Capitalism’s Dirty Secret Revealed
By: Brian Mcindoe
Tags: Economy, Capitalism, Society, Federal Reserve, Modern Monetary Theory

Unlimited cash is available, just not for you.

Riding the crazy train (credit: Dealbreaker)

It’s only when a major crisis hits that we plebs get to see who runs the world and what their values are.

That we are in an existential crisis is not in doubt. In fact, we are facing not one, but two disasters at once. A public health emergency, unparalleled in recent memory, coupled with an economic crisis that continues to make millions unemployed.

What’s truly disturbing though is how the US Treasury, in an unholy alliance with the Federal Reserve, is massively bailing out the ultra wealthy on a scale way beyond the wildest dreams of avarice reached in the 2008 great recession.

It’s become clear that the Fed’s playbook for this crisis is to shovel as much money as needed to prop up assets and stop markets from going down. The errors of 2008 are being repeated. The undeserving are being made whole while the ordinary person in the street is being shafted.

This transfer of riches is not going unnoticed and the meme industry has been busy satirizing the money printing.

Fed Chairman Powell making the Money Printer Go Brrr (credit: Tim Van Helsdingen)

It’s become cliche, but once again the bad actors have had their losses socialized and they get to keep the gains. Moral hazard has become the standard operating procedure as speculators have become trained to expect the Fed to save them by blowing ever larger bubbles.

To understand the current situation, it’s important to recognize that the economy has been in trouble for some time, though this was not widely recognized by the public, many of whom were euphoric over the rise in the stock market during 2019 and early 2020.

Trump, in a well-orchestrated campaign, managed to levitate the market with a continual stream of tweets over alleged success in progress toward a trade deal with China. His tweet’s were intended to trigger trading algorithms that would buy stock index futures and hence elevate the market. This became so brazen that a major bank developed a metric to measure the impact of Trumps tweets on the market.

The other factor that drove stock prices up to a disconnect from reality was the Fed lowering rates, and in September 2019, juicing the market by pumping in vast sums through the overnight Repo mechanism.

The Repo scandal deserves a post by itself, but for now it’s enough to know that hedge funds, using huge leverage, began to see their strategies fail spectacularly in September of 2019, threatening the bond market and hence the stock market.

Large banks became missing in action and refused to lend any more money to the funds which were leveraged 50 to 1. The Fed had to step in with buckets (cement trucks) full of cash (liquidity in the parlance of Wall Street), to keep the party going.

Late February saw rising concern over the inevitability of the coronavirus hitting the US. The market freaked and a mad rush for the exits ensued.

The S&P 500 reacts to the Coronavirus threat (credit: Author)

As markets tanked, the Fed dusted off its 2008 playbook and began to man the money pumps with $6 trillion dollars and a commitment to save the financial system. Major hedge funds used the Fed largess to unwind their failing positions and escape from bad bets that had collapsed without crippling losses.

Ben Bernanke, who was Fed chair during the great recession of 2008, helped make sure that his current employer, the hedge fund Citadel, got a bailout. Good luck in finding out the details on this and other huge bailouts as the Fed is under no obligation to tell us what it’s doing.

Since then, the bailouts have only increased in a financial shock and awe campaign. The most egregious of these, in my opinion, is the program to buy junk bonds and ETF’s that contain junk bonds.

Buying junk bonds is an out and out corporate bailout for failed zombie companies. They can now issue junk bonds knowing that they will be bought by the Fed, with the intent that they can use the Funds in ways that enrich the C level suite. A junk bond bailout is an undisguised wealth transfer to the money class.

The next step is for the Fed to buy stocks in the open market and many observers think it’s likely to happen, if they are not already doing it through third parties. If the Fed does openly buy stocks, then we might as well stick a fork in any pretense of capitalism.

But there’s more! — Fed chairman, Jerome Powell, in an interview with David Wessel of the Brookings Institution, openly admitted that there is effectively no limit on the supply of money that they can bring into existence. After all, it requires just a few keystrokes on a screen to create as much as you like.

Fed Chairman Powell’s interview with the Brookings Institute (source: Youtube)

For a Fed chair to openly make this statement is a bit like the Pope proclaiming there is no God.

Much of Economics is predicated on the concept of scarcity. The idea, after all, is to keep the citizenry underpaid, overworked and to tax them so they never get a chance to build up capital.

The truth is there is an unlimited amount of money available. This is always the case in a fiat money system. It’s just something that’s never mentioned in front of the hoi polloi.

Things are the way they are because of political, rather than economic reasons. The masses are kept poor and ignorant and the rich get a bailout.

The actual reality is very different than what people have been programmed to accept. This new knowledge should lead the American people to question what’s been going on, and whether things need to be the way they have been dished out to them.

If there is an unlimited amount of money available, then why is there so much poverty and injustice in America? Why can’t we have a decent health care system that is available to all, and which does not prey on the sick for profit? Why do we need to pay taxes if all government costs can be met by money creation? The myth of federal taxes being necessary to pay for social programs should be confined to the same dustbin as belief in fairies, as it’s patently not true.

I’m sure by now that some are saying all this money printing will lead to a Weimar Republic situation. Wheelbarrows full of money will be required to buy the family groceries. But, if you listen to Powell’s interview, you will discover that he is not worried about inflation. It’s been virtually absent for several years. With the staggering defaults that are coming, deflation is a bigger potential concern.

The orgy of money creation and hedge fund bailouts have shown us that the Fed has instituted Modern Monetary Theory (MMT) for the 1%. MMT is the theory that a sovereign nation can never go bankrupt, it just needs to print more money to service its debt. I explore MMT in more detail in the following article.

In the inevitable social upheaval that will take place as a result of the current crises, we need to examine what type of system makes sense going forward.

We know that the old tired -ism’s don’t work that well. Both socialism and capitalism have come to the end of the road. Can we instead mold a new system that allows for innovation and personal flourishing, but does not favor a gilded few at the expense of the downtrodden many?