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.