Amid the many errors and scams perpetrated by Powell, Mnuchin, Trump, Pelosi, McConnell, et al., one stands out.
In their Bail Out Everything Act, aka CARES, like a neighborhood loan shark, they sent out the message:
‘Need cash? Come and see us.’
Dear Reader, you already know the story to date. Here, we sneak up on it from a different angle.
How come, we wonder, the working stiffs put up with it? Their incomes haven’t increased in 45 years, while the rich have gotten much richer. They’ve lived paycheck to paycheck…until three months ago. Then, thanks to the feds again, the paychecks stopped coming.
How come they don’t revolt?
Crony cconomy
For the last 10 years — or longer — Wall Street and big business have been in high clover. But it’s been barren ground for the average working man.
Big banks, big business, and big investors have been able to get credit from the feds at or below the rate of consumer price inflation. The EZ money acted like Miracle-Gro in the stock market; prices rose 300%.
But the economy, in which the little guys live and earn their money — suffered a long drought, growing only a piddly 50% in 10 years.
And even that small gain was purchased at a cost — in additional debt, including business and private debt — of $25 trillion. In effect, the feds transferred trillions of dollars from the average public (including the unborn) to the moneyed elite.
Mr. Trump maintains that this was the greatest economy ever. But it was a mirage…and a fraud. The capitalist economy was perverted into a crony economy.
Lobbying paid off. Borrowing, too. The insiders could borrow money at ultra-low rates…and use the money to jack up their own shares and bonuses. Forget investing in new plants and equipment. Forget hiring more labor. It takes years to build a new factory, train new workers, develop new products, and master new markets. Why take the risk?
And why wait for a payoff? You can borrow — in some cases, below zero, in real terms. You can buy back shares…declare a dividend…pay performance bonuses…all in a few months. This was the new way to do business, financed by the friendly folks at the Federal Reserve.
Yes, the working classes and the left-leaning press grumbled a bit. But few really understood what was going on.
And as long as the stock market was going up, nobody really cared. Most of the voters, like the president himself, thought the nation was booming.
Worst policy ever
And now, with 43 million unemployed…the grumbling gets louder. Menacing, even. In desperation and frustration, voters might even elect Joe Biden.
But the feds are no dopes. They’re applying the same techniques that worked so well with the cronies to silence the proletariat. That is, they are paying them off.
As strange as it seems, the Paycheck Protection Plan does more than protect a man’s income. Instead, it enhances it. In the phony 2009-2019 recovery, almost all of the new jobs created were in soft, low-wage sectors, such as hospitality, leisure, and healthcare. Much of it was only part-time…and temporary.
And as it happened, those sectors were the very parts of the economy laid low by the C-virus hysteria and the Lockdown response.
So, along come the feds, promising to ‘replace’ the lost income. State unemployment benefits of $400 per week, average, are already not bad for many of these workers.
Add on the $600 per week that the feds are chipping in and you have an income which, in many cases, is more than double what the fellow was earning before the crisis.
Many wage-earners are delighted to be laid off — they make more money! In some states, New Mexico and Maine, for example, the total take-home pay for not working averages about 135% of the pre-crisis wage.
In other words, millions of Americans — and not just crony corporations — are turning to the feds for their money. Which makes this perhaps the worst policy ever devised by the U.S. government.
Who will want to go back to work…and earn less? Workers will be reluctant to return to the office or the factory floor. (There might be germs there!) This will obviously delay a recovery. And they will expect higher pay (thus reducing employers’ desire to take them back).
What to do?
Another payoff
Here come the feds with another payoff. Stansberry’s Thursday Morning Market Snapshot reports:
White House economic adviser Larry Kudlow recently said the administration is interested in back-to-work bonuses for the unemployed. He mentioned $450 per week in addition to any wages those individuals would make.
This would be a replacement for unemployment benefits that will soon expire. The current legislation adds $600 per week to unemployment benefits. It has raised eyebrows because employers have complained it encourages employees not to return to work.
The combination of pay hikes (>$) and less output (<GDP) will lead to inflation and slower GDP growth.
More damaging in the long run, average Americans will now begin to see the feds — not honest work — as the best source of wealth.
Financial fantasyland
Yes, Dear Reader, we are witnessing the cronification of the American proletariat. Where does this lead? For a look at the future, we turn again to the pampas…where the gauchos are pioneers in Financial Fantasyland.
In preview, the Argentines defaulted last week…for the ninth time overall…and the third time this century.
When it comes to economics and politics, the Argentines don’t mess around. They play Russian Roulette with a bullet in every chamber. Just to make sure.
And now, the yanquis have picked up the pistol, too.
More to come…
Regards,
Bill Bonner