Are we on the verge of economic hurt?

I had this one stored "for later," but maybe I'd better rush it out, given the latest market news. Economists keep reminding us that Wall Street and Main Street are different and equity markets have little to do with supermarkets. All the more so as liquidity gets pumped into the rentier caste, first by two generations of Supply Side voodoo and recently by a “stimulus” whose main beneficiaries are banks and aristocracies. 

Oh, some companies’ values are still someone tied to their vigorous profitability. Over the last 7 years, the total market cap of Facebook, Apple, Amazon, Microsoft and Google has grown from$1.2 trillion to near $4 trillion in mid-2018 to $6.5 trillion today. These 5 stocks now represent 23.3% of the S&P 500. Can anyone smell a bubble? With terrified investor caste folks seeking safe places to stash their trillions in stimulus liquidity pumped by Congress and the Fed – far more than sent to workers(?) -  P/E (Price to Earnings) ratios are heading toward levels not seen since the 90s tech bubble.

  

Does this look un-sustainable? Of course it is. Yet, according to Phil’s Stock World, you may not want to short immediately. See this chart showing how “animal spirits” can propel P/E all the way to 50. In both cases, this boom/bust cycle - fitting projections made by both Adam Smith and Karl Marx - was propelled by Supply Side voodoo and deliberately GOP-arranged ripoffs by an insatiable cheater oligarchy who seem bent on wrecking the value and reputation of capital economics.

It wasn’t like this under the Rooseveltean social contract. Chastened by the bungled, greed economics of the 1920s, many of America’s rich cooperated with FDR in emphasizing the working class, if only for their own survival. Joe Kennedy was said to have quipped: “I’d rather lose half my great wealth to help a healthy middle class than lose it all to revolution.” And let’s be clear, the Marxist theoreticians were boggle and blown away to see ‘capitalists’ cooperate in such an effort, to bring the working class into the middle class.

But let’s get cold-blooded practical about this. There is one economic metric that almost never gets mentioned, that is the absolutely vital measure of our health. It has been driven down near zero by today’s short-sighted mavens of capitalism. But if we bring it back up, a flat-fair-free-creative market economy that inludes us all may yet be saved.

== Money Velocity ==

The covid crisis has many dire repercussions. But there’s "another pitfall: a decrease in the velocity of money. Out-of-work citizens around the globe cannot afford to spend on extraneous purchases, particularly if/when individual stimulus paychecks run out. From vacation spending to new car sales, this is already increasingly apparent for a variety of obvious reasons. Long-term, however, what happens when demand for real estate and goods begins to drop out?

The smartest money people… no anti-capitalism ravers, they! … are discussing this with deep worry. So let’s focus on “the velocity of money, at its lowest level since the 4th quarter of 1971, roughly 50 years ago. The velocity of M2 (another MV metric) is even worse, at its lowest level since measurements began.”

“These are longer-term trends, based on the ratio of nominal GDP to the money stocks, but they will need to be bucked if healthy economies are to be revived. The faster drops during the dot-com burst and the '08 financial crisis help to show why the current precipitous drop is not favorable for revenue outlooks."

Money Velocity is about how many times a dollar passes from an employer to a worker to the grocery store to the cashier, to the barber, to the janitor, to the janitor’s car payments… each such dollar doing huge amounts of work.

Meanwhile each dollar that goes to a rich person? A few do what Supply Side predicted, investing it in new factories and new products (‘supply’). Yet a few did that. Very few.

In fact, Adam Smith himself wrote in 1776 that most of the rich don’t do that!  Instead, they pour any new money into rent-seeking or “rentier” assets or into gambling dens like real estate and commodities and stock markets, following – and helping pump – the latest bubble. Sure, a few yacht-makers pay some workers, not enough to hike money velocity…

… nowhere near as much as, say, the “infrastructure Investments” that both parties have talked about for decades, that would send MV rising, at last. See below.

== How to get money flowing? Just print more? ==

Both Congress and the Fed have lately poured trillions into the economy, to prevent a covid-triggered depression. And yes, those dollars slosh around. Liquidity, right? Only when money velocity is near zero and most of the money goes to banks who don’t lend and aristos who don’t spend, what’s the result?

Stocks skyrocket. For a while. 

Is it possible to admit the money has flowed into the wrong places?

Again, Adam Smith said oligarchs who get more money simply dump it into rentier properties or into acquiring political power and monopolies, or into gambling of various forms... all of which spend almost nothing in the real economy and zero out money velocity.

The GOP gave lip service to infrastructure investment which would have done the opposite. Indeed, that's the only (Keynsian) way out of this mess. International investment expert Evan Anderson puts it:

“Indeed. I think spending on infrastructure would have been great, rather than channeling extra money into equities (indirectly, by buying up bonds, even junk bonds) and supporting banks with low interest loans that they tack a rate on and offer to the public. I find it insane that banks are making loans of our own money back to us in a crisis, all at a "highly advantageous 3% interest rate" when it's the taxpayer's damn money.

“Meanwhile, businesses will automate, landlords will evict, etc. So inequality will skyrocket and the smart investors will be able to pull out of a healthy new market high richer having missed the original March drop? Then retail investors will eat the next market collapse? It's a dirty game, and at the end of each thread of possibility its always the same people catching the hot potato.”

Phil - of Phil's StockWorld - is more aggressive: Marching Headlong into Earnings Season: 

"You would think this is all some kind of plot to destroy America that was set into motion by a foreign Government, setting up a puppet leader who would send America spiraling down a path of division and destruction. Nah….

"The only good news here is the same good news I predicted back when Trump was first elected – this may be the end of the Republican Party – just like Herbert Hoover in 1929-1933 led to over 20 years of Democratic rule. When Hoover was elected, the Senate had 56 Republicans and just 39 Democrats and the House had a 267-163 Republican majority and, just like they did 100 years later, they raped and looted the land and destroyed the economy and, just 4 years later, there were 59 Democratic Senators and just 36 Republicans and, in the House, there were 313 Democrats and just 117 Republicans and, by 1937, Republicans almost qualified for endangered species protection with only 17 remaining GOP Senators and just 89 House Members."

Especially if Biden & co. Are able to communicate:

-- that the “Green Energy and Buy American and Infrastructure” combo he announced is exactly the way to address several problems at the same time, in overlapping ways.

-- That getting money velocity back up and saving Main Street is the only way the rich will save themselves, by making equity bubble values actually real… and forestalling/preventing revolution.

-- That only Democrats are ever fiscally responsible, almost never Republicans… and I will take wagers on that.

-- That once the treason and cheating are finished, wiped out, we can get back to being a dynamic, scientific, honest, adult society that argues fairly, based on facts, and encourages both cooperation and flat-fair-creative competition. But that will only happen if…

== Sorry, it will take one thing ==

The Putin-Treason Party must be rendered extinct, like the Whigs and Confederacy. The Blue Coalition must hold together, to do that. Long enough to accomplish the 31 tremendously important things that I list here.  

Don't worry about single party rule, after that. The Dems will then split in two. They never stick together longer than two years! The Bernie-AOC wing will do their thing and while the other half of the dems will welcome any of today's Republicans who can shake off their Foxite hallucinatory fever. That new party will be all about science and justice and wiping out prejudice while fostering competitive-transparent markets.

So you RASRs out there… there will be a home for you, someday, if you shake off this confederate fever. And if you don’t? Then in the words of our former governor Arnold, who has chosen to stand up for us all: “to hell with you.”

== And now… this ==

Because it is now legal for banks to engage in gambling with depositors’ money, we get this travesty: “Using Bank Deposits, JPMorgan Chase Lost $3.2 Billion Trading Stocks and Credit Derivatives in First Quarter.”

And MAGAs actually think they should hate smart people instead of such oligarchic ripoff artists.

A coming recession? A war? Or just "infrastructure" graft? Oh, the options!

FLASH addendum up top: Just in case the rumors have substance... Mike Pence hurrying home, GOP senators huddling, a possible Mueller smoking gun... Please, oh please, curb your enthusiasm and read this!  Get every democrat to read it. Especially every DP congress member. Impeachment is a trap. Try, oh try, to be the smart ones, for a change.

=============

Let me put aside the blatancy of our deliberately re-ignited phase of the American civil war.  There are other matters afoot, all sharing a common theme. Lumped together, they add up to everything desired by those seeking an end to the relatively placid and benign era of Pax Americana.

First, economics. Says investment guru John Mauldin, predicting a recession within two years: 

“U.S. corporations are simultaneously more indebted, less profitable, and more highly valued than they have been in a long time. Furthermore, they are intentionally making themselves more leveraged by distributing cash as dividends and buying back shares instead of saving or investing that cash. Yet investors cannot buy their shares fast enough. Maybe this will end well… but it’s hard to imagine how.”

Note that while he would never admit it, John's forecast is a brutal indictment not of his bêtes noir -- the government and Fed -- but a CEO caste of 5000 incestuously conniving golf buddies, who have set things up (except in the tech sector) so they can steal company assets, use stock buy-backs to boost share price, rake their options and leave the company wrecked, deprived of R&D or any investment beyond a one-year ROI.

These parasites are the true enemies of market enterprise.  And their shortsighted greed may not escape notice, when that recession comes.

== Drumming up a war ==

But that exercise in biased perception ain’t nothing. Remember how the previous Republican president concocted a war-excuse called “Weapons of Mass Destruction” (WMD)? In the wake of the 9/11 attacks that he arguably allowed to happen, Bush Jr. leaned hard on the U.S. intelligence community (IC) to pin the blame on Saddam Hussein. When they reported no such connection – indeed, most of the 9/11 attackers were Saudis, trained in Wahhabi madrassas and financed by business partners of the Bush family – he and Dick Cheney put thumb screws on the IC to find another excuse – any excuse – for war.

That was the previous manic phase of Republican Bipolar Disease and it seems we’re fast diving into another, as the Trumpists seek escape from domestic woes.  Elsewhere I’ve explored the reasons why their focus will likely be Iran. Sure, North Korea and Venezuela offer tasty temptations. A flare-up in the South China Sea? Maybe. A terror outrage somewhere at home? Don't be shocked!

But none of these offer the confluence of motive, means and opportunity that DT sees in Iran. Moreover reports suggest that he is already arm-twisting the IC, demanding they stop with the boring truth and fact-telling and offer up the casus belli  pretext that he needs.

This article about the hunger for a fight is pretty harsh and partisan.  I’d read it with some grains of salt. But it’s also generally on-target and scary as heck. 

What of recent events? Exactly as I predicted, both Donald Trump and the Ayatollahs have ordered their forces in the Persian Gulf to harass each other, with only one possible motive: a ramp-up to war. Everyone wants it. Trump needs a foreign distraction, Congressional Republicans need feel-good symbolic toughness, the Saudis and dumber Israelis want Tehran knocked down a notch. Putin rubs his hands, knowing such a conflict will send Iran running for shelter under his umbrella, giving him the warm water satrapy Russian potentates have wanted for 300 years. Oh, and the Iranian mullahs? Shrugging off the pippety-pops of a few hundred Tomahawks, they'll use war fever to crush the rising, educated, modernist Persian middle class, a looming threat to their theocracy. 

Oh, and oil prices will skyrocket. Winners all around! Well, not the Iranian or American people. But do you see anyone caring about them? Or the waste of our military strength and personnel?

Why do we still have a carrier task group there? Across the last 8 years, the U.S. achieved virtual energy independence. Our allies are heading that way. What possible reason would we have to cooperate with the Putin-Saudi-Ayatollah-Trump plan, pushing each other with potemkin provocations till the missiles fly? This is not 'national self-interest.' It is the Gulf of Tonkin, all over again.

== Hacking Elections ==

Hackers at Defcon took just minutes to break into and modify a wide array of voting machines. Officials from California provided some. Other  machines were bought on Ebay, and were manufactured by major U.S. voting machine companies such as Diebold Nixorf, Sequoia Voting Systems, and Winvote. `This isn't a great surprise, since many of those companies are owned by political extremists who targeted this vulnerability, ages ago. 

The chief safeguard has always been a system that involved paper ballots or receipts that are scanned in... but that can also be hand audited, in randomly chosen precincts. Wherever random hand recounts are possible, cheating is deterred.

Auditable paper ballot/receipt systems are the norm in blue states. Not in red states, where the GOP Secretary of State can pretty much order up any election result she desires. Also it is blue states and only blue states that have seen voter revolts to end gerrymandering.  And voter initiatives to ease out of the insane War on Drugs. Oh, lecture us about election fraud! Lecture us about dishonesty, confederates.

  

== Infrastructure on the agenda ==

Ah, infrastructure. One thing all studies agree upon is that a healthy array of highways, bridges, railways and such are like a nation’s veins and arteries, allowing commerce to flow. Under FDR, then Truman and Eisenhower, the “Greatest Generation” invested heavily in interstates, airports, research centers, power systems, hospitals and so on, with huge and unquestioned multiplier effects on the economy. Time and again, it’s proved that well-done projects pay-off and maintenance is money well-spent. Moreover, no form of government spending has higher direct effects on economic stimulation and employment and Money Velocity.

So, why have we been tumbling deeper and deeper into infrastructure malaise, with decaying bridges, corroding highways and underfunded rails?  All parties have uttered words about this, for decades. President Obama submitted proposal after proposal to Congress… and none was even brought up for serious discussion.

Of course the answer was obvious.  Had an Infrastructure Bill passed, during the Republican Congresses of 2011-2016,  it blatantly would have added to economic recovery from the Bush Depression, and the GOP wanted no part of any action that might add to Obama’s luster. (As it is, the recovery during his administration was impressive.)  For purely political reasons — and Paul Ryan and others are on record saying so — they would pass no infrastructure bill during a Democratic President’s tenure. (The word for that is “treason.”)

Okay, now the Republicans have every branch of government — as they did from 2001 to 2007. With a GOP president to claim credit for any stimulation, and terrified of a recession looming otherwise, Ryan and co. are talking up an Infrastructure Bill that might amount to a trillion dollars! Well, okay, at least workers would get jobs. And the treason is over, right?

Wrong. As you might guess, there are several rubs.

1) Paying to build and repair out of tax revenues… the way our parents did it… would conflict with Ryan & co.’s absolute top priority — another huge Supply Side Voodoo tax cut for the aristocracy. Never mind that Supply Side experiments have never worked, ever, at all, even once across 40 years, and many Red States like Kansas have gone bankrupt by doubling down on the witchcraft theory.  To paraphrase Everett Dirksen “A Trillion here, a Trillion there… pretty soon you’re talking real money.”

2) Hence, get others to pay for the infrastructure work! Their magical incantation is now “public-private partnerships.” We the people hand over our property — our bridges, highways and all that — to private interests (e.g. Republican moguls) who will then put some cash into repairs and then charge tolls forever on routes that till-now we (mostly) used as a benefit of civilization.

A win-win? We get some potholes and rusty spans fixed. The moguls get ownership (or lifespan-long leases) of our commons, plus perpetual right to bleed us. Oh, but it gets much worse than I described, here. Read what Robert Reich has to say about this win-win-win for oligarchy.  

3) Of course this is not about jobs or even supply side tax vampirism. It is about graft. As in contracting for an Atlantic City Casino, construction deals are among the juiciest ways to do corruption, unless they are handled with scrupulous transparency and accountability. Which most public infrastructure programs do feature! The methods have been developed ever since the WPA and TVA and Interstate System. They never work perfectly, but they generally keep theft down to a low simmer… far lower than most private enterprises, in fact.

See how graft and overbuilding and high tolls have left China awash in overbuilt infrastructure projects. 

Only all of these nit-picking, open-bidding and accountability procedures are being torn down by the Trump Administration. Gee. I wonder why an Atlantic City casino owner would do that? Note the the only winners of the wasteful, trillion dollar US intervention in Iraq were Cheney Bush family companies like Halliburton, who got sweetheart "emergency" no-bid logistics contracts, bypassing anti-graft laws with a wave of a pen. The GOP lords are in no hurry to fund infrastructure projects until those inconvenient accountability rules are either repressed or swept aside, in the next "emergency."

4) Never mind. Blue states have already decided not to wait. Especially in California, Oregon and Washington, restore-and-rebuild projects are proceeding apace, the old fashioned way, as time and again we prove that the Greatest Generation were right in many more ways than wrong...

... back when "America was great!" And when that generation's favorite living human was named Franklin Delano Roosevelt.