Stop the Fed Before it Kills Again
Why has the Fed created incentives for US corporations to loot their companies and drive them deeper into debt?
Despite four consecutive quarters of negative earnings, weak demand and anemic sales, US corporations continue to load up on debt, buy back their own shares and hand out cash to their shareholders that greatly exceeds the amount of profits they are currently taking in. According to the Wall Street Journal: “SandP 500 companies through the first two quarters of the year collectively returned 112% of their earnings through buybacks and dividends.”
You read that right, US corporations are presently giving back more than they are taking in, which is the moral equivalent of devouring one’s offspring.
These companies have all but abandoned the traditional practice of recycling earnings into factories, productivity or research and development. Instead, they’re engaged in a protracted liquidation process where the creditworthiness of their companies is used to borrow as much money as possible from the bond market which is then divvied up among insatiable CEOs and their shareholders. This destructive behavior can be traced back to the perennial low rates and easy money that the Fed has created to enhance capital accumulation during a period when the economy is still mired in stagnation. The widening chasm that has emerged between the uber-wealthy and everyone else since the end of the financial crisis in 2008, attests to the fact that the Fed’s plan has succeeded beyond anyone’s wildest imagination. The rich continue to get richer while the middle class drowns in an ocean of red ink. This is from CNBC:
“Corporate debt is projected to swell over the next several years, thanks to cheap money from global central banks, according to a report Wednesday that warns of a potential crisis from all that new, borrowed cash floating around.
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