Ever since the housing crash of 2008 and the stock market crash that followed, there has been an undeniable trend in our economy. As soon as the Fed began its quantitative easing program, the stock market started to recover. The more cash they dumped into the economy, the higher NASDAQ would soar. To the central planners in Washington, this was a recovery, but to the average citizen it was anything but. Just because the stock market was improving, didn’t mean our finances and standard of living would improve with it.
That’s because the stock market has little effect on the real economy. In fact, it’s more of an indicator for the strength of the economy, rather than the cause of that strength, and that fact only counts if it hasn’t been tampered with. The market capitalization of a company is merely the valuation of that company’s ownership, and nothing more. It should (theoretically) go up if that company is profitable, and go down if they are in the red. So if the economy is in the toilet, the value of these companies should go down. Right?
I know it sounds like I’m explaining this to a kindergartener, but it has to be done. The central planners have convinced so many Americans that if they increase the value of the stock market, the economy will improve, when obviously it’s the other way around. By pumping up the stock market with funny money, they essentially built a Potemkin village on a grand scale.
By reducing interest rates to near zero, and reducing the value of our money through inflation, they tried to force our dollars out of our savings accounts and into investments, even though it was spending money we didn’t have and taking insurmountable loans that ultimately ruined our economy. At a time when Americans should have been saving, they were stealing the money right out of our pockets by printing money, and they dumped it into a floundering stock exchange.
But now that quantitative easing is over, it’s time to ask a very important question. Exactly how much of our money was wasted on the stock market? How many dollars went into the pockets of CEOs instead of the pockets of workers and entrepreneurs?
Byron Wien recently answered that question, at least to the best of his ability, since nobody really knows the true number. He’s an investor and member of the Blackstone Group (who are no saints by the way), and he thinks he knows exactly how inflated our stock market is.
Even though we’ve seen company earnings more than double between 2009 and 2014, there has been concern that the market rally has largely been driven by so-called easy money the Fed supplied through its bond-buying program, or quantitative easing.
Wien quantifies its contribution:
It took the Fed 95 years to build up a balance sheet of $1 trillion and only six years to go from there to the present level. The Federal Reserve was providing this stimulus to improve the growth of the economy, but it is my view that three quarters of the money injected into the system through the purchase of bonds went into financial assets pushing stock prices up and keeping yields low. If I am right, the Fed contributed almost $3 trillion (some may have gone into bonds) to the $13 trillion rise in the stock market appreciation from the 2009 low to the current level, earnings increases explained $9 trillion (1.5 x $6 trillion) and other factors accounted for $1 trillion. You could argue that the monetary stimulus financed the multiple expansion in this cycle.
There are two kinds of people who own stocks. Those who are rich, and those who want to be rich. The Fed essentially pushed $3 trillion into the pockets of people who already have more money than god, and a bunch of wannabe Warren Buffetts. Since that money was the product of inflationary practices, it used to be yours. It came out of your bank account and your wallet, and you’re never getting it back. If you ever wondered why wealth inequality is so off the charts in America, now you know one of the reasons.
Joshua Krause is a reporter, writer and researcher at The Daily Sheeple, where this article first appeared. He was born and raised in the Bay Area and is a freelance writer and author. You can follow Joshua’s reports at Facebook or on his personal Twitter. Joshua’s website is Strange Danger.