The Economy

The Fed did bank stress tests, and came back yesterday and told them they can't do stock buybacks for the next quarter (none of them have been -- voluntarily), froze their dividends for the next quarter (dividends are one of the only things that make bank's businesses investable), and is going to force them to cap future dividends at some formula the Fed has created related to their most recent earnings.

I usually find this clown (his name is Tim Seymour) ridiculous, but even he can't deny the pink elephant in the middle of the room anymore. And he said what everyone should be acknowledging. Capitalism is dead.



The banks have been completely hamstrung as businesses (to the extent that they earn from traditional banking) because the Fed has suppressed interest rates so much, for so long, that the net interest margins they need to make money in their business don't exist.

Then the Fed steps in to prop them up because of the mess the Fed created in the first place.

And now the Fed is just telling the owners of those banks what they have to do with money the bank earns.

What a fucking shitshow. We all suffer because of this. Jay Powell (or Ben Bernanke or Janet Yellen) should not be setting price controls over everything, and distorting our lending markets (which has created a massive, unavoidable credit crisis) and micromanaging everything. To the extent the prosperity they tell everyone they are engineering actually benefits anyone, it's very wealthy people, who are made richer at the expense of anyone who would have been saving (which is what is necessary for real investment -- not a phony debt-fueled binge that allocates money really poorly, which negates the thing that capitalism actually does well, which is letting capital find its way to the most productive places, which in turn creates innovation and raises our standard of living).

I have no clue how we let it get to this, but we are a nation of idiots, and most people are so checked out about what this monster of an unaccountable organization does, and how it is the main culprit behind the misery so many people have been feeling for the last 10, 15, 20 years.

 

Series of tweets from the last hour.







That last tweet doesn't get into the fact that they are not limiting themselves anymore to having nationalized just the treasury and agency debt markets -- which had spillover effects to all of the debt markets. It's crazy that they are outright monetizing trillions of dollars of government debt and we are pretending like there is no consequence for it. But now? They are now buying corporate debt, including fallen angels / junk bonds, to make sure that nothing can fail. We are in the middle of an economic crisis, due to the pandemic. ... and companies that had way overleveraged themselves already because of the Fed's stupidity and were not performing before the pandemic, are borrowing like we are in the middle of a huge economic boom. It's backward. Junk bond issuance -- when debt levels are already at crazy levels -- is going bonkers right now.

US high-yield bond market eyes record June as Fed-fueled debt issuance rolls on

We have created a survival of the unfittest economy and we have sold out years of the future for the debt binge propping it all up.

Why would anyone think that is going to create long-term prosperity, a rising standard of living, jobs for people in the long run? It's insanity.

 

He doesn't have the power to just hand out money like he's reaching into his piggy bank. Congress has to do it. Will be interesting how it gets resolved. The Democrats in the house will have no problem spending another trillion dollars or more like it's money we have lying around in the couch cushions. But they are not passing anything, let alone anything that benefits the orange windbag, without loading it up with the pork they prefer. Some of the old-line Republicans in the Senate are starting to grumble again about fiscal responsibility, so there is that too, but they are so full of shit and with so few principles that it's hard to handicap how much of a budget hole they will be willing to go along with and for which winners / losers.