Rudy Barnes, Jr.
The stock market was once the barometer of America’s economy, but now it reflects the economy of the rich, not the rest. Most of the means of production and the prices of most products are controlled by megacorporations on Wall Street. The stock market is now a measure of inflation, but the President, Congress and the Federal Reserve ignore that reality.
An early sign of inflation was the stock market’s surge of more than 55% over the past five years, with most of those market gains going to the top 10% who own almost 90% of U.S. stocks. Stock market investments are normally speculative, but during the pandemic the Fed reduced those risks with subsidies and low interest rates that bolstered the stock market.
The Fed has finally reduced subsidies to megacorporations and raised interest rates to reduce spending and cool inflation; but spending is needed in a strong economy and higher interest rates increase the cost to sustain America’s massive national debt. Controlling inflation will require a delicate balancing act in monetary and economic policies.
Fed subsidies to megacorporations and Congressional spending during the pandemic were inflationary, as were Interest rates kept below 1% to support the stock market and home sales. With increasing interest rates, the stock market and home sales are dropping and rents are increasing. With a 20% drop in the stock market, we’re going from a bull to a bear market.
Unemployment is now less than 4%, with two jobs available for every unemployed person. Automation is changing employment policies. Megacorporations are not reinvesting their profits in personnel and expansion as they have done in the past, but instead paying dividends to shareholders and using buy-backs to increase the value of their stock.
Competition is the primary means of preventing big businesses from exploiting consumers, but the many brands available can be deceptive. Mega-mergers and acquisitions coupled with corporate diversification have reduced competition with more brands produced by fewer megacorporations.
With less competition and few regulations to protect consumers from the unrestrained greed of America’s megacorporations, they have become bigger and richer, along with their shareholders. The result has been increasing disparities in wealth and a shrinking middle class; and those demographic changes have destabilized American democracy.
With runaway inflation and increasing disparities of wealth, exacerbated by few restraints on public spending and a massive national debt, American capitalism is facing an existential crisis. Socialism looms if regulation, taxes and more competition cannot reform capitalism. But don’t hold your breath. Megacorporations are mega-patrons of Congress, and with their wealthy shareholders they have so far prevented needed reforms of capitalism.
Forbes has reported that the S&P 500 hit a new 2022 low as “staggering” market losses continue. “Markets are continuing one of the worst starts to a year in history as mounting losses have dragged the benchmark S&P 500 index to a new low point for 2022. Investors continue to offload stocks, with increasingly negative investor sentiment weighing on markets. The S&P 500 has fallen 20% so far this year, while the Dow is down nearly 15% in 2022, and the Nasdaq has dropped 29%.” See https://www.forbes.com/sites/sergeiklebnikov/2022/05/12/dow-falls-600-points-sp-500-hits-new-2022-low-as-staggering-market-losses-continue/?sh=100058d31befMarkets.
Catherine Rampell is a Democrat, but she sounded like a Republican when she asserted that an inflation conspiracy theory is infecting the Democratic Party. Coining the term “greedflation” to describe President Biden’s and Elizabeth Warren’s criticism of Wall Street’s recent big profits, Rampell describes it as “a pejorative tautology. Yes, prices are going up because companies are raising prices. Okay. This is the economic equivalent of saying ‘It’s raining because water is falling from the sky.’” Actually it illustrates the need for America to decide whether it supports the Fed’s efforts to reduce inflation by discouraging consumer spending or Wall Street’s efforts to promote consumer spending to make big profits. See
The Washington Post editorial board has affirmed the statistics that show the correlation between inflation and the dramatic increases in the stock market over the last five years. See https://www.washingtonpost.com/opinions/2022/05/06/stock-market-decline-not-all-bad-news/?utm.
(10/1/16): The Federal Reserve, Wall Street and Congress on Monetary Policy
(2/11/17): The Mega-Merger of Wall Street, Politics and Religion
(2/17/18): Musings of a Maverick on Money, Wall Street, Greed and Politics
(4/27/19): Musings on the Legitimacy of Crony Capitalism and Progressive Capitalism
(5/9/20): Exposing the Corruption of Crony Capitalism
(5/16/20): The Evolution of America’s Libertarian Democracy from Plutocracy to Kleptocracy
(6/20/20): The Fed Just Made Investments in Stock as Safe as Bank CDs
(6/27/20): Musings on a Zombie Economy Fostered by the Federal Reserve
(8/22/20): Musings on America’s Two Economies: One for the Rich and One for the Rest
(2/6/21): Musings on the danger of economic disparities and excessive debt in America
(2/27/21): Musings of a Maverick Methodist on Debt as a Vice or Virtue
(7/31/21): Musings on a Socialist Experiment in a Nation Burdened by Pandemic Debt
(9/25/21): Musings on an American Economic Apocalypse
(10/30/21): Musings on Modern Monetary Theory, and Why National Deficits and Debts Matter
(2/5/22): Musings on the Stock Market, Inflation and Providing for the Common Good