s market tank was devastating to fixed income retirees.” Say, genius, if their income is “fixed” what difference would fluctuations in market investments make? Don’t bother trying to answer; you don’t understand the concept and my head hurts every time I read your posts.

        Let me fix the statement for you ‘k? “Inflation is especially devastating to fixed income retirees

        I’d also like to see the list of employees engaged in a “mandatory 401(k).

        Do you even know what “fiat” means? Fiat currencies are pummeled against the value of real stuff.

        Folks, the above concept best illustrate the mind of a Communist, no pretense, no illusion simple communalism as written by Marx and Engels. The abolition of fiat and credit monies established by the bourgeoisie and plundered by the “bankster” class rather than an anarcho-syndicalistic system of barter.

        The rest of your post is just regurgitation of 99 %-er sloganeering; all the words make sense, just not in that order.

      3. Count d'Haricots

        Spook,
        Sorry I missed the debate, but there is a book from Friedman, The Role of Monatary Policy from about 1967 that addresses this subject.

        Borrowers don’t borrow because money is cheap; they borrow because they want/need/desire the money for a purpose that benefits the borrower, a simple concept that came out of the Friedman Monetarists.

        The Keynesian view is that lower interest rates can’t be achieved during times of high unemployment by monetary policy and besides, low interest rates don’t spur investment or consumption. The lack of investment opportunity or skittishness in the market can be cured, the Keynesians theorized by fiscal policy; government spending would replace investment.

        But here is, I think the salient point; increasing the money supply and applying a Keynesian fiscal policy has the effect of lowering interest rates (which, oddly induce savings) longer than they would have otherwise remained low. The rapid rate of money growth stimulates government spending, which in turn raises prices causing the money supply to be inefficient.

        Each time Obama’s bitch, Bernanke attempts to keep interest rates low through monetary expansion the Fed has had to increase purchases of securities, bonds to infuse the banks with capital ahead of the inevitable inflation. There is a delayed consequence for these simple-minded actions.

        Yes, allowing interest rates to equalize nominal interest rate/ natural interest rate will cause the deficit to expand. But, Obama’s bitch seems to think he can expand the money supply faster than the payments, and artificially hold nominal interest rates.

      4. RetiredSpook Post author

        But, Obama’s bitch seems to think he can expand the money supply faster than the payments, and artificially hold nominal interest rates.

        But he can’t do it forever, and the longer this policy is pursued, the greater the crash will be. You’re starting to see more and more articles speculating on what happens when the free money stops, as surely it must.

        Or not.

    1. Amazona

      Yeah, Velma, I believe this IS all you know.

      And it’s more than I ever gave you credit for.

      Can you explain what it is about Leftist economic policies that gives you such confidence?

      1. tiredoflibbs

        Yep, leave it to Velma/sunny/shesindenile to regurgitate the party line. Of course, we won’t mention the tanking of the housing market and the subsequent effect on the economy were all caused by DEMOCRAT legislation and meddling in the housing marking making home values ARTIFICIALLY high. Plus, the first recession started during the final year of the Clinton administration and of course, 9/11 did not help. But why point out details (AGAIN!) to velma, who will ignore such facts and regurgitate the same BS at a later date. All she knows? Yep, that about covers it.

        The stock index may be up, but overall volume is way down, which shows that many have withdrawn from the market. If the economy, which velma regurgitates is improving under obAMATEUR why is the participating labor force DECREASING, why are food stamp recipients INCREASING, why is homelessness INCREASING, why are more people on unemployment LONGER….

        When you put things in perspective, there velma, you dumbed down talking points are shot down EVERY SINGLE TIME.

        Your proggy leaders are blowing sunshine up your rear and you know it. That is why you are such a miserable person, lashing out at anyone who challenges your ideology and “feel good” dumbed down talking points.

        Pathetic.

      2. RetiredSpook Post author

        Your proggy leaders are blowing sunshine up your rear and you know it.

        Actually, Tired, I don’t believe she does. The sum total of Velma’s political knowledge is: Dems good, GOP bad.

      3. tiredoflibbs

        Amazona: “Can you explain what it is about Leftist economic policies that gives you such confidence?”

        freeofthinkomg: “bite me amazone woman, internet stalker, and one of the most bitter human beings on the face of this earth.”

        So, NO, you can’t explain leftist proggy policies and confidence they will/won’t work (they haven’t before when DEMS ran the whole show), other than “soak the rich”, “Wall Street greed” and “GOP obstruction”.

      4. Amazona

        She’s not just testy, she is kinky. This sad pathetic thing has been begging me to nibble on her for a couple of years now.

        Note her refusal to answer a simple question: Can you explain what it is about Leftist economic policies that gives you such confidence?

        She’ll never answer any of the other questions, either. Vel don’t DO answers. Vel just spits, snarls, and then grovels at the feet of her betters pleading with them, or at least with me, to give her a little love bite. Poor thing…..

    2. RetiredSpook Post author

      I lost a ton on my retirement accounts under the Bush administration. Not once, but twice.

      Velma,

      I assume you mean during the recession of 2000-2002 and again in 2008. What did Bush do in 2000 (the year before he took office) that caused the NASDAQ to drop nearly 50% between March, 2000 and January, 2001?

      And what were the Bush Administration polices that cause the collapse in 2008?

      1. RetiredSpook Post author

        J.R.

        Amazing what you can do with numbers, isn’t it?

        One of the things your linked article doesn’t really delve into is the market performance during the Clinton years, something that, unless you look beneath the surface, really distorts that historic record. The DJIA was around approximately 3,000 when Clinton took office in January, 1993 and approximately 10,600 when he left in January 2001, for a percentage increase of 253%. I don’t believe any other president is even close. When you look a little closer, however, all but 900 points of that 7,600 point rise occurred after Republicans gained control of congress in January, 1995. Clinton also inherited a recovering economy in 1993 and left just as it was cratering in 2001.

      2. freethinker

        jr, your so called “research” is almost four years old: October 16, 2008. The article I posted was from 2/12 – much more current. And your “research” just made excuses as to why the stock market did so poorly during Republican presidential runs. As usual – excuses.

        Spook – of course nothing Bush did nothing to cause any of the problems with the stock market dropping sharply twice during his presidency. Why would you think that? However, Obama will be blamed for everything that has happened since the day he took office and he will never be credited for anything good that happened since then either.

      3. J. R. Babcock

        jr, your so called “research” is almost four years old: October 16, 2008. The article I posted was from 2/12 – much more current.

        I guess you really are as dumb as everyone here says you are, Velma — may I call you Velma? The “research” I posted dated back to the late 1800’s. Are you saying that what occurred between 2008 and 2012 has had a significant effect on the historical data? Is that really what you’re saying?

        And your “research” just made excuses as to why the stock market did so poorly during Republican presidential runs. As usual – excuses.

        No it didn’t, and, if that’s what you got out of it, then, on top of terminal stupidity, you also have a reading comprehension problem.

      4. tiredoflibbs

        freeofthinking you can’t explain or point to any policies from the Bush administration that caused the stock market losses?

        But, you are sure it was his fault, or was it because it happened during his watch?

        Of course, because anything that happens under obAMATEUR’s watch will be easily dismissed as “Bush’s fault”, “Wall Street greed” and “GOP obstruction”. You know – the usual mindless, dumbed down talking points you usually regurgitate, blindly.

        Pathetic.

  2. Cluster

    Dow drops 200 points, proving once again that the gains in both the stock market and the economy are not on any solid foundation:

    http://www.cnbc.com/id/46639583

    Interesting to note though is the last time the DOW was over 13,000, in May of 2008 – Obama was campaigning across the country telling everyone how bad the economy was.

    1. RetiredSpook Post author

      If the Greek debt swap on Thursday fails to live up to expectations, you’re gonna see a lot worse than 200 points down.

      1. RetiredSpook Post author

        Has any other attempt lived up to expectations?

        Nope. And if I had a dollar for every time there’s been a headline that (a) the market went up on Greek hope, or (b) the market went down on Greek fears, I’d be rich.

        From Reuters:

        “It will only become clear toward the end of the week how many investors have agreed to the ‘voluntary’ restructuring of Greek debt,” said Lutz Karpowitz, currency strategist at Commerzbank.

        The Institute for International Finance, which helped negotiate the terms of the bond swap, reportedly warned in a recent memo that a so-called hard default by Greece could cause at least 1 trillion euros ($1.32 trillion) in damage to the euro-zone economy. That figure includes the need for aid for Italy and Spain to keep the crisis at bay as well as €160 billion in bank recapitalization costs, Reuters reported Tuesday.

    1. Amazona

      And only seriously nasty and petty losers judge others on how much they either do or don’t have.

      Most people who have made their own money, as Romney has, have seen wealth come and go. Those who have never made a penny based on their own initiative, after risking their own capital, don’t understand that money is mostly a way of keeping score. People with initiative (what the Left calls “greed”) get a kick out of making things happen, and when their efforts work out, they make a lot of money.

      Let’s face it—someone so sour and perverted as to identify himself the way stumpy does is hardly likely to understand that true wealth is not about money, but about family, love, God, friends, and the quality of life that is based on these truly important things.

      People like stumpy, who sees himself as such an ugly and creepy individual, are hardly likely to understand that to decent people money is always secondary to these things. To people who have never risked their own capital and bet on their own skills and instincts, who have never put in the 70-hour weeks it takes to make it all happen, financial reward for these investments of time, energy, money and personal assets is just the end-all and be-all of their world, when in fact people like this see money come and go, associate with people who have seen money come and go, understand that money is not what matters.

      The word “wealthy” is open to quite personal and individual interpretation. A man with millions but with no friends or family might not see himself as wealthy, but my friend whose electrician husband supports her and their five children in a happy and loving home considers herself wealthy beyond definition.

      And I wonder if stumpy was as outraged at the many lavish mansions, the staff at each of these mansions, the fleet of large and expensive (and gas-guzzling) vehicles kept at each of these mansions, the yacht, and the other aspects of the life of a man who truly DID marry into money, and spent it extravagantly—the 2004 Democrat Presidential candidate.

      1. neocon1

        Yet

        NOT a pep about john edwards, ded kennedydrunk, JFnK, algore’s etc etc etc,s money.
        Not to mention the former trailer trash, now MULTI millionaires the Klintoons.
        WHY is THAT?

    2. neocon1

      bloodypDump

      Mitts wife pales to what barry and the Mooch have blown in just three years of OPM

      they are the epitome of MONEY fo NOTHING DRUGS fo FREEEEEEEE!!

      1. neocon1

        Sarah Palin To Obama: If Rush Was Offensive, Why Are You Taking Money From Bill Maher ?

        Sarah Palin calls on Obama to ask his Super PAC to return $1 million donation from Bill Maher. Maher used the C-word for Palin.

  3. carltonpryor

    There’s a rather old joke among economists that goes something like this, “If we elected bankers and made a business out of government there’d be fewer bankers and better government.”

    For the most part I have always believed in this. A centralized banking system might have cured the economic ills of America and might have even saved Europe from dying a death of a thousand Greek cuts, but in the end you all would have still been in this place or a place similar not matter who was in the White House. I was just reading some of the glowing praise of the Bureau of Labor Statistics many of the writers here had back in 2004 when the economy was “booming.” Well, we all know now that this boom was being driven by banks willing to loan money to virtually anyone to buy a house because they were covered by credit default swaps. Now hardly anyone here believes the numbers that come from the Department of Labor for this reason or that reason but the chief reason is the numbers are trending positive and there isn’t a Republican in the White House. I find this intellectually offensive to the point of nausea.

    Mark Noonan might have been the smartest of all of the writers back then because he knew that he didn’t know enough about economics to make a case for connections between economic revocery and political affiliation. I highly doubt the ARRA would have been proposed in a McCain administration and that would have, in my modest opinion, unemployment to rise to over 12% by the end of 2010. McCain also would have balked at quantitative easing 1 & 2 which would have locked up the credit markets and you all would be sitting in the dark right now.

    The Greek debt crisis is the most serious threat to European prosperity in more than three generations but it is not a threat directly, to the prosperity of either Great Britain or the United States. Your world is in the midst of the greatest economic transfer of wealth from nation to nation in the last 500 years. In the next century Brazil and India will join the stage with Europe and China as the great economic powers and by that time America will have answered many of the questions that must be asked today. As I see it now you country has a chance to be up there with Brazil and India in 2100 but they have realize now that by then the discussion about drilling on federal lands and offshore for crude oil will be moot and the real money when the stock markets open for trading on the first day of the year 2100.

    But back to present for a moment. There was a question asked in Retired Spook’s post, “Where will the US be when QE2 ends?” There is a simple answer to that question . America will be in a full economic recovery scaled by the understanding of the new normal. For the coming years maybe even a decade or two 6 to 7% unemployment will be the new normal no matter what political party controls Congress and the White House. The game has changed while the players were taking their tea interval. Obama’s advisers have made missteps and Bush’s advisers did little or nothing until the very end to try to catch the elephant of the baking crisis. Whether you like to hear it or not, the Democrats in the House saved America in 2008 with quite a bit of help from Hank Paulson the rest of Government Sachs. American business will do whatever it needs to do to survive and be invovled in the New Global Economy. If that means a few million Americans have to go under for the game to continue, so be it. These are the rules and they always have been.

    1. RetiredSpook Post author

      There was a question asked in Retired Spook’s post, “Where will the US be when QE2 ends?” There is a simple answer to that question . America will be in a full economic recovery scaled by the understanding of the new normal.

      Too funny, Carl. How long did it take you to figure out how to use “full economic recovery” and “new normal” in the same sentence? Scaled my a$$. And actually, QE2 ended last June.

      I think you under-estimate American ingenuity and entrepreneurism, although if this present crew gets another 4 years, your assessment of 6-7% unemployment being the new normal may be optimistic. I’m going to archive your post and re-visit it in a year or two. I suspect one of us will be eating some crow.

    2. Count d'Haricots

      ” I was just reading some of the glowing praise of the Bureau of Labor Statistics many of the writers here had back in 2004 when the economy was ‘booming.'”

      Really? Then he must have archived the comments from me on the methodology used by the BLS, correct? Because I believe he’s lying (what else is new) since I have always treated the BLS as an estimator of inductive reasoning. I do have much evidence of correcting the likes of him for making such stupid statements as, “unemployment doesn’t count people when they run out of unemployment insurance.” I had to educate these revisionists before; I’ll have to educate them now.

      “We all know” is a clever literary device clever, but a lie. We all actually know that the housing “boom” was spurred by banks being forced to risk assets on sub-prime borrowers. Look back again to 2004 and find my posts regarding Bush’s comment at the State of the Union regarding home ownership.

      As for his prognostication of the world in the year of Our Lord 2100; if history is any indication he will fail to make sense by the second sentence of his next post, and will be reduced to talking points by the third.

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