The natural question then becomes: How did a soaring stock market, propelled by cheap money, create yet more inequality? As a start, of course, the increase in stock market values has gone predominantly to the relative few who are significantly invested in those markets. That's because, in terms of wealth, the top 10% of Americans own 84% of the stock market, up from an already staggering 77% in 2001. In addition, as Fortune Magazine put it recently, "The top 1% continues to increase their stranglehold on wealth in this country, while the middle and lower class are losing ground."
We're talking, of course, about the wealthiest people and companies in society, including corporate executives who get paid in shares and stock options and are often capable of pushing up the price of their own shares by deploying money to buy them back. If stock markets are floating on that cheap money, what happens if (or rather when) it goes away? What happens when serious trouble builds requiring something other than the ability of central banks to combat it with more cheap money? The answer could be a massive, even historic, stock market crash.
Finally, if cheap money can inflate financial assets more than the real economy and the wealthy possess more of it than most people, won't that simply increase inequality to yet greater heights? The answer is: yes. "So in some sense the source of higher inequality is Fed policies, which pushed stock prices and home prices higher," as Deutsche Bank's chief economist Torsten Slà ¸k noted.
The Election and Inequality
If we learned anything from the 2016 election (and from where the 2020 election is headed so far), it's that Americans, whether on the left or right, don't like having the deck stacked against them. President Trump struck a populist, anti-establishment chord in his voters in 2016 (despite being a billionaire), including among workers who had once voted Democratic yet were feeling ever more economically insecure when it came to their future and that of their children.
President Trump has taken aim at Fed Chairman Powell both for raising rates in 2018 and for not lowering them enough in response to the recent coronavirus dive. In tweets, he implied that Powell was the enemy of all that's good (for Trump) by being unwilling to bend fully to White House pressure on monetary policy. In the wake of Powell's recent lowering of those rates, the president tweeted, "As usual, Jay Powell and the Federal Reserve are slow to act. Germany and others are pumping money into their economies. Other Central Banks are much more aggressive."
Trump's policies -- notably the trade war with China that has hurt American farmers and manufacturers -- have placed workers in an ever more economically vulnerable position. At the same time, the administration's tax cuts for major U.S. corporations (and billionaires) haven't done the poor or working class any favors either.
But Trump knows that cheap money, if it flows anywhere quickly, will flow to a stock market that he's repeatedly touted as being up big under his administration. And until a couple of weeks ago, the Dow had indeed rallied by as much as 61% since the 2016 election. In comparison, the average annual growth in gross domestic product has been stuck around 2.5% per year.
If the coronavirus has shown us anything, it's that unforeseen factors can crush the market and, by extension, the economy and American workers. This will incite the Fed and central banks elsewhere to intervene under the guise of helping the economy. March's emergency rate-cut was the first since the financial crisis of 2008. It was also a clear sign that the Fed is deeply concerned about the dangers a potential global pandemic can inflict on a thoroughly globalized economy and its banking systems.
If recent years have taught us anything, it's that the official responses to crises will ultimately help Wall Street and the markets, while leaving real people behind again. It's a vicious cycle that will only stoke inequality further until, of course, whether thanks to the coronavirus or some unknown future development, it all comes tumbling down.
Only creating a more level playing field and a new, sustainable, more equal path forward could alter this fate -- and count on one thing: that won't come from central bank interventions or from the Trump administration. You would need the sort of systemic overhaul that would result in real policies that could stimulate economies from the ground up. For the present, wash your hands, don't touch your face, and hold your breath.
Nomi Prins, a former Wall Street executive, is a TomDispatch regular. Her latest book is Collusion: How Central Bankers Rigged the World (Nation Books). She is also the author of All the Presidents' Bankers: The Hidden Alliances That Drive American Power and five other books. Special thanks go to researcher Craig Wilson for his superb work on this piece.
Follow TomDispatch on Twitter and join us on Facebook. Check out the newest Dispatch Books, John Feffer's new dystopian novel (the second in the Splinterlands series) Frostlands, Beverly Gologorsky's novel Every Body Has a Story, and Tom Engelhardt's A Nation Unmade by War, as well as Alfred McCoy's In the Shadows of the American Century: The Rise and Decline of U.S. Global Power and John Dower's The Violent American Century: War and Terror Since World War II.
Copyright 2020 Nomi Prins
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