Politics, the Stock Market and Debt

Since January 1, 2016, the news from Wall Street has been discouraging.  The Dow Jones Industrial Average is down by something around 7% and the other indices have not performed well either.  Nor have other markets internationally been doing well .  Additionally, Wall Street did not perform well during the last two months of 2015 either.

During the earlier few years, as the stock indices kept pushing relentlessly higher and higher, there weren't too many who were questioning what caused such an unprecedented phenomenon.  However, now, as billions and billions get burned into ashes day after day, many are asking why.

There is one factor, however, which, to some observers at least, has not escaped consideration.  For years following the financial collapse of 2008, the Fed, the Federal Reserve Bank, had been pumping something on the level of $ 70 billion into the financial markets and the stock market, each and every month.  That, under a theory which Mr. Bernanke, the former Chairman of the Fed, called „Quantitative Easing,” whatever that means and something which President George H. W. Bush, the elder President Bush, may have called Vodoo Economics.  Some say the monthly amount by the Fed into the Financial Markets for years and years on end might have been less, some, maybe even more, but all agree that the amount of money pumped into the markets was enormous, beyond anything which one could possibly comprehend.

As we observed here a good while ago, to put this into perspective, $ 70 billion pumped into the financial markets every month would be the equivalent of giving, in cash, more than $ 17,000 each month to every man, woman and child in the United States.  That, most of us agree, is a staggering sum of money for years and years on end and, indeed, $ 17,000 in the hands of every living person in the United States, month after month after month, could have probably done as much, if actually not even much, much more (and more quickly) in pulling the United States out of the financial crisis which has been generously described as the Great Recession, which, we are not sure, is better or worse than a Small Depression.

The total sum of money which the Fed pumped into the markets is technically not part of the Federal Budget and did not have to be approved by Congress.  Technically, it is backed by securities of various sorts which have been purchased by the Fed but, which, if they decrease in value or fail, would create an additional debt incurred by the Federal Government.

It is relatively easy to see that, during this period,  except for the most inept, everyone made money on the Stock Market and other Financial Markets.  Perhaps it is not that much more difficult to see that once this money source dried up, the demand to buy securities, dropped correspondingly.

We all suspect, although no one knows for sure, that this extraordinary „Financial Tool” as former Secretary of the Treasury Paulsen, ex Goldman Sachs described it, ended sometime around November 2015; around that time and shortly before, the blame for the instability in Financial Markets was thrown on the Chinese; surely the Chinese bear some of the blame for what is going on but not all of the blame.

There is, however, a footnote to this which is particularly worrysome.  Currently the United States Treasury carries a national debt of something on the order of $ 19 trillion.  That, of course, is a staggering amount of debt; representing something like 20 years of Wall Street „Quantitative Easing.”   The Fed has been extremely careful in swapping these federal debt obligations for longer and longer terms, for up to 20 years, „locking in” near zero interest rates.  However, as the Fed has been forced to start inching up the interest rates, the new debt coming in from federal deficits (along with any other debt renewals has started inching upwards; this, in effect, accelerates the rate at which the national debt would increase, since none of the debt is being retired; actually, new debt has been piling up which, accordingly, would also have to be financed at the current and coming higher rates.

Mrs. Yellen, the current Fed Chairman has been trying to navigate through these treacherous and, one can even say, with much vigor and wisdom, although, regrettably, she has few allies; the current Federal Budget, not yet even agreed upon is in danger throwing the federal deficits into an even worse quagmire.
 

The ,,Fiscal Cliff’’ and Hurricane Sandy

Good News!  The Fiscal Cliff Legislaton is a done Thing.  Well, not altogether done but at least the minimum necessary.  For about Two Months or so while still important Things need to be done; the Federal Debt Limit and those onerous Budget Cuts.

Some complain that $ 60 Billion or so of ,,Pork Provisions’’ got attached to the Legislation by various Interest Groups as the Price to pay for getting this Legislation done.  The Complaint is obviously legitimate.

Still others, Governor Chris Christie of New Jersey and, to a lesser extent but just as convincingly, Governor Mario Cuomo of New York point out that the 112th Congress, which has now become History, adjourned and ended its Session without taking up Aid for the Victims and Reconstruction of Hurricane Sandy.  Interestingly, that Appropriation would have come up to about $ 60 Billion as well.

What is being missed in the Equation that the United States Government is in dire Straits and does not really have the Money either for the ,,Pork Appropriations’’ nor the Money needed for the Reconstruction of Hurricane Sandy.

On the other Hand, the News of the Fiscal Cliff Avoidance Legislation was ,,cheered’’ by Wall Street, with Big Gains on 31 December 2012, anticipating that an Agreement would be reached and some Legislation would be passed and, immediately following, on 2 January 2013, celebrating the Event.

Governor Cuomo should be thinking about and Governor Christie as well as President Obama should be suggesting to him that one look elsewhere to raise this direly needed Money from a minuscule Sales Tax levied on Stock Market Transactions of 0,1% or even 0,2%.  This would raise the Money for them very quickly, from a locally owned Institution which is controlling Trillions of Dollars and give the Federal Budget a welcome and much needed Relief.

One should be keeping in Mind that the Stock Market has been an enormous Beneficiary of Federal Largesse; propping up Corporations such as AIG and General Motors (the ,,New’’ General Motors, whatever that means) and, not the Least, the unbelievable and unheard of Policies of ,,Quantitative Easing’’ which have been pursued by the Fed under the Ægis of Mr. Bernanke.

The Federal Government needs to look for Economies wherever it is possible; even with increased Tax Rates, this comes nowhere near close to starting to make a Dent in the Federal Deficit (it actually allows it to continue to worsen), Governor Christie and all others should be looking for Revenues right in their own Back Yard.

The Address of the New York Stock Exchange is, as Mr. Christie surely knows,

No. 11 Wall Street, New York, N. Y. 10005.
Telephone:  1-212-656-3000

 

Thanksgiving Eve Present for the Working Class in New York

Folks,

As this By Line is going On Line (,,In Print'' as it were), Tens of Thousands of Commuters in New York are stuck in New York's Main Travel Station.  The Reason, a Power Outage.  This, on Thanksgiving Eve.  Imagine the Main Waiting Room (See Illustration below) overflowing with People (People who are trying to get into the Station are not being allowed to do so.  They are being kept outside).

Pennsylvania Station, Manhattan, New York

The Reason given:  a Power Outage by Con Edison, which is the Local Power Company in New York.  The People affected by this are by and large the Working Class People in New York who depend on Public Transportation and who live, also by and large, in Long Island (Long Island Rail Road, ,,LIRR'' Trains and Amtrak Trains have been affected by this but Amtrak states it hopes to have the Power back in ,,90 Minutes.''  More realistically, the LIRR states that it has suspended the service indefinitely).

We say the Working Class People because all of the busy Executives working on Wall Street and Corporate Upper Floors have long left for home in Private Limousines (called ,,Livery'' in New York), or, if they live nearby, in Mahattan's toney Districts, by Taxi.

We further ask the Question, coming on the Heels of the Hurricane Sandy Disaster, is this any Way to run a Railroad?  Of course, Con Edison is likely to blame for such a horrible Event to occur on Thanksgiving Eve.  However, Responsibility is when Blame is allowed to go around, not only to Amtrak and the LIRR, which should be asking themselves, ,,Is this any Way to run a Railroad?'' but also to the New York City and other supervisory Officials, starting with Mayor Bloomberg, who should feel a greater Sense of Responsibility towards the Working Class People of New York, who shoulder the Burden of creating Wealth in this, one of the most chaotic Cities in the World.

 

Pennsylvania Station, Manhattan, New York, before World War II, once the Greatest Railroad Station in the World

 

What is Mr. Bernanke's Rationale for putting at the Disposal of Banks and Financial Institutions the Equivalent of $ 1.250,00 per Month for each Man, Woman and Child living in the United States, for the Foreseeable Future?

Edward Krudy, Reuters, writes:

NEW YORK -- Comparing the Federal Reserve to a rehab clinic offering addicted investors a synthetic high has been a favorite of Wall Street wags ever since the first round of Fed stimulus nearly four years ago. The punch line is that you always need more and more to get the same high and each bout of euphoria is followed by a crashing comedown.

Full Text here:

http://marketday.nbcnews.com/_news/2012/09/16/13868573-stocks-may-calm-as-buzz-from-fed-fades-this-week?lite

 

Facebook Stock Slide and Mark Zuckerberg

The sometimes incredible Saga of News appears to continue without Respite.  Missouri Republican Senate Nominee Todd Akin got himself in hot Water by suggesting that “Legitimate Rape” rarely led to Pregnancy.  He further insisted that Doctors backed up his Position.

(Slightly less offensive was the Revelation that Freshman U.S. Representative Kevin Yoder (R. - Kansas, 36), has not been charged in the August 18, 2011, Incident in which he and about 20 other Lawmakers and Staff Members jumped into the Sea of Galilee after having consumed unreported Quantities of Alcohol...Politico reported Sunday that he was the only one among them who wore no Clothes).

Juxtaposed with these bizarre Incidents is another News Item:  Facebook Stock appears to have hit a New Low of $ 18,75 on Monday Morning (20 August 2012).  Criticism has been mounting on Mark Zuckerberg's ,,Leadership.''

In View of the Incidents happening on Wall Street and the Financial Circles surrounding it, an appropriate Question may be to what Degree the Facebook Initial Stock Offering constituted some Sort of ,,Legitimate Rape'' also.  Enormous Publicity surrounded the Stock Offering along with Suggestions that nobody outside of the ,,Big Boys'' would be able to get the Stock at the Initial Offering Price of $ 38,00; the Implication was that it would be much more; nobody was implying that those outside of the ,,Big Boys'' Circle would be able to get the Stock at $ 38 because a few short Weeks later it could be had for $ 18 or, perhaps, going forward, even less.

Some Banks and Secondary Underwriters not to mention lesser Investors and the General Public were had for Billions.  In the Meantime, Mr. Zuckerberg and his Confederates walked away with, again, Billions.  The  Question is, does this Type of activity not constitute some Form of ,,Legitimate Rape'' in the Financial Sense; at a Time when the Country and World Economies are languishing.

Private Lawsuits for Damages are flying in the Facebook Debacle.  However, considering a more prudent Approach, of seeking to determine whether the Actions of Mr. Zuckerberg and those who engineered the Facebook Initial Stock Offering breached the Borders of Legitimacy and caused an unnecessary and inappropriate Migration of Funds in the Depths of a Financial Crisis which currently engulfs both the United States and the World Economies, might be in Order.

The Fundamentals of Voodoo Economics

The Financial Crisis continues to play out in Wisconsin and other Mid-Western States. The Standoff between Wisconsin Governor Scott Walker and the Teacher's Union continues with no End in Sight. In Ohio, Governor John Kasich is also preparing for Battle with the Public Sector Unions. Iowa and other States appear to be ready to follow suit in not too long a Time. In New Jersey, Governor Chris Christie has already implemented major Financial Changes and Reforms and now has his Hands full denying that he would consider a Presidential Bid. Governor Christie has not yet invoked the Statement made by General William Tecumseh Sherman well over a Century Ago, 'I will not accept if nominated and will not serve if elected,' but we shall see.

It must also be said that with non Higher Education Student Performance Levels in a Dismal State throughout the Nation (see, 'Universities' elsewhere in this Forum) Teacher Salaries and Benefits should come under Scrutiny. Many Surveys indicate that Public Sector Workers are not only paid better but also have infinitely better Job Security when compared to Private Sector Workers. This Fact corrupts the Standing of Public Sector Workers as 'Civil Servants,' i. e., performing out of Dedication rather than Financial Benefits and Gain.

However, the Argument that balancing State Budgets can be done simply by this, without imposing an additional Tax Burden on Higher Income Brackets or, indeed, as done by Governor Walker, cutting Higher Income Taxes, qualifies for what Two Decades earlier President George Herbert W. Bush described as 'Vodoo Economics.'

At the Federal Level, we see a Course not all that different. 'Tea Party-ers' and many Republicans in the House are clamoring for various Cuts, much of it directed at Federal 'Entitlement' Programs and, some, attempting to reduce waste. However, all this cutting, if combined with continued uncontrolled Expenditures in Afghanistan and Iraq is totally useless. The Federal Budget consists of 3 Major Line Items: Social Programs, Military Expenditures and Interest on the Federal Debt, which add up to about 90% of what the Federal Government spends. So, even if everything else were to be eliminated completely, which, realistically it cannot, that would only add up to 10%.

In this Context, the Republican Argument that the Federal Budget can be brought under control, with these enormous Burdens, while reducing Higher Income Personal Tax Levels is, again, nothing less than what President Bush described as 'Voodoo Economics.'

Where the Republican Counter Argument that cutting Higher Income Tax Brackets 'creates Jobs' has germinated from is, to this Writer, a Mystery. There is no Evidence to show that the Billions doled out to Banks and Financial Institutions, or the 'Quantitative Easing' Cash have created any significant Number of Jobs, actually, rather, the Contrary Argument seems to be more persuasive, that they have not. To use a Cliché, the Obscene Bonuses on Wall Street have not created any Jobs.

The Challenges to balancing the Federal Budget (and, by Implication, States need to follow a similar Course in their Affairs) are:

If the War in Afghanistan (or in Iraq, or anywhere else) is necessary, fund first, fight later. Do not do what President George W. Bush did, fight first and let somebody else worry about the Funding by kicking the Can forward.

If the Social Programs have merit, fund and do not divert Funds to other Expenditures, as it was done previously with Social Security.

To cover the Federal Debt Interest Payments, one of the largest Items in the Federal Budget, obtain Funding, not by increasing the Debt Ceiling and cutting Taxes which are Voodoo Economics at its most sublime, but by assuring a Progressive Level of Taxation which covers them and, at the same Time, pray and pray hard, that somehow Mr. Bernancke will be succesful in keeping the Interest Rates low because, if he fails doing that, the Interest Payment Portion of the Federal Budget would explode.

And the Fundamentals of Voodoo Economics would not apply, should that happen.

From 'Quantitative Easing' to Wisconsin

As the Teachers' Protests continue in Wisconsin, the Tea Partiers march into Madison. So far, Governor Scott Walker has dug in his Heels and Democratic Legislators in Wisconsin have taken 'Refuge' out of State; thus, by depriving the State Legislature of a Quorum, they have, in Effect, dug in their Heels too, Toe to Toe with the Governor. Some Observers have gone so far as to proclaim Madison the Epicentre of the Financial Crises sweeping, some say, as many as 45 out of 50 States.

The Issues, however, may be too systemic to merit a simple Explanation. On the Side of the Governor, is not only the Argument that the Wisconsin State Budget needs to be balanced but that generous Teacher (and other Public Sector) Salaries and Benefits, not only in Wisconsin but elsewhere as well, have corrupted the Meaning of the Phrase 'Public Servants' so much more so when taking into Account inadequate Public Education Test Scores (see Justice Souter's Comments elsewhere in this Forum). This, at a Time when those who earn their Living in the Private Sector are having to make do on comparatively less, or much less or nothing at all.

In this Case, however, it may be helpful to take a Look at New York City, the Financial Epicentre of the United States and the World, where the Problem may be into somewhat clearer Focus.

5000 Teachers in New York City are not only in Danger of losing their generous Salaries and Benefits but their Jobs altogether. New York City is just flat out of Money and its Revenue Outlook is bleak. The Inequity comes more sharply into Focus there, when paragonating the Situation against the obscene Bonus Earnings continuing to be paid to various Echelons on Wall Street. Some may still remember the huge Bonuses that were paid on Wall Street at a Time when several Institutions on Wall Street which paid those very same Bonuses were 'Bailed Out' by the Federal Government. All but forgotten has been the Proposal to institute a 90% Federal Income Tax on those Bonuses paid by Institutions which had received (whether paid back or not) Federal Bailout Money.

Such horrific budgetary Straits at the State and City Level in New York, Wisconsin and elsewhere, not to mention the Federal Deficit Dilemma which has yet to be dealt with, continue against a Backdrop of a Policy of 'Quantitative Easing' being pursued by the Federal Reserve Bank through its most ardent Proponent, Mr. Bernancke.

Just where precisely all this Money is flowing remains a Mystery. However, with Teachers demonstrating in the Capitol Building in Madison, the Tea Partiers marching on them, 5,000 Teachers in New York about to march to the Unemployment Office while Stock Market Averages are catapulting to New Highs, that Question seems to merit being looked into and soon.

Uncharted Waters

One Week after Mubarak's Departure from Cairo to the Sea Side Resort of Sharm el Sheikh, the Demonstrations in Tahrir Square and elsewhere in Egypt continue unabated. Strikes abound. The Egyptian Economy is in Ruins. Sketchy Reports notwithstanding, only the Ancient Egyptian Deities know for sure just how much Damage has been done and how much has disappeared from the Cairo Antiquities Museum just like a few Years earlier, irreplaceable Artifacts of the Messopotamian Æra had disappeared from Baghdad, never to be found again or, in any Case, not for a long, long Time. It is difficult to envision what the Future holds for Egypt.

Additionally, the Proponents of the Domino Theory appear to have gained further supporting Arguments. Earlier, Unrest had spread to Jordan and the Palestinian Territories. Now, fullblown Unrest appears to be underway in Libya, Bahrain, to a lesser Extent in Iran and even in Morroco, which had been considered to be 'Moderate' or 'Safe.' Yemen, where an increasing Number of Terrorists have taken refuge, is on the Edge of exploding. In Libya, Demonstrators are being mowed down with Machine Guns and some Reports indicate that Benghazi, Libya's Second Largest City, has fallen.

Most of us may not have even known where exactly Bahrain is; thus, we may be surprised if we were to find out that the tiny Oil Producing Island is only 200 Miles or so from Riyadh, the Capital of Saudi Arabia and that, unfortunately, there is actually a Bridge connecting Bahrain to the Arabian Peninsula Mainland; the Road leads straight to Riyadh.

After earlier offering to supply the now failed Mubarak Regime any U. S. Military and other Aid which Egypt may have lost from the United States, now the Silence from Saudi Arabia regarding the spreading Unrest is deafening. No less deafening is the Silence from Mrs. Clinton, who earlier all but pulled the Oriental Rug from under Mubarak.

As this Writer earlier noted, in the Days preceding Mubarak's Fall, Wall Street minimised Egypt's Importance to the Turmoil in the Mid-East, Suez Canal and all. Now, while North Africa and the Arabian Peninsula, which together produce an indispensable Proportion of the World Oil Supplies, are experiencing Seismic Challenges to Stability, Wall Street appears to be 'concerned' with Wal-Mart Earnings.

This Forum previously suggested that the Linkage between The Fed's Policy of 'Quantitative Easing' and the Flow of Capital into Wall Street needed to be examined. It would seem to make Common Sense, at a Time when the Federal Government is being confronted with Massive Deficits and how to manage them, that Congress look into 'Quantitative Easing' and establish if this massive Outflow of Federal Funds, which Mr. Bernancke, an Economist and a distinguished one at that, found a Way to 'spend' without having it appear on the Books as a Deficit and without the Need of Congressional Approval, is flowing to re-energise the Economy or to re-energise Wall Street.

If President Reagan's Theories of 'Trickle Down Economics' are being adopted by Mr. Bernancke, having forgotten that President George Herbert W. Bush had described them as 'Vodoo Economics,' perhaps we can at least remember an Observation attributed to another Distinguished Republican, who was quoted to have said: 'A Million Dollars here, a Million Dollars there and pretty soon you are talking about Real Money!' However, we would now have to correct the Late and nearly forgotten Senate Minority Leader Everett McKinley Dirksen and add 3 Zeroes at the End of his Numbers. After all, we are talking about Billions here, 600 of them, and more, if 'needed,' according to Mr. Bernancke.