A repost from 2013 when the wealth effects of post-Great-Financial-Crisis QE were apparent to all. Here's the asset side of the Fed's balance sheet, the 2008 - 2009 QE looks positively quaint compared with what was to come:
There are three thing that jump out of this display: 1) the 2020 asset buying was of an almost unfathomable magnitude and speed. 2) the fact that after the GFC the Fed continued to either buy more treasuries and mortgage backed securities or at minimum maintain their holdings, all the while running a zero-interest-rat-policy. 3) Except for the half-assed attempt at QT in 2018 - 2019, which was halted and reversed, dramatically, in September 2019. We've looked at that period a few times and I am starting to wonder if someone with very deep pockets wasn't making some huge waves in the Fed pool, based on material non-public information regarding the coming coronavirus pandemic.
But I digress.
Back to the founders. First posted, last visited, November 15, 2013:
Anyone who doesn't acknowledge that the benefits of QE flow to asset holders hasn't been paying attention.
The U.S. administration and the Federal Reserve, cheered on by
economists-for that bit of academic gilding, and by journalists-who
supply 'Progressive' cred and political cover, have been directly
increasing the wealth gap to the great detriment of the non-asset
holders and the economy as a whole.
I say keep it up.
For a contrary opinion...
From PBS NewsHour's Business Desk blog:
Citizen ownership, often demonized as "socialist," has a pedigree dating to the American Revolution. "Scene at the Signing of the Constitution of the United States," oil on canvas by Howard Chandler Christy, 1940, via Wikipedia Commons.
Paul Solman: "Using tech playbook, oil drillers shower employees with stock." So read a recent article in Reuters.
But as Joseph Blasi of Rutgers and Richard Freeman of Harvard emphasize in Friday's post, worker ownership is as new as fracking, but as old as America itself. George Washington, a slave owner, remember, believed that broad-based worker ownership would ensure "the happiness of the lowest class of people because of the equal distribution of property."
John D. Rockefeller encouraged worker ownership. George Eastman (of Eastman Kodak) helped invent stock options.
These and other rather surprising facts are in Blasi, Freeman and co-author Doug Kruse's new book, "The Citizens Share," which Freeman told me about recently when I interviewed him for the NewsHour.
"The Alternative American Dream: Inclusive Capitalism." That was the headline of an extremely popular post on our Making Sen$e Business Desk by long-time worker ownership activist Chris Mackin this summer. Now, Freeman and Blasi, in a sense, follow up.
Richard B. Freeman and Joseph R. Blasi: The fact is indisputable: productivity -- output per worker -- nearly doubled over the past 30 years. Yet the real pay of most workers increased much more slowly, and the hourly pay of many groups of non-supervisory workers barely budged at all. So what happened to the gains of higher productivity?
They showed up in an increased share of income accruing to owners of capital and in the pay of top earners, whose compensation consists disproportionately of -- guess what? -- stock options and stock grants that give them a share of the increased growth and income that comes from capital. The net result of this shift has been the well-documented increase in the wealth and income of a small number of Americans and American families, while the income and wealth of most Americans has grown little, if at all.
Here's the latest census data: the top 10 percent of earners received 46.5 percent of all income in 2011, the largest slice of the pie since 1917. But the persons who benefited most from recent economic growth constitute an even small minority of the top 10 percent. Yes, the upper 1 percent whom the Wall Street Occupiers made famous gained more than their fellow travelers in the top 10 percent. But among the upper 1 percent, the real winners were those in the upper 0.1 percent, whose share of national income increased from 3.1 percent (1972) to 11.3 percent (2012). Had the share of the upper 0.1 percent remained as 30 years ago, the income for all other Americans, including the rest of the upper 1 percent, would have increased by about 8 percent in the past three decades.
But even this is not the full story of the increased inequality of income. Within the upper 0.1 percent, the biggest gainers were those in the upper 0.01 percent -- one American in 10,000 -- whose share of income increased from 1.2 percent (1972) to 5.5 percent (2012).
As for capital income -- capital gains on stocks and bonds, dividends and interest -- the latest Internal Revenue Service report on the country's top 400 taxpayers is an egalitarian's nightmare. In 2009 these persons, who make up .00028 percent of all persons filing individual tax returns, earned 16 percent of all net capital gains, 6.5 percent of all dividends and 3.2 percent of all interest income. And that's 400 people.
As a result, a larger social problem looms: high-rising inequality is transforming the U.S. from an economy and polity based on a broad middle class to a feudal society dominated by a small number of super-wealthy "lords of the manor."
Reading through the original arguments for a United States of America suggests that this level of inequality threatens not only our economy -- who will buy what the wealthy produce? -- but the health of our democracy as well. One does not have to be a modern radical to worry. Back in the 1770s, the Founding Fathers worried deeply about the dangers to the new democracy of concentration of wealth.
James Madison warned that inequality in property ownership would subvert liberty, either through opposition to wealth (a war of labor against capital) or "by an oligarchy founded on corruption" through which the wealthy dominate political decision-making (a war of capital against labor). John Adams favored distribution of public lands to the landless to create broad-based ownership of property, then the critical component of business capital in the largely agricultural U.S. Current levels and trends in inequality would almost certainly have terrified the founders, who believed that broad-based property ownership was essential to the sustenance of a republic....MUCH MORE
And a couple of the official explanations of what was going on in 2019:
- "Anatomy of the Repo Rate Spikes in September 2019"
- The Federal Reserve's Explanation Of What Happened In The Money Markets In September 2019
"Economist Michael Hudson Says the Fed 'Broke the Law' with its Repo Loans to Wall Street Trading Houses"
At the time I remember thinking "Oh look, the Fed has a new lending facility" and moving on to something shiny, not realizing it was a very big deal. As the old-timers used to say: "Pay attention or pay the offer."....
A Nomura Document May Shed Light on the Repo Blowup and Fed Bailout of the Gang of Six in 2019
"A Closer Look at the U.S. Bacon Situation"
"The Day When Repo Rates Blew Out: Fed Recounts a Fiasco that Occurred as the FOMC Was Meeting, and How it Reacted"
And one (of a half-dozen) not-so-official narrative via The Philosophical Salon:
Money, Money, Money: "A Self-Fulfilling Prophecy: Systemic Collapse and Pandemic Simulation"
June 2019: In its Annual Economic Report,
the Swiss-based Bank of International Settlements (BIS), the ‘Central
Bank of all central banks’, sets the international alarm bells ringing.
The document highlights “overheating […] in the leveraged loan market”,
where “credit standards have been deteriorating” and “collateralized
loan obligations (CLOs) have surged – reminiscent of the steep rise in
collateralized debt obligations [CDOs] that amplified the subprime
crisis [in 2008].” Simply stated, the belly of the financial industry is
once again full of junk.
9 August 2019: The BIS issues a working paper
calling for “unconventional monetary policy measures” to “insulate the
real economy from further deterioration in financial conditions”. The
paper indicates that, by offering “direct credit to the economy” during a
crisis, central bank lending “can replace commercial banks in providing
loans to firms.”
15 August 2019: Blackrock Inc., the world’s most powerful investment fund (managing around $7 trillion in stock and bond funds), issues a white paper
titled Dealing with the next downturn. Essentially, the paper instructs
the US Federal Reserve to inject liquidity directly into the financial
system to prevent “a dramatic downturn.” Again, the message is
unequivocal: “An unprecedented response is needed when monetary policy
is exhausted and fiscal policy alone is not enough. That response will
likely involve ‘going direct’”: “finding ways to get central bank
money directly in the hands of public and private sector spenders” while
avoiding “hyperinflation. Examples include the Weimar Republic in the
1920s as well as Argentina and Zimbabwe more recently.”
22-24 August 2019:
G7 central bankers meet in Jackson Hole, Wyoming, to discuss
BlackRock’s paper along with urgent measures to prevent the looming
meltdown. In the prescient words of James Bullard, President of the St Louis Federal Reserve: “We just have to stop thinking that next year things are going to be normal.”
15-16 September 2019:
The downturn is officially inaugurated by a sudden spike in the repo
rates (from 2% to 10.5%). ‘Repo’ is shorthand for ‘repurchase
agreement’, a contract where investment funds lend money against
collateral assets (normally Treasury securities). At the time of the
exchange, financial operators (banks) undertake to buy back the assets
at a higher price, typically overnight. In brief, repos are short-term
collateralized loans. They are the main source of funding for traders in
most markets, especially the derivatives galaxy. A lack of liquidity in
the repo market can have a devastating domino effect on all major
financial sectors.
17 September 2019: The Fed begins the
emergency monetary programme, pumping hundreds of billions of dollars
per week into Wall Street, effectively executing BlackRock’s “going
direct” plan. (Unsurprisingly, in March 2020 the Fed will hire BlackRock to manage the bailout package in response to the ‘COVID-19 crisis’).
19 September 2019: Donald Trump signs Executive Order 13887,
establishing a National Influenza Vaccine Task Force whose aim is to
develop a “5-year national plan (Plan) to promote the use of more agile
and scalable vaccine manufacturing technologies and to accelerate
development of vaccines that protect against many or all influenza
viruses.” This is to counteract “an influenza pandemic”, which, “unlike
seasonal influenza […] has the potential to spread rapidly around the
globe, infect higher numbers of people, and cause high rates of illness
and death in populations that lack prior immunity”. As someone guessed, the pandemic was imminent, while in Europe too preparations were underway (see here and here).
In the carefree days of yore I probably wouldn't have taken much notice of this beyond thinking "ah, big money manager has thoughts."
TradingView, DJIA daily, December 2019 - June 2020
Some highlights from the Fed Chair's calendar:
February 19, Wednesday
3:00 PM – 4:00 PM Meeting with Jamie Dimon, CEO and Jenn Peipszack, CFO, JPMorgan Chase
Location: AnteroomMarch 19, Thursday
4:30 PM – 5:00 PM Phone call with Larry Fink, CEO BlackRock
April 3, Friday
3:30 PM – 3:45 PM Phone call with Larry Fink, CEO, BlackRockApril 9, Thursday
5:15 PM – 5:30 PM Phone call with Larry Fink, CEO, BlackRock
May 13, Wednesday
1:30 PM – 2:00 PM Phone call with Larry Fink, CEO, BlackRock
Of course there is much much more but discerning reader gets the point: Powell forgot to call me!
It appears I may have become a bit obsessed with the events of September 2019 - March 2020.
