Stuart Varney is, along with Sean Hannity and Lou Dobbs, Donald Trump’s most devoted hosts on Fox News and in a recent show he was visibly upset when Paul Romer, a former chief economist of the World Bank, called the people who speak about economics for the Trump administration, such as White House economics advisor Larry Kudlow, ‘liars for hire’ and that they should not be believed. When Varney remonstrated with him, Romer did not back down.
I have long been saying that the US stock market seems to have almost no connection to the general state of the economy but instead seems mainly related to how the very wealthy are doing and this week brought more evidence of that. In March, the market plunged as the country shut down, which made sense. But since then the market has risen again, thanks to the actions of the government and the Federal Reserve to prop it up, even though things are very dire for most people who are suffering from loss of jobs, income, health insurance, and facing evictions.
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American businesses keep looking for ways to keep wages low. One way they have been able to do that is because since most people’s health insurance is obtained through their employment, that makes it difficult for people to leave since that would require them to find new health care providers, assuming the new employer does provide health insurance. And during the period between jobs, you would not have insurance. For many people, the least troublesome option is to stay with the same employer until it becomes intolerable.
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Lost in the other news is this story of a group of Americans who apparently tried to launch an attack on Venezuela’s government but the plot was foiled even before it got off the ground and the plotters, that included two former members of the US Special Forces, were captured by Venezuelan fishing villagers and handed over to the authorities. The similarities of this botched attempt at overthrowing the Venezuelan government to the failed Bay of Pigs invasion of Cuba during the Kennedy administration in 1962 has led to the label ‘Bay of Piglets’ for this one.
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One part of the stimulus program was the Paycheck Protection Program (PPP) that was meant to enable owners of small businesses to keep paying their employees even while their businesses were shut down. The program was limited to companies that had less than 500 employees. Why did employees of large corporations like Amazon not get similar protections? The assumption by the government seemed to be that these companies could afford to do so on their own without government help though in the absence of any law forcing them to do so, one cannot imagine Amazon’s Jeff Bezos depriving himself of even the tiniest bit of his huge wealth.
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There was this news report in the last few days about the price of oil going negative to -$40 per barrel, giving the impression that oil producers were now paying people to take their oil. Of course, that could not be strictly true. It is not as if your local gas station was paying customers to fill their tanks. In actuality, gas prices were trading normally, though the prices have been dropping due to the lowered economic activity because of the pandemic leading to an oil surplus.
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The last week has seen the media focus almost obsessively on the coronavirus and one aspect of its coverage has been its supposed negative effect on the stock market. I have been railing about the absurd obsession in the US with stock market prices, to the extent that the Federal Reserve of the US, supposed to deal with the fundamentals of the economy, cut interest rates by a huge amount, seemingly in response to the fall in stock prices before it was clear that the epidemic had any impact on those fundamentals. Not that it helped, since the stock market continued to fall anyway. We know that Donald Trump cares deeply about stock prices, the only thing really matters to him.
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Some people have made a lot of money in the tech world. Some have done it by creating companies, others by investing in them. But there are others who wish that they had invested in successful companies early on and made a lot of money but didn’t and now feel that they missed out. These people who are on the lookout for the next big thing so that they can get is early and cash in too. Such people are easy prey for con artists who know that the sales pitch of ‘buy now before it is too late’ can drive people to rash decisions and invest in something they may know little about for fear of missing out again.
We have seen this scenario play out so many times before and blog reader Jason Wessel sent me a link to this extraordinary story about someone who managed to scam people out of millions of dollars by promising them great rewards with a new cryptocurrency called OneCoin that she claimed would put Bitcoin out of business. The scam was based on the multi-level marketing scheme used by companies like Amway whereby people are recruited to sell both a product and also recruit new people to sell the product. Part of the sales proceeds of the new recruits goes to the person who recruited them, all the way up the chain. This is a version of a pyramid scheme and, like all such schemes, the few people who get in early make the most money while those lower down the chain can lose whatever they invest.
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Luke Darby explains how venture capital and private equity firms are responsible for destroying otherwise healthy companies, killing jobs, devastating communities, while reaping fat rewards for their investors. Once they take over a company, the private equity partners take out huge fees for themselves, burdening the company with large debts.
The quick and dirty explanation of private equity is that these are firms that buy other businesses. They restructure acquired companies in order to increase short-term profits or otherwise make them look more appealing to a buyer, and then sell them at a profit. While that means a nice chunk of cash for the investors who made the sale, it can be a chaotic and disastrous process for the employees of the companies being bought and sold, and they might get laid off or see their company broken up and sold out from under them.
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Everyone knows the response that bank robber Willie Sutton supposedly gave when asked why he robbed banks. He is said to have replied, “Because that’s where the money is.” Sutton denied he ever said it but that story has entered the folklore.
But that saying seems relevant when we see something similar happening with the way that the oligarchy increases its share of the wealth, by going where the money is. We know that the poor have been squeezed so that the wealthy get even wealthier. But as the money left among the poor dries up. the oligarchs started squeezing the middle class. Wolf Richter says that it now appears that the oligarchs are starting to put the squeeze on the upper middle class.
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