Today the FOMC (the Fed) will decide whether to raise interest rates 1/4 of 1%. You would think from some of the coverage that the world will end if it does so. (It won't.) But the Fed probably won't raise rates because lots of pigs feed at the zero-rate trough, and even a teensy-weensy rate hike might disrupt that feeding frenzy.
The Fed's short-term rate lowers all sorts of other interest rates (mortgages, cars, corporate bonds, etc.) but it's been clear for many years now that interest rate "stimulus" has failed to revive the Main Street economy. On the other hand, the Big Banks and the wealthy are doing very well, thank you very much.
Writing at The Week, Jeff Spross takes note of the the missing factor from the great Federal Reserve debate: The 99 percent.
... all this drama [about a possible rate hike], for the most part, is occurring within the small slice of the population that understands monetary policy and keeps an eye on it — one that's hardly representative of America writ large.
Janitors, window washers, truck drivers, and most other everyday workers are not involved in the discussion. It's economists, think tanks, policymakers, financiers, top tier business leaders, and the related media outlets. And that can create a bias in how the issue gets discussed.
No kidding.
For example, The New York Times just ran a piece on the Fed's upcoming decision, and on the possibility that this exceedingly long stretch of unusually low interest rates has encouraged a massive bull run, introducing lots of instabilities to the financial markets. Even a small hike by the Fed, the Times says, could start things unraveling.
Massive bull run = pigs, trough. There's a lot of hand-wringing about "financial stability" nowadays.
I will quote How the Fed is Making The Rich Richer and Leaving You Behind, a Huffington Post interview with economist Gerald Epstein. Here's the introduction and the question about the possible effects of a Fed rate hike.
When it comes to what goes on in the marble corridors of the Federal Reserve, Americans tend to be suspicious. For different reasons, both the right and the left have challenged Fed policies aimed at bolstering the economy in the wake of the Great Recession. In two papers for the Institute of New Economic Thinking's Working Group on the Political Economy of Distribution, "Have Large Scale Asset Purchases Increased Bank Profits?" and the forthcoming "The Impact of 'Quantitative Easing' on Expected Profits: Explaining the Rise and Fall of the Fed's QE Policy," economist Gerald Epstein and his colleague Juan Antonio Montecino sought to find out who in the economy has tended to benefit from the Fed's actions.
They conclude that Wall Street and wealthy Americans were the big winners from policies like quantitative easing, while the rest saw little improvement in their economic lives. End result? Inequality has gotten worse...
Here's the relevant Q&A.
Lynn Parramore: Lately we hear a lot of worry about what will happen if the Fed raises interest rates. How might the average person feel it if this happens?
Gerald Epstein: Here's the interesting thing: the fact that QE and lowering interest rates almost to zero has worsened inequality, does not mean that raising interest rates will help reduce inequality.
Economists have long known — and recent work by IMF economists supports this — that increases in interest rates normally worsen inequality, at least partly by reducing employment and wage growth.
So raising interest rates might lead to some initial reductions in wealth by lowering asset prices, but it could also take a bite out of your paycheck and dampen your prospects of finding a job.
It's a bit of damned if you do and damned if you don't.
That's a polite way to put it because the American economy is rigged and has been for a long time now. For Main Street, it's another No-Win Situation. The fix is in. If that wasn't clear back in 2008-09 when the Fed and the Congress bailed out various TBTF players, one hopes it is clear now. Epstein's point is that raising rates or not raising rates will have no significant effect on inequality, which is here to stay. The system is rigged. The damage is done. Damned if you do and damned if you don't, at least as far as Main Street is concerned.
When various economists or pundits (Vox.com) urge the Fed to keep rates at zero because there is no inflation, and despite the fact that inequality has gone from bad to worse as a result of Fed policy, they have adopted the mentality of economic serfs. If the word "serfs" doesn't work for you, think of it this way: they are urging the Masters of the Universe—the American financial universe—to throw them a bone.
And here's the ironic thing: even as Vox's Matthew Yglesias begs for a bone, he also includes this video, never making the connection between an institutionally rigged economy and the terrible trend the video shows.
This blindness shows up everywhere you look. Here's more from Jeff Spross , who I quoted at the top.
... inequality has warped our public discourse, with debates shaped entirely by the experiences of elites, and the experiences of less privileged Americans written out of the analysis entirely.
What you have to remember is that what you see from the elite seats — namely the ups and downs of the financial markets — isn't the real economy most Americans rely on for the livelihood.
No kidding.
And as the Times story also admits, it's hard to see the ways the excesses in the financial economy could worm their way into the real one. The tech bubble is a lot more isolated to its specific sector than the 2001 boom was; when you account for inflation, corporate borrowing actually isn't unusually cheap; and it looks like the post-2008 financial reforms have brought toxic assets in sectors like real estate to heel.
As for stock buybacks, they're a serious problem, but one created by tax and regulatory policy changes that have allowed elites to raid corporate revenues at the expense of workers. It seems strange to put the brakes on the whole economy to deal with that one issue.
If you're wondering what "rigged" means, stock buybacks = rigged economy ("tax and regulatory policy changes")
And now, even as he understands that our economic debates are shaped entirely by elite interests, and even as he understands that Wall Street and Main Street are almost entirely separate domains, Spross still adopts the mentality of an economic serf. Please Miss Janet! Don't raise the rate, Miss Janet! Take pity on the working man!
That isn't to dismiss the risk of financial instability entirely, but simply so say it's extremely remote. On the flipside, we have a recovery that, seven years after the Great Recession, has only just started making serious headway.
And there's the possibility that upping interest rates now could stall or reverse that progress.
Which is to say, it's not simply about managing risks, it's about weighing different kinds of risks. The risks to the elite of an interest rate hike are relatively mild. The risks to workers are much greater.
Right. In a rigged economy, the risks to the elite are always relatively mild. The risks to workers are always much greater because they've been sold down the river. But that obvious point is lost on Jeff Spross.
And Jeff, I've got some more bad news for you—the "recovery" has not just recently started making serious headway, if it's wages and not shitty jobs that count. It's nice that you can make a living fooling yourself, but raising interest rates or not raising them 1/4 of 1% doesn't change Main Street's fate in the least. The failure is institutionalized. The American economy is rigged.
And now, Jeff, you're begging some of those rigging it to throw us a bone. This pleading is abject in every sense of the word. You, Jeff, have basically admitted the defeat of America's middle class. Or maybe things will get much, much better if the Fed does nothing. After all, that's worked up to now
So even as delusional commentators beg the Fed to keep the Fed Funds rate at zero after the 2008-09 bailouts and seven years of failure, they continue to plead within a system that has fucked ordinary Americans over for over thirty years now. You won't hear much today about the new Census report for the year 2014, but if you care to look at it, you will see things like this:
The Gini index was 0.480 in 2014; the change from 2013 was not statistically significant. Since 1993, the earliest year available for comparable measures of income inequality, the Gini index has increased 5.9 percent. (Developed more than a century ago, the Gini index is the most common measure of household income inequality used by economists, with 0.0 representing total income equality and 1.0 equivalent to total inequality.)
Few journalists will take a serious look at the new Census data because they are entirely co-opted. (Some did.) The problem is that they are too busy asking Janet Yellen and the FOMC to throw them a bone to notice that the "recovery" they want so much never happened and never will because the fix is in.
Powerful elites will always act to protect elite interests. This would seem to be a no-brainer. Why is this simple observation so fucking hard for humans to understand?
Well, we know why ... but never mind.
The Fed left rates unchanged.
We're saved.
-- Dave
Posted by: Dave Cohen | 09/17/2015 at 02:26 PM