Our “Star Wars” Economy: The Fed-Farce Awakens
The Fed’s hubris has led it to the Dark Side.
It’s not just a movie, it’s real life: the Fed-Farce awakens. Now that the Federal Reserve has finally voted to “restore order to the galaxy” with a tiny .25% rate increase, the true measure of our travesty of a mockery of a sham economy–in a phrase, The Fed-Farce–has been revealed.
Here’s a snapshot of the Fed meeting, “restoring order to the galaxy” in a show of unanimous galactic-scale hubris:
If we had to list the fatal wounds inflicted on the economy by the Fed-Farce’s financial repression, we might start with: the Fed’s flood of cheap credit has not boosted productivity, it’s only boosted speculation. Why is this fatal?
Productivity is the engine of wealth creation. Speculation is the engine of wealth inequality and devastating boom/bust cycles. This is self-evident, but unfortunately the Dark Side can also conjure mind-tricks in the weak-minded (for example, Congress, the mainstream media, etc.): the Fed has successfully conned the weak-minded into believing that speculative frenzies of mal-investment and Fed-fueled asset bubbles are the sources of healthy growth.
A funny thing happens when you give unlimited borrowing power at near-zero interest rates to financiers and corporations: they use the free money not to hire more people (that would be incredibly dumb–employees cost money!) but to buy up shares in their own companies and snap up income-producing assets such as rental apartment complexes.
$1 trillion in stock buybacks creates zero jobs. Borrowing $1 trillion to buy back shares (and thus boost the personal wealth of managers and owners) does not create a single job. Repurchasing the company’s stock reduces the number of shares outstanding, which increases your earnings per share without increasing sales or net profits.
In other words, stock buybacks are just another Dark Side mind-trick.
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