“Everyone says, ‘Gee, the Federal Reserve will keep pumping in the money to keep this rising stock market going.’ Yea, maybe it will. Then again, in the end, these are companies, and if our underlying economy disintegrates, which is what’s going on, then eventually these companies will not be able to deliver the dividends or the kind of real income that the people speculating in the stocks will expect. And then they’ll all run to the door.”
—Richard Wolff, July 17, 2020
A question I have been puzzling over for many years is, to what degree can the Fed keep asset bubbles inflated? If the Fed commits to unlimited quantitative easing, as it has since the stock market crash in March, does that mean there is an infinite backstop to the economy? In the financial press and among traders, there is pervasive reference to the “Fed Put,” the notion that as long as QE is around, stocks will go up and you should not “bet against the Fed.”
But I wonder to what degree this is a short-term bet that the Fed will continue to facilitate an already-existing asset bubble vs. a belief that stocks cannot go down. Perhaps the more experienced investors know that this is a short-term bet and the rest of the herd is unaware that the Fed is not in control. In other words, while the Fed has created a tremendous amount of money that can be put to use in the economy, the large banks that receive that money from the Fed still have a choice of whether or not to invest it and if so, where.
So perhaps the bottom line is that, regardless of Fed action, there would have been a bounce after such a rapid crash, as has always occurred throughout history. The capitalist class naturally does not want to see a complete collapse of the system, so they will find any means necessary to avert it and that includes finding a way to boost asset values by stepping in to buy. They do this independently of the Fed (as in the Panic of 1907, which occurred before the Fed was created), but it just so happens that the Fed is a concentrated expression of these class interests. The Fed does not somehow operate outside of and in an omnipotent relationship to the markets; it is an integral part of them and is as much a product of market action as it is a motive force.
The insight we can pull from Wolff’s statement is that the Fed cannot erase the inherent contradictions of U.S. capitalism in the same way that, for example, the United Nations or the World Trade Organization can erase the contradictions of global imperialist rivalry. Capitalists get together every so often to attempt to erase these contradictions and in periods of boom, they delude themselves into believing that they have, but those contradictions reassert themselves in the most hideous ways. One could say that the Federal Reserve is a product of this delusion that capitalism can achieve an end to history, a period of infinite growth and peace.
Another aspect of the current situation that is sustaining the asset bubble is the enhanced unemployment benefits and bailouts. There has been much discussion lately among reliable reporters of the fact that these benefits have saved the economy by boosting spending to normal levels. The argument is that without these benefits, consumer spending would have collapsed due to massive unemployment. In this sense, the Fed is a facilitator of both the asset bubble and the redistributive policies of Congress, by way of financing U.S. government debt. Again, these policies only work to the extent that the capitalist class is able to assert its interests in some minimally coherent way.
We will see if this holds in the coming weeks and months as these policies expire.
World of Lenidzky 