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Posts Tagged ‘"Dow Jones"’

The red line in the graph below represents borrowing to buy corporate shares. The blue line represents the growing value of the S&P 500 stock index. Notice the growth in the financial markets is being fueled by record amounts of debt. The growth of both clearly mirrors each other.

Eight months ago, I wrote, “The latest in a long line of stock market bubbles is being fueled by record amounts of debt according to the New York Stock Exchange. This debt is called “buying on margin” (BOM). Notice the acronym of BOM, which is pretty close to bomb, and this current bubble is going to explode. Total BOM hit a record high of $528.2 billion in February 2017.”

By November 2017 (the latest data that is available), total BOM hit nearly $581 billion. Stock prices, in other words, have been bid up with borrowed money, like at an auction.

Once the lunatic Trump tax cuts were passed, the already dangerously obese stock market bubble began expanding even more in anticipation of more after-tax cash going to the rich and corporations, to whom the vast majority of those tax cuts were targeted. This has given corporations and the rich the leverage to borrow on margin even more in anticipation of future increased after-tax earnings.

That is not necessarily always a big problem early in a business expansion when the market is going up, but it’s now late in the ball game. Our economic expansion is 103 months old (as of January 2018), making it the third longest in US history. In terms of numerous indices, such as job, GNP, and wage growth, this is one of the weakest expansions in US history. The vast majority of new income and wealth have gone to the top 1 percent, and not to the 99 percent.

All of this suggests the coming crash is long overdue. When we hit this soon to arrive recession, it should be a train wreck worse than the so-called Great Recession of 2007-09.

November’s total BOM was nearly $80 billion more than twelve months before. This increase is a sign of optimism or foolishness. People and institutions like hedge funds want to get in on the action while the stock markets are rising. What is going to happen when the bubble pops?

Suppose you have $10,000 to invest, so you purchase 100 shares of Home Depot at $100 per share. The market crashes and the share price drops to $40. Now your investment is worth $4,000. That is not a good result, but your investment is still worth something, and can potentially recover if you hang on to it in the long run.

Let’s say you borrow an additional $20,000 from your broker to buy another 200 Home Depot shares at $100 each for a total of 300 shares and at a total cost of $30,000. The market crashes and the share price quickly drops to $40. Now all 300 shares are only worth $12,000 — but you owe your broker $20,000 (plus interest) for borrowing money to buy the stock. The broker calls in his loan. You are forced to sell your shares to get the funds to pay your broker but at the lower share price. You lose $18,000 of your $30,000 investment. But your broker wants the rest of his $20,000 plus interest. You only have $12,000 remaining of your original $30,000 investment, so you owe more than $8,000 to your broker.

So your original $10,000 is wiped out, your loan of $20,000 is annihilated, and you need to come up with $8,000 plus interest to pay back your broker.

During most recessions, it is much more difficult to get credit to pay your broker back, so you may both be out of luck, although you’ll likely be in court defending against him, her or it.

On a massive scale, say trillions of dollars of investments, that’s a recipe for absolute disaster for the whole economy. Corporations of all types (which often borrow to purchase their own shares in order to jack up their share prices), as well as hedge funds, governments, investment banks, commercial banks, small businesses, other wealth management firms, etc…, will likely need to lay off employees in order to pay back the money they owe.

Side Notes

***Let’s also get something straight which the corporate media doesn’t want us to know; tax cuts for corporations are the same as tax cuts for the rich since corporations in great measure pass on their tax cuts to the wealthy via higher after-tax corporate profits, rising share prices and surging dividends.

***As an aside, your government has allowed a conspiracy in restraint of trade in the housing market to be the primary fuel that ignited this current stock market bubble. See The Big Banks Are Manipulating the Housing Market–JohnHIvely.wordpress.com.

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By Carl Gibson, Reader Supported News

26 December 14

If Ronald Reagan were alive today, he would be one of Barack Obama’s biggest fans. In the six years he’s been president, Obama has managed to turn our country’s economy, at its worst point since the Great Depression, into one booming along with the greatest quarterly GDP growth in 11 years. The Dow Jones closed above 18,000 this week – the highest ever. And yet, despite an apparently surging economy, 95 percent of income gains since 2009 have gone to the richest 1 percent. Not even Ronald Reagan’s economic policies created inequality on that scale.

Since his first inauguration, President Obama has masterfully steered the benefits of the recovery to only the wealthy, while the net worth of average working Americans has dropped by 40 percent since before the recession. Today’s middle class is actually poorer than it was in 1989, when Reagan left the White House. Even though the most recent unemployment rate is 5.8 percent, most of the new jobs that have been created since the recession have been in low-paying sectors, like retail and fast food. The current federal minimum wage of $7.25 an hour, which most workers in those industries earn, has less buying power than the minimum wage in 1968.

According to a study by the Center for Economic and Policy Research, if the minimum wage had kept up with worker productivity since then, it would be $16.54 an hour today. This means Americans are working harder than ever, but aren’t getting a penny ahead. When you use that data to paint a picture with the most recent quarterly GDP growth surge and the new record-high closing on the Dow Jones, the image is actually quite ugly. The insane growth our economy is experiencing, combined with the fact that 99 percent of Americans aren’t seeing 95 percent of the income gains from that rapid economic surge, means that our hard work is simply feathering the nest of the ownership class. Income inequality hasn’t been this severe since right before the crash that caused the Great Depression.

President Obama could be pushing for the pitifully-low minimum wage for tipped workers to be increased from $2.13 an hour, where it has stayed since 1991. He could sign executive orders to pay all federal workers $15 an hour, to allow government contracts to go only to model employers who pay a living wage, and to allow all government workers to have the right to collectively bargain for better wages and working conditions. He could be investing billions of tax dollars into in creating public sector jobs aimed at rejuvenating American infrastructure – which American engineers have given a D+ in their most recent assessment – rather than lowering the deficit with cruel austerity like the continued budget sequester.

At the very least, President Obama could have vetoed the federal budget “cromnibus” bill that was recently passed, sparing low-income women, infants, and children from another $93 million in cuts to their food assistance. But we’re talking about the president who already approved $8.7 billion in cuts to food stamps in the latest farm bill. Even the last lifelines of help for the most desperate Americans have been slashed to pieces and put on hold by the Obama administration. Even if Republicans are singlehandedly holding social safety nets like food stamps and unemployment extensions for the long-term jobless hostage, the fact that President Obama hasn’t even fought that hard for these programs speaks volumes. Republicans applauded Clinton when he cut welfare in the 1990s, but there’s been nothing but silence from today’s crop of Congressional Republicans for Obama’s cuts to the welfare state.

Instead of fortifying his legacy with economic populism, Obama has presided over an economic “recovery” where only the rich have benefited – the first “recovery” of its kind. If Obama were a Republican instead of a Democrat, Republicans would be singing his praises. Instead, liberals and partisan Democrats are celebrating the news of growth they don’t benefit from, and are the first to shout from mountaintops about lower deficit numbers. In terms of economic policy, Obama and his most diehard supporters are Reagan Republicans. But despite their similarities in economic policy, Reagan would be even more proud of Obama for his foreign policy.

As Glenn Greenwald has pointed out, President Obama has extended George W. Bush’s War on Terror from just Iraq and Afghanistan to Yemen, Pakistan, Somalia, Syria, Libya, and even the Philippines. The U.S. military has more of a presence than ever in the Middle East since Obama took office, with the Iraq War alone costing as much as $4 trillion. Obama has been just as steadfast a supporter of Israel as any of his predecessors – standing by them even as they bombed civilian targets in Gaza earlier this year. He recently signed off on supplying the Israeli weapons stockpile with another $200 million infusion; this is the same stockpile that Israel used to bomb Gaza. And thanks to Obama’s signature, Israel will now have the capability to refuel fighter jets in mid-air, which would be necessary if Israel wanted to launch airstrikes in Iran.

It speaks volumes that President Obama agreed to cut food stamps by $8.7 billion and WIC by $93 million, but committed to spending $1 trillion over the next 30 years to upgrade our nuclear weapons stockpile. Even while Obama has supported the idea of equipping police officers with body cameras, his defense department stands by the Pentagon’s 1033 program that allows military equipment like grenade launchers, sniper rifles, and apache helicopters to flow to local and county police departments. And despite his historic move to restore diplomatic relations with Cuba, Obama is still stuck in a cold war mentality of the U.S. having to command the widest array of nuclear weapons. Obama’s record on foreign policy and the military-industrial complex puts Reagan’s to shame. The ludicrous “Star Wars” program and the 1983 invasion of Grenada don’t hold a candle to the current administration’s imperialist worldview.

From a policy standpoint, it makes no logical sense for Republicans to hate Obama as much as they do. He’s simultaneously expanded the worst economic policies we saw under Reagan and the worst foreign policy we saw under George W. Bush. The rich are richer than ever before, the middle class is becoming poorer, and the poor have had their already razor-thin social safety nets cut to the barest of margins. On top of all of that, the U.S. military is engaged in permanent wars all over the Middle East, and the cold war mentality that drove Reagan and George H. Bush is still very much alive in the current White House. The only reasonable explanation left for Republicans’ fervent opposition to everything Obama says and does is that he’s black.

Carl Gibson, 26, is co-founder of US Uncut, a nationwide creative direct-action movement that mobilized tens of thousands of activists against corporate tax avoidance and budget cuts in the months leading up to the Occupy Wall Street movement. Carl and other US Uncut activists are featured in the documentary “We’re Not Broke,” which premiered at the 2012 Sundance Film Festival. He currently lives in Madison, Wisconsin. You can contact him at carl@rsnorg.org, and follow him on twitter at @uncutCG.

Reprinted with permission from Readersupportednews,org.

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The answer to Senator Warren’s question is simple. The $14.75 has been redistributed into the pockets of the 1 percent mostly via legislation, which is a product of the corruption of government, which is a product of tax cuts for the rich.

That’s $14.75 per worker, per hour, per week, per month, per year, for years and years, that has been redistributed into the pockets of the rich via the votes in congress of such politicians as Wall Street senators Ron Wyden, Mitch McConnell and Orrin Hatch. That’s why the latter two are against raising the federal minimum wage. Principle has nothing to do with their stand on this issue. It’s purely a case of redistributing income from the middle to the top class, and they know this.

All three senators have been generals of the 1 percent in their war against the middle class, and have consistently voted to ship millions of American jobs overseas via corporate trade treaties. The difference between the old higher US wages and the new lower third world wages go into to the pockets of the rich for every third world worker, for every hour they work, as well as every week, every month and every year.

That redistributed money goes into the pockets of the rich, who then use it to purchase more legislation in the political markets, all with an eye to sending the US middle class into extinction. But it all bids the Dow Jones higher, and higher, and higher, into a financial bubble. So that redistributing more and more income from the 99 to the 1 percent increases the paper wealth of the 1 percent.

However, failure to redistribute this income will result in a collapse of the financial markets, in much the same way as during the Great Depression.

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“As Ben S. Bernanke walks away from the Federal Reserve’s marble headquarters on the Mall here after presiding over his last policy meeting on Wednesday, he will leave behind a bittersweet legacy.

On one hand, his unprecedented efforts to drive down interest rates and stimulate the economy are widely credited by his peers with saving the nation from a second Great Depression, strengthening the economic recovery and leaving the nation’s financial condition poised to take off this year.

Yet those same policies have added momentum to one of the greatest surges in economic inequality in US history, helping the wealthiest Americans add to their enormous riches while the incomes of almost everyone else stagnated.”

What isn’t mentioned in Bernanke’s legacy is the probable wholesale corruption going on at the Federal Reserve. The primary purpose of the Fed appears to be to shield rich investors from any market forces they encounter that lessons their wealth. In other words, the Feds primary responsibility appears to be to rescue the rich from their own foolish decisions. This has opened the door to what appears to be a massive amount of corruption, both in the Fed and in the US government. See Breakdown of the $26 Trillion the Federal Reserve Handed Out to Save Incompetent, but Rich Investors–Johnhively.wordpress.com

As for the rest of Bernanke’s dubious legacy, click on the link below.

Ben Bernanke Leaves Legacy of Stimulus and Stagnation–The Sydney Morning Herald

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Yes, are we getting ripped off. From 2009 to 2011, the richest 8 million families (the top 7%) on average saw their wealth rise from $1.7 million to $2.5 million each. Wealth is what you own, income is money coming in. Income is what makes wealth grow, outside of say, the growth in value of an asset.

The Dow Jones just blew past 15,000, a record. How’d that happen? Easy. Income is being massively, and in many cases illegally, redistributed from the 93 percent to the 1 percent. See your-retirement-bottle-champagne-how-wall-street-fraudsters-ripped-you-again and breakdown-of-the-26-trillion-the-federal-reserve-handed-out-to-save-rich-incompetent-investors-but-who-purchase-political-power. The extra money the 1 percent receive in their rip-off scam is invested in the stock and bond markets, and it is precisely this redistribution scheme that is fueling the Dow Jones Industrials.

That’s why the rest of us, that’s 111 million families, suffered on average a decline of $6,000 each. It’s been redistributed to the 1 percent. Free trade treaties also play a role in this scam. Every year, one to three million jobs are exported from the United States to lower wage nations, according to the Federal Reserve. The difference between the old higher wages and the new lower wages are thrust into the pockets of the 1 percent via higher corporate earnings, rising dividends and soaring stock prices.

Do the math and you’ll discover that the top 7% gained a whopping $5.6 trillion in net worth (assets minus liabilities) while the rest of lost $669 billion. Their wealth went up by 28% while ours went down by 4 percent.

It’s as if the entire economic recovery is going into the pockets of the rich because it is. It’s no accident, it’s been carefully planned, whether it’s shipping jobs overseas, or giving bailouts to the 1 percent via the government and the Federal Reserve.

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A Explanation of How the Stock Market Works

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Could the Dow Sink Below 6,000?

In September 2007, I predicted the current recession, the Fed dropping the federal funds rate to zero, deflation, home mortgage interest rates “will drop below 5 percent and possibly 4 percent,” and numerous other things. Of those numerous other things I also said the Dow Jones Industrials will drop below 8,000 and “possibly” drop below 6,000.

My suggesting the Dow could plummet below 6,000 is not a 100% prediction, more of a strong feeling, a musing of a possibility that represents how weak the economy has become under the disastrous Republican economic policies of the last thirty years. And so we may yet reach that sad stage as billions of dollars of illusionary money disappears.

The below 6,000 possibility is now in sight. But we’re not likely to reach there overnight, it’s more a matter of months if we ever reach it, and there is yet a good possibility such a dubious outcome can be had.

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