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January 19, 2021

Defying the pandemic

Opinion

January 19, 2021

On November 24, 2020, the S&P 500 hit a record, "defying” the pandemic the Wall Street Journal notes. The Journal added that stocks’ stellar year defied the virus and economic slump—describing it as dazzling and as a “euphoria.”

At the same time, the rich are getting wealthier. Jeff Bezos, the owner of Amazon and now second richest man in the world, became richer by 13 billion dollars in just one day (while denying his workers paid sick leave at the same time). The richest American family, the Walton’s, increased their account balance by $21 billion within 20 weeks. Elon Musk became the second richest person in the world and has since overtaken Bezos as the world’s richest person on the planet. In fact, this is a defining trend for the rich since the start of the pandemic.

As of December 8th, the Institute for Policy Studies calculates that U.S. billionaire wealth has increased by $1 trillion since March 18th. The numbers are eye popping: the total net worth of their wealth has increased by billions per day.

Indeed, the stock market finished the year near all-time highs, “enriching” the wealthy despite a deadly pandemic that has witnessed nearly 350,000 US deaths (and rising) while millions are unemployed. As the coronavirus crisis lingers on, we are once again reminded that there is a clear divergence amongst the two sides of society and the economy: the rich and the poor.

So how did we get here? How did rich corporations and finance capitalists come out of the pandemic in very good health in contrast to the general population? Why is there such a major stock market-economy disconnect? Why have the fortunes of the rich been completely detached from the issues experienced by the rest of society?

Firstly, it is important to recall that the stock market is not the economy. As economist Dean Baker has noted multiple times, the stock market is a measure of expected future corporate profits. In other words, the stock market can be in great shape while the economy is reeling because investors anticipate higher profits.

Yet more importantly, as part of the CARES Act bill passed by Congress, on March 23, 2020, the Federal Reserve, in a first-time move, announced that it will directly buy corporate debt as part of its emergency lending programme. That was all it took in creating profound effects across markets. The reason is clear: its announcement was all that was needed to stabilise corporate stocks and bond markets causing them to surge because it sent the message that if corporations are in trouble, they need not worry because once again they have the “free market” government to rescue them. Furthermore, this massive corporate rescue helped secure further corporate bonds that wouldn’t have been possible without this Fed guarantee as it allows corporations to take on more bonds without its negative consequences. Needless to say, this had its intended effects. Many companies, such as Apple, explicitly noted that its bond issuance will be used for “share buybacks and dividends.” Corporations like Boeing secured $25 billion while Exxon got $9.5 billion on the bond market.

In addition to buying corporate debt directly, the Federal Reserve pumped massive amounts of new money by setting rock-bottom interest rates in which subsequently little of this actually flowed into productive investments that could have put the economy on a progressive track and could have helped millions in dire need of assistance. Rather, this new money went where returns are rapidly rising: the stock market. This perpetuated the cycle and gave us a “euphoric” year. Through another major intervention by the state, corporations, financial intuitions, and rich investors used most of this new money to buy more stocks driving up stock prices. Hence, this is why we constantly read news of a record-breaking stock market.

Of course, there weren’t any set of conditions such as worker retention leveraged in the Fed schemes. As a report from the Center for American Progress notes: “Importantly, none of these large corporate bailout facilities include any conditions for the companies receiving government support, such as restrictions on share buybacks and dividends, limits on executive compensation, or payroll maintenance requirements.” So, it was perfectly legal if corporations chose to fire their workers during an ongoing pandemic. This was, in fact, what Boeing did for example. It cut thousands of jobs even though it secured tens of billions in bonds—only made possible through the Fed scheme.

In addition, on December 18, 2020, the Fed gave a green light for banks in 2021 to resume share buybacks in another move that will balloon the stock market. The banks wasted no time with this gift—just 10 minutes after the announcement, JPMorgan Chase announced a new $30 billion share buyback program. It shares climbed 5 per cent the same day.

At the same time, government support for the general population has been inadequate, slow, and too little to what should have been done. Many had to desperately wait for a one-time ‘stimulus’ check or $600 a-week supplemented unemployment insurance from Congress that had several issues—which eventually dried out months later, and then were forced to wait nearly 5 months for another insufficient Congressional relief bill. Amidst all of this, millions are barely getting by and are living in profound misery. To highlight one example, according to Feeding America, more than 50 million people have experienced food insecurity by the end of 2020 while millions are in lining up breadlines. Yet, the latest relief package signed in December does not include direct state and local aid, threatening neoliberal austerity cuts onto millions while including a significant tax cut for the wealthy. The Economic Policy Institute forecasts a dire picture if federal aid to state and local governments isn’t secured: over 5 million jobs will be lost by the end of 2021.

As Matt Tabibi opines: “the financial markets are getting the World War II-style ‘whatever it takes’ financial commitment, based upon the continuing fallacy that “wealth creators” must be the first in line for rescue in any crisis. This was a wrong assumption on the decks of the Titanic, a wrong assumption after 2008, and a criminally wrong assumption now”.

Recently, United States Secretary of the Treasury Steve Mnuchin declined to extend the CARES Act’s Federal Reserve lending programmes. The reasoning he gave is openly honest and indeed true: the lending programmes have “achieved their objectives”.

Excerpted: ‘Despite Pain and Record Death, Why Is the Stock Market So High?’

Commondreams.org