[Or Let the Markets Go Wild While the People Go Down]
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WAR OF THE (FINANCIAL) WORLDS  
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Nomi Prins
January 10, 2021
Tom Dispatch [[link removed]]

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_ Or Let the Markets Go Wild While the People Go Down _

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Sometimes things only make sense when seen through a magnifying lens.
As it happens, I’m thinking about reality, the very American and
global reality clearly repeating itself as 2021 begins.

We all know, of course, that we’re living through a
once-in-a-century-style pandemic; that millions of people
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jobs, a portion of which will never return
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that the poorest among us, who can withstand such acute economic
hardship the least, have been slammed the hardest; and that the global
economy has been kneecapped, thanks to a battery of lockdowns,
shutdowns, restrictions of various sorts, and health-related concerns.
More sobering than all of this: more than 360,000
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counting) have already lost their lives as a result of Covid-19 with,
according to public health experts, far more to come.

And yet, as if in some galaxy far, far away, there also turns out to
be another, so much more upbeat side to this equation. As Covid-19
grew ever worse while 2020 ended, the stock market reached heights
that hadn’t been seen before. Ever.  

Meanwhile, again in the thoroughly cheery news column, banks in 2021
will be able to resume their march toward billions
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dollars in share buybacks, courtesy of the Federal Reserve opting to
support such a bank-and-stock-market stimulus. The Fed’s green
light
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this activity on December 18th will allow mega-banks to return to
those share buybacks (which constitute 70%
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the capital payout that they provide shareholders). In June 2020, the
Fed had banned the practice ostensibly to help them better navigate
risks caused by the pandemic.

Those very financial institutions can now pour money into purchasing
their own stocks again rather than, say, into loans to struggling
small businesses endangered by pandemic-instigated economic disaster.
As soon as Wall Street got the good news from the Fed as 2020 ended,
JPMorgan Chase, the nation’s biggest bank, wasted no time in
announcing its intent to buy a staggering $30 billion
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its own shares in the new year. And as if by magic, those shares leapt
5% that very day. Other mega-banks followed suit, as did their share
prices.

Now, for reasons you’ll soon understand, take a little trip back in
history with me to the eve of Halloween, 1938
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the Mercury Theatre dramatized his adaptation
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H.G. Wells’ 1898 sci-fi-meets-dystopia-meets-imperialism
novel, _The War of the Worlds_, on the radio. As Martians
“invaded” New Jersey (it had been London in the novel) with mayhem
in mind, panic evidently ensued among some radio listeners who thought
they were hearing perfectly real reports about an alien invasion of
Planet Earth. Later accounts suggest that the media blew
that reaction
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of proportion (“fake news,” 1938-style?), yet people who tuned in
late and missed the set-up about the fictitious nature of the program
did indeed panic.

And it’s not hard to understand why they might have done so at that
moment.  There had already been surprises galore. The world, after
all, had barely recovered from the aftermath of the 1929 stock market
crash and the Great Depression that followed. It was also still
reeling from the fiery Hin
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1937 in which a German airship blew up in New Jersey, as well as from
the escalation of tensions and hostilities in both Asia and Europe
that would lead to World War II.  Perhaps people already equated or
conflated the Martian invasion on the radio with fantasies about a
potential German invasion
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this country. In some papers, after all, reports on the reaction to
Welles’s performance were set right next to news of war clouds
brewing in Europe and Asia. With or without Welles, people were on
edge.

Whatever the case, fear has been both a great motivator and an anxiety
provoker when it comes to the media, whether in 1938 or today. At the
moment, the focus is on economic and health-related fears in
all-too-ample supply. It is also on the disconnect that exists between
the real economic world that most of us live in and turbo-boosted
stock markets. These distorted markets are the result of wealth
inequality that once would have been unimaginable in this country. In
a way, economically speaking, you might say that today we’re
suffering the equivalent of an invasion from Mars.

FROM THE FINANCIAL CRISIS TO THE PANDEMIC

It’s not hard these days to imagine the chaos people would feel if
their lives or livelihoods were threatened by an external,
uncontrollable force like those Martians. After all, we’re in a
pandemic age in which the gaps between the rich, the poor, and the
middle class are being reinforced in endlessly stunning ways, a world
in which some people have the means to remain remarkably safe, secure,
and alive, while others have no means at all.

Covid-19 is not, of course, from Mars or sent by aliens, but in terms
of its impact, it’s as if it were. And the pandemic is, in the end,
only exacerbating, sometimes in radical ways, problems that already
were bad enough, particularly economic inequality. 

Remember that, long before Covid-19 hit, the financial crisis of 2008
was met by a multi-trillion-dollar Wall Street bailout
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At the same time, the Federal Reserve cut interest rates to zero,
while purchasing U.S. Treasury and mortgage bonds from the very banks
that had sparked the disaster.  Its own assets then rose from $870
billion to $4.5 trillion
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August 2007 and August 2015. On the other hand, the U.S. economy never
quite reached a growth level of, on average, more than 2% annually
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the years after that near collapse, even as the stock market regained
all its losses and so much more. The Dow Jones Industrial Average,
aided by an ultra-loose monetary policy, steadily rose
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a financial-crisis low of 6,926 on March 5, 2009
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by March 4, 2020
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which was when Covid-19 briefly trashed its rally.

However, within a month of the market dip that followed widespread
shutdowns, its climb was refortified by similar but larger maneuvers,
as Federal Reserve policy was once again deployed to save the rich
under the auspices of saving the economy. Rally 2.0 took the Dow to a
new record of 30,606.48
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2020 closed.

On the other side of reality, I’m sure you won’t be surprised to
learn that, according to recent Federal Reserve reports
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the U.S. wealth gap continued to widen dramatically as economic
inequality increased yet again in 2020 thanks to the coronavirus
pandemic. That’s because the health and economic devastation it
inflicted affected low-wage service workers, low-income earners, and
people of color so much more
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the upper-middle class and elite upper class.

Meanwhile, as 2020 ended, the richest 10% of Americans owned more
than 88%
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the outstanding shares of companies and mutual funds in the U.S. The
top 1% also controlled more than 88 times
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wealth of the bottom 50% of Americans. Simply put, the less you had,
the less you could afford to lose any of it. Indeed, the combined net
worth of the top 1% of Americans was $34.2 trillion
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one-third of all U.S. household wealth), while the total for the
bottom half was $2.1
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(or 1.9% of that wealth).

And yet, American billionaires scored monumentally during the
pandemic, due particularly to their lofty position in the stock
market. The planet’s 2,200 or so billionaires got wealthier by $1.9
trillion
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2020 alone and were worth about $11.4 trillion in mid-December 2020
(up from $9.5 trillion a year earlier). Twenty-first-century tycoons
like Elon Musk and Jeff Bezos raked it in specifically because of all
the money pouring into shares of their stock. Even bipartisan
congressional stimulus measures meant for necessary relief turned into
a chance to elevate
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at the highest echelons of society.

If you want to grasp inequality in the pandemic moment, consider this:
while the market soared, more than 25.5 million
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were the recipients of federal unemployment benefits. The S&P 500
stock market index added a total of $14 trillion
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market value in 2020. In essentially another universe, the number of
people who lost their jobs due to the pandemic and didn’t regain
them was about 10 million
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And that figure doesn’t even count people who can’t go to work
because they have to take care of others, their workplace is
restricted, or they’re home-schooling their kids.

THE MARTIANS AND THE INEQUALITY GAP

In _The War of the Worlds_, H.G. Wells evokes a species — humanity
— rendered helpless in the face of a force greater than itself and
beyond its control. His depiction of the grim relationship between the
Martians and the humans they were suppressing (meant to remind readers
of the relationship between British imperialists and those they
suppressed in distant lands) cast an eerie light on the power and
wealth gap in Great Britain and around the world at the turn of the
twentieth century.

The book was written in the Gilded Age, when rapid economic growth,
particularly in the United States, bred a new class of “robber
barons.” Like the twenty-first-century version of such beings, they,
too, made money from their money, while the economic status of workers
slipped ever lower. It was an early version of a zero-sum game in
which the spoils of the system were increasingly beyond the reach of
so many. Those at the top ferociously accumulated wealth, while the
majority of the rest of the population barely got by or drowned.

A crisis of inequality had been sparked by the Industrial Revolution
itself, which started in England and then crossed the Atlantic.  By
the late nineteenth century, America’s “robber barons” were
insanely wealthy. As economist Thomas Piketty wrote
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there was a steeper increase in wealth inequality during the Gilded
Age than ever before in American history. In 1810, the top 1% of
Americans held 25% of the country’s total wealth; between 1870 and
1910 that share leapt to 45%.

Today, the top 1% of Americans possess more wealth than the whole of
the middle class, a phenomenon first true in 2010 and still the
reality of our moment. By 2018, about 75%
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the $113 trillion
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aggregate U.S. household assets were financial ones; that is, tied up
in stocks, ETF’s, 401Ks, IRAs, mutual funds, and similar
investments. The majority of nonfinancial assets
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mix was in real estate.

Buy the Book
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Even before the pandemic, only the richest 20% of American households
had recovered fully (or, in the case of the truly wealthy, more than
fully) from the financial crisis. That’s mostly because since that
crisis, fewer households
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participated in the stock market or owned real estate and so had no
chance to capitalize on increases in the values of either.

Much of the appreciation in stock market and real-estate values has
been directly or indirectly related to the Fed’s actions. By the end
of December 2020, its balance sheet had increased by $3.164 trillion
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total of $7.35 trillion
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its book at the height of the decade following the 2008 disaster.

Its ultra-loose policies made it cheaper to borrow money, but not as
attractive to invest it in low-interest-rate, less risky securities
like Treasury bonds. As a result, the Fed incentivized those with
extra money to grow it through quicker, often riskier investments
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the stock market or real estate. By 2020, there were bidding wars for
suburban houses by urbanites seeking refuge from coronavirus-stricken
cities with all-cash offers
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something beyond the reach of most traditional buyers. 

Though Congress passed two much-needed Covid-related stimulus
packages
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extended unemployment benefits, while offering two one-off payments
and a Paycheck Protection Program support for smaller businesses, the
impact of those acts paled in comparison
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the tax breaks
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power of investment the stock market provided the well-off and
corporate kingpins.

While markets leapt to record highs, poverty
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the United States also rose last year from 9.3% in June to 11.7% in
November 2020. That added nearly eight million Americans to the ranks
of the poor, even as America’s 659 billionaires
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double the wealth of the 165 million poorest Americans.

THE MARTIANS ARE HERE

The gap between incoming and outgoing federal funds rose, too. The
U.S. deficit increased by $3.3 trillion during 2020. The size of the
public debt issued by the Treasury Department reached $27.5 trillion
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 Total federal revenue was $3.45 trillion, while the corporate tax
part of that was just $221 billion, or a paltry 6.4%. What that means
is that in an ever more unequal America, 93.6% of the money flowing
into the government’s till comes from individuals, not corporations.

And though many larger and mid-size corporations filed for bankruptcy
protection due to coronavirus related shutdowns, the brunt
of absolute closures
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smaller local businesses — from restaurants to hair salons to
health-and-wellness shops — much harder, only exacerbating economic
disparity at the community level.

In other words, the real problem when it comes to inequality isn’t
the total amount of taxes received versus money spent in a time of
crisis, but the composition of federal revenue that’s wildly out of
whack (something the pandemic has only made worse). Take the defense
sector, for example. The U.S. government doled out $738 billion
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the Pentagon for fiscal year 2020. The contracts to defense-related
private companies in the last year for which data was available,
fiscal year 2018, totaled roughly 62% of a full defense budget
of $579 billion
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or $358 billion. Now imagine this: that amount alone dwarfed the total
of all corporate taxes flowing into the U.S. Treasury in 2019.

Inequality is about the disparity between people and countries with
respect to income, wealth, or power. The more that corporations keep
relative to their bottom line when compared with ordinary citizens,
the more the stock market rises relative to the real economy. The more
that individuals, rather than corporations, shoulder the burden of tax
revenues, the greater the inherent inequality in society. The more
that financial assets appreciate on money seeking to multiply itself
in the quickest way possible (think of it as like a virus), the
greater the distortion created. 

The Fed can focus on its
inflation-versus-full-employment dual-mandate
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it wants, while pushing policies that distort the value of the real
economy compared to financial assets. But the reality is that the more
those Fed-inflated assets grow relative to real ones, the greater the
inequality gap. That’s plain math and it’s the ugly essence of the
United States of America as 2021 begins.

The market doesn’t care about politics. It’s a creature that acts
in accordance with the goals of its largest participants. The real
economy, on the other hand, requires far more effort — planning,
prioritizing, and executing programs and projects that can produce
tangible profits. We’re a long way from a world that puts investment
in the real economy ahead of those soaring financial markets. That
gap, in fact, might as well be like the distance between Earth and
Mars. In the midst of a pandemic, as billionaires only grow richer and
the markets soar, can there be any question that we’re experiencing
a Martian invasion?

Copyright 2020 Nomi Prins

_Follow _TOMDISPATCH _on Twitter
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[[link removed]]. Check out the newest Dispatch
Books, John Feffer’s new dystopian novel Frostlands
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second in the Splinterlands series), Beverly Gologorsky’s
novel _Every Body Has a Story
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Tom Engelhardt’s _A Nation Unmade by War
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as well as Alfred McCoy’s _In the Shadows of the American Century:
The Rise and Decline of U.S. Global Power
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John Dower’s _The Violent American Century: War and Terror Since
World War II
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NOMI PRINS, a former Wall Street executive, is
a _TomDispatch_ regular
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latest book is _Collusion: How Central Bankers Rigged the World
[[link removed]]_ (Bold
Type Books). She is currently working on her new book, _Permanent
Distortion_ (Public Affairs). She is also the author of _All the
Presidents’ Bankers: The Hidden Alliances That Drive American Power
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five other books. Special thanks to Craig Wilson for his superb
research on this piece.

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