Sunday December 05, 2021

One year later

August 17, 2021

We hear a lot lately about the US billionaires increasing their wealth by more than $1 trillion over the past year, as Covid precipitated the most severe recession since the 1930s of the real economy over the past year–from the spring quarter of 2020 last year through the spring quarter 2021.

Over the same period, however, US stock markets surged to record levels. This past week in early August they attained record breaking levels nearly every consecutive day.

Much of that record surge in stock and other financial markets has been due to the US central bank, the Federal Reserve, over the past year pumping almost $4 trillion in virtually free money into the banks and big corporations even though they were flush with excess cash.

The Fed in effect ‘pre-bailed out’ the banks even when they weren’t in trouble.

Moreover, the Fed has indicated its intent to continue to pump free money into the banks and even non-banks at the rate of $120 billion per month, through 2022 at a minimum. That’s more than $2 trillion after the past year’s nearly $4 trillion–even though no banks are in trouble or need it.

But bankers and billionaires were not the only big beneficiaries of government bail out policies over the past year.

So were the vast majority of largest US corporations. Starting in January and February 2020, medium and large non-bank corporations began to raise trillions of dollars in cash by selling their corporate bonds at dirt cheap rates made possible by the Fed driving interest rates to near zero. Added to this cash hoard created by low Fed rates and record corporate bond rates, the same medium-large US corporations drew down hundreds of billions more from their credit lines with banks, then got $650 billion in new tax breaks from Congress in March 2020. They also got to cut their operating costs big time (especially wages and facilities costs) dramatically due to the shutdowns.

The combined result was record income gains for big US corporations–not only for US billionaires! How big?

Reports just released in recent days reveal 89% of the Fortune 500 companies increased their revenue this latest quarter (April-June 2021) by no less than 24.7% over the same quarter in 2020 when the Covid induced recession began.

That 24.7% revenue explosion compares, by the way, to an average quarterly revenue gain of 4.5% over the past 5 (non-recession) years; and 3.4% average over the preceding 10 years after the last official recession ended in 2009.

So Corporate America did fantastically well as result of the recession, not just the ‘tip of the wealth receiving iceberg’, US billionaires!

In contrast to the record gains of billionaires, stock shareholders, and big corporations in general, over the same past year, more than 35 million American workers lost their jobs at one time or another. And at least 17 million are still jobless: 12m are still collecting unemployment benefits plus 3m dropped out of the labor force plus 1.5m are still improperly classified as ‘furloughed but working’ by the US Labor Dept (which it admits was incorrect but still refuses to correct).

Excerpted: ‘Covid Recession Year One: Who Gained? Who Lost?’