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Posts Tagged ‘stock market bubble’

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.

That’s more than half a trillion dollars being used to purchase corporate shares. That’s not a big problem when the market is going up, but it’s now late in the ball game. Our economic expansion is 94 months old, making it the third longest in US history. Statistical indications suggest that it isn’t going to challenge for the number two spot, and that it should peak within the next few months, and then we’ll hit a recession, which will be really bad.

February’s total BOM was $40 billion more than in December 2016. 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. This is probably a good thing to do early in a business expansion, but it’s extremely dangerous to investors and the economy to do this on this scale so late in an expansion.

Suppose you have 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.

On the other hand, let’s say you borrow an additional $20,000 to buy another 200 Home Depot shares at $100 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 your shares are worth $12,000 — but you owe your broker $20,000 (plus interest) for borrowing money to buy the stock. That broker calls in his loan. You are forced to sell your shares to get the funds, but at the lower price. You lose $18,000 on your investment. But your broker wants the rest of his $20,000 plus interest. That’s more than $8,000.

So your original $10,000 is wiped out, and you need to put up extra money to pay back your broker.

During most recessions, it’s 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, that’s a recipe for absolute disaster for the whole economy.

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Notice in virtually every mention in the so-called news media in reporting or editorials for or against raising the minimum wage, there is never any mention that corporate profits are at historic highs, and that raising the minimum wage to $15 an hour would be easy just because of that. The reason we don’t hear that is because the primary job of the propaganda machine of the 1 percent is to keep us misinformed, even if it means simply lying to us. The Oregonian news paper, Fox News, MSNBC, and the Wall Street Journal are cases in point.

That’s because raising the minimum wage will cut into those historically high corporate profits, possibly putting downward pressure on share prices and corporate bond ratings. That would eliminate some paper wealth of the 0.01 percent.

However, recent studies show increasing the minimum wage creates jobs and spurs economic activity and growth by enhancing the demand for goods and services. In other words, that paper wealth of the 0.01 percent, as well as those massive record corporate profits, drag the economy down.

After a potential decline in value due to a minimum wage increase, the stock markets would rebound with soaring share prices due to more robust demand for goods and services.

Here’s a point the corporate propaganda machine doesn’t want you to especially consider.

The rise of the current US stock markets are nothing more than a series of bubbles, NASDAQ and the Dow Jones Industrials being examples. If the federal minimum wage were to be enacted those bubbles would deflate safely to some degree, possibly curbing the great impending economic disaster, which is on the horizon. That economic holocaust will make the last recession look like a blessing.

Just like the stock market bubble in the 1920s, just like the housing bubble exploded from 1994-2007, this current bubble will burst, and with it, much of the US and world economy will evaporate with it.

There are worker strikes for higher minimum wages going on across the United States. They began last week, although some have been on-going for a while.

Forbes magazine reported six days ago;

“The Fight for $15 movement is growing as more Americans living on the brink decide to stick together to fight for better pay and an economy that works for all of us, not just the wealthy few,” said Mary Kay Henry, president of the Service Employees International Union, which has been backing the protests.

Workers in industries beyond fast food have joined the fight because they face the same struggles, says Arun Ivatury, campaign strategist with the National Employment Law Project. “These are all some of the fastest-growing occupations in the country, and they’re also some of the lowest-paying, as little as $8 or $9 an hour in terms of the median wage in these occupations. These are struggles these workers are facing across these industries — they’re facing the same struggle for respect and decent schedules with advance notice and enough hours to make a decent living.”

Giving these people a raise might actually stave off or at least delay the impending economic crash that’s headed our way. It would be good economic policy in the long run.

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