Wall Street rally based on fantasy valuations and investment banking trading – S&P 500 back to 2007 valuations and up nearly 100 percent from March 2009 trough.
Wall Street has a way of sucking people back into a money losing vortex. With hedge funds using high frequency trading boxes the public has no chance in competing with these organized and sophisticated gambling casinos. It is amazing how quickly people forget. It was only in March of 2009 that the S&P 500 hit 676. The incredible part of it all was that many stocks were still over valued at that point. Since that time the Federal Reserve has juiced the system up with trillions of taxpayer dollars. As we brought up in our first analysis the average American only has $2,000 saved for retirement so this rally isn’t because of them. Most of the financial wealth in the country is aggregated with the top 1 percent of Americans. The stock market is a betting parlor for the rich and incredibly many people are now being sucked in yet again with the S&P 500 hitting 1,329. The S&P 500 is a few points away from having a 100 percent increase from the March 2009 trough. Is this a new bull market? Not likely if we actually pay attention to earnings.
Financialization Era – how banking welfare captured our economy and ravaged the wealth of the working and middle class. Building profits through financial debt leverage.
The American banking system has transformed the economy into one enormous speculative casino with bells and whistles and free cocktails for those that participate. The problem of course is that most don’t have excess income to drop into the financial slot machines. Now banking in better times should be seen as the lubricant of the economy. It allocates capital to areas in the economy where actual real growth was occurring. Today the financial sector operates as an incestuous industry funding growth in its own industry. A snake swallowing its own tail but when the inevitable end comes, it is society that is forced to pick up the tab. Ultimately profits have to come from something real and not just skimming imaginary profits from interest. This banking welfare is largely a reason why our economy is faltering on the vine and Wall Street banking profits are soaring. It is no coincidence that as debt pilfered the economy that financial profits soared. We are living in era that can be dubbed the financialization of the American economy.
The Food Bubble – the financial cost of feeding the world. Feeding 219,000 more people every night. Wheat prices up 8 percent for the year.
The word bubble has taken on an entirely new meaning thanks to the global housing bubble. Yet we have experienced bubbles in other areas outside of real estate. During the 1990s the nation experienced a technology bubble. That was followed shortly by a housing bubble. Both of these have burst. Yet we still have other active bubbles like the higher education bubble that sit ominously by with fumes pumping out like a volcano ready to explode. At the core of all these bubbles is the true catalyst which is access to debt. We have reached a peak debt scenario and many are realizing that the trillions of dollars owed by various entities including our government will never be repaid fully. I think many people get this. The Federal Reserve certainly understands this and would like to inflate our way out of this predicament. Yet one bubble that is rarely talked about in the media is the food bubble. Prices for various commodities have increased by large amounts over the last few years. Part of this has to do with growing economics such as China and India demanding grain-intensive products. Other parts of this growth have been built on misguided subsidies shifting corn production from food to fuel.
Economic chicanery – Social Security financial headwinds, another 395,000 Americans added to food stamp assistance in latest month of data, and manipulating the unemployment rate.
The dichotomous American economy is cracking like old paint into two distinct factions. For a few solid decades after World War II we had a burgeoning middle class, a smaller financial elite, and those who still struggled financially. The main objective however was to get as many people into the secure middle class. Today the middle class, the pinnacle of the American Dream, is significantly shrinking and when this occurs, we pull from the current middle class and put new families into the financially struggling category. The pie is getting smaller for most except for the small elite at the summit. The financial gaming that is occurring is stunning. While the unemployment rate fell largely due to people not being counted in the labor report, the latest month of data showed another 395,000 Americans being added to the nationwide food stamp program. Last year we also crossed a distressing fiscal threshold. In one month we paid out more in Social Security benefits than was collected. Social Security is entering the financial tough days and as we look at the statistics, most retired Americans are using Social Security for their entire monthly budget.