President Trump: The NEW one and only politics thread

None of the last 3 years (or the Obama years) has been about the presidency or Congress. Very little of what you saw in equity prices, which are what CEOs care about because they answer to their shareholders, has been driven by anything fiscal.

Before the $2.2 trillion they just passed that is going to get slung around, you had 1) The tax cuts in 2017, which were a one-time, very short-term sugar high and 2) The $800 billion they slung around in 2009 in the wake of the financial crisis.

What REALLY has driven equity prices is this:



It is a giant bubble blowing machine, that when you add in the European Central Bank and the Bank of Japan and the trillions of dollars they have fed into the casino, has correlated entirely with equity prices.

Look at the period in 2018 into 2019, where the balance sheet decreased a little. The Fed was telling markets, it was getting out, even though they just managed to take a very slow, halting step to it before their bubble started to implode. Prior, the debt they had bought up would mature and they would reinvest the money into new bonds. They took over our treasury and agency debt markets. That suppresses interest rates, there is a perception that nothing is risky and gives us huge debt levels and zombie companies and a survival of the unfittest atmosphere.

When the Fed tried to step away, markets buckled. The bubble they blew needed exponentially more debt to keep it inflated. In September the short-term corporate funding markets were showing serious signs of distress, and that is when the line in the graph starts to turn up again, because the Fed stepped right back in and started buying up short-term, funding debt this time, like crazy -- tens of billions of dollars a day. The equity market followed, and there was euphoric stock buying.

The pandemic got in the way, though. And when the bust happened, it would have gotten much worse, because you have trillions of dollars of debt defaults (severely mispriced debt) waiting to happen because of all of the central bank idiocy. It didn't get worse, and equities have been rising again, because in just the last 2 months, the Fed has exploded its debt purchases (the straight line on the graph going up), not just buying up all of the treasuries we are issuing to fund the trillions in fiscal spending, but they are now buying up corporate debt, failing municipal bonds, junk bonds -- companies that should be in default. Mind you, they are the world's worst hedge fund, deliberately overpaying for debt. But what should be mind boggling about it is that they don't actually earn anything. They have unlimited ability to create dollars out of thin air for this. It has created the reality where our government is borrowing trillions of dollars to spend, and we have a central bank that is the major lender (almost the sole lender at this point) -- using money that it just creates from the ether.

What those CEOs care about are their share prices. And the Fed has their back. Prior to the pandemic, despite Trump's endless bullshit, our economy was in the same malaise it has been in ever since the financial crisis, on life support ONLY because the Fed was distorting the price of money and enabling enough debt to create the appearance of a growing economy. Companies could borrow endless amounts of money for free (in both nominal and real terms), and they gladly availed themselves of the free money. Even though they would have to pay back that money someday, all they were focused on was that the cost to service the debt was artificially low. So they borrowed trillions, brainstormed about what to do with it. ... and there were no capital expenditures that made sense, because in a stagnant economy, where your earnings are flat, you don't build new factories or train new workers or try to expand. So they took the billions they borrowed, and did stock buybacks and paid out healthy dividends. Just gave it right to their shareholders, which made their stock prices go up, up, up and away, and got those CEOs rewarded in pay and incentives.

Where it leaves us now is with an economy that is probably on the way to a 40 percent contraction this quarter, 22 million people newly unemployed, many standing on food lines and earnings dropping off a cliff. But thanks to the Fed and the trillions more it has already added to its balance sheet -- propping up a debt bubble by entirely taking over the debt markets (buying junk bonds of zombie companies that were a creation of the Fed in the first place) to create exponentially more debt that is artificially priced -- equity prices have come back quite a bit. And we have the absurdity of those companies losing an insane amount of money, getting government bailouts, laying off people, etc. ... and their stock prices rising again to valuations unlike anything the world has ever seen.

And those CEOs, most of whom get compensated with stock options, will take it. They aren't thinking about Donald Trump at all. He doesn't figure into any of it.

 

I have never read either, actually. I keep meaning to read The Handmaid's Tale, and have never gotten to it.