Wages get de-valued when stocks get over-valued
Part II, Behind the Deflating Stock Market Bubble
| Richard C. Cook, who worked in the Carter White House, NASA, and the Treasury Department, sums up this decade’s stock market bubble in an article that he emailed us that appeared in Global Research, July 7, 2007, and from which we excerpt. Cook sees the deflating bubble as a downward slide into serious economic trouble for many Americans. |
excerpted by Jeffery J. Smith
August, 2007
American salary earners lack purchasing power. Owners outsource manufacturing industries to China and to other cheap labor markets. Combine that with the super-efficiency of the remaining US industry which is able to manufacture products with ever-fewer workers. Now few do what many used to in farming, mining, and other resource-based industries. No wonder overall incomes are stagnant.
Participation and growth in these industries and hard manufacturing have been declining since our extraction of oil peaked in the 1970s. That was followed by the Federal Reserve-induced recession of 1979-83 and later the deregulation of the financial industry. Such transformation led to today’s low-wage “service economy.”
For the first time in modern US history, I see no new economic engines on the horizon. The last was the internet which has reached maturity. Now marginal players are being weeded out.
The private sectors that are hiring more people are food service, financial paperwork, health care for the growing numbers of retirees, and menial low-paying jobs, like landscaping and building maintenance. These are increasingly being performed by immigrants. Desperately poor, they underprice US citizens in jobs like childcare and auto repair.
While wages and salaries are decreasing, the rank-and-file borrows in order to survive. Only banks and credit card companies are the beneficiaries. The total societal debt for individuals, businesses, and government is over $45 trillion and climbing.
What also devalues employee earnings is the devaluation of the dollar. Central banks buy the stocks of major investors to keep the stock market afloat. Investors use the easy credit to speculate in equity, hedge, and derivative funds. While factories continue to shut down, the Wall Street gambling casino—like its Las Vegas counterpart—runs 24/7. This, along with financing of the massive federal deficit, is how the Federal Reserve prints money. As it’s spent, it pumps up asset value but also raises consumer prices, which devalues the dollar and wages paid in dollars.
The biggest growth in federal spending is for war and interest on their debt. Within the private sector, the biggest growth in debt are leveraged loans (using debt to invest) which The Economist said mirror risky mortgages in the subprime market. Yet the value of assets at stake in the leveraged business economy is greater than in the housing bubble.
The Wall Street hedge funds stand out as the most irresponsible financial scams in history. Unregulated and secretive, they account for a third of all stock trades and own $2 trillion in assets; some pay their managers over $1 billion a year. Think about this the next time someone you know has their job outsourced to China or when their adjustable rate mortgage resets and drives up their monthly house payment past the level of affordability.
Hedge funds borrow huge sums from big banks. Banks allow themselves to lend more than they have on deposit under their rule of fractional reserve sanctioned by the Federal Reserve. Often this money is used by hedge funds to “short the market,” to bet stocks will fall. Not uncommonly, they use their insider clout to spread rumors that stock prices will fall, thereby creating a self-fulfilling prophecy. As they rake in enormous profits, ordinary investors lose a portion of their own wealth.
Can this be called anything other than a crime? The livelihood of much of the US workforce and perhaps half of the rest of the world’s population -- maybe three billion people -- is threatened by such financial lawlessness. The justification that was first used for financial deregulation and tax cuts for the rich was that the trickle-down effect of wealthy peoples’ profits would spill over to the rank-and-file.
The Reagan administration ushered in these policies in the 1980s, dubbed “supply-side economics.” But the opposite has happened. The system has institutionalized an increasingly stratified worldwide culture of haves and have-nots.
Part III: Root Causes and Cures
---------------------
Jeffery J. Smith runs the Forum on Geonomics.
|
Also see: From the Archive: Boom and Bailout
The Bush Economy: Fat, Drunk and Broke
Lindy Davies: A Few Obvious Points |
| Email this article | Sign up for free Progress Report updates via email |
What are your views? Share your opinions with The Progress Report:
| Page One | Page Two | Archive |
| Discussion Room | Letters | What's Geoism? |
