Bill Bonner

The Daily Reckoning…proved right again!

We’ve been sticking our necks out. We had a strong hunch that the rich had gotten a whole lot richer not because they were suddenly greedier or suddenly smarter, but because of the feds. The feds were handing out money. The rich were first in line.

But we didn’t have any real proof…until now.

Relatively speaking, the rich have gotten a lot richer over the last 30 years. The whiners and fixers want to do something about it. They say the rich weren’t taxed heavily enough…and they weren’t regulated enough.

That had little to do with it, we pointed out. Instead, the meddlers themselves caused the rich to get richer.

Who’s right? We are, of course…

A report from the Federal Reserve Bank of New York suggests that the bulk of equity returns for more than a decade are due to actions by the US central bank. Theoretically, the S&P 500 would be more than 50 percent lower — at the 600 level — if the bullish price action preceding Fed announcements was excluded, the study showed. Posted on the New York Fed’s web site Wednesday, the study sought out to explain why equities receive such a high premium over less risky assets such as bonds. What they found was that the Federal Reserve has had an outsized impact on equities relative to other asset classes. For example, the market has a tendency to rise in the 24-hour period before the release of the Fed’s statement on interest rates and the economy, presumably on expectations Chairman Ben Bernanke and his predecessor, Alan Greenspan, would discuss or implement a stimulus measure to lift asset prices. — CNBC

How do you like that? Without the intervention of the central bankers, the rich would be about $7.5 trillion less rich. But wait…actually, they’d be even less rich than that. We’ll come back to that, tomorrow…

Let’s look at how the rich got so rich. Did they get a lot smarter in the last 30 years? Did they become a lot greedier? Nah…they were in the right place at the right time. They owned stocks just when the Fed was dumping beaucoup money into the financial system.

We didn’t have much proof for these assertions when we first made them. They just seemed, superficially, correct. The Fed increased the money supply (M2) 13 times since the early ’80s…and the Dow rose about 13 times too. It seemed a little fishy to us.

Wages and prices, meanwhile, were held in check by outsourcing. The US outsourced its consumer and labor inflation to China. So relatively, the rich got richer…leaving the tired, poor multitudes to get even poorer.

And now we have proof. Without the intervention of the central bank, stocks would be at half today’s prices.

One scam after another. It is amazing anyone takes economists or central bankers seriously. And now the same bumblers who caused the rich to get so rich are still on the job…offering more scammy solutions. Here’s The Atlantic Magazine:

…in one of the most famous passages from the Federalist Papers (No.51). James Madison wrote: “If men were angels, no government would be necessary.”

…the issue [is] how to realize the benefits of market capitalism while restraining the powerful impulses to cut corners, cheat, and commit fraud. This ageless question is of special moment in this polarized political season, in which the role of government is central. The cases rebut the assertions of the Republicans, Tea Partyers, libertarians, and corporate leaders who wish to reduce the reach of law and government and who believe that markets will always self-regulate — people from Ayn Rand and Russell Kirk, to Ron Paul and Grover Norquist, to Tea-Party Republican majorities in the House who want to “starve government,” to individual and corporate donors to super PACs, all of whom are today shaping the Republican message.

The cases support people who believe in a mixed economy that gives a central role to economic freedom and free markets — but a system that also places important legal and regulatory limits in order to prevent corruption and protect social goods.

Get it? Businessmen and investors aren’t angels. So government regulators…backed by economists…and opinion leaders…have to step in.

And here’s Jeffrey Sachs calling for major new central planning…

In short, we need new economic strategies to overhaul broken systems of finance, labour markets, taxation, ecological management, budget management and investment incentives. Those challenges cannot be fixed through lowering taxes on the rich or higher fiscal deficits to create aggregate demand. The new approaches must be long-term, structural, sensitive to inequalities of skills and education, aligned with the need for more sustainable technologies and “smarter” infrastructure (empowered by information technology) and congruent with long-term demographic trends. It’s time we moved beyond the Republican Party economics of the 1920s and the Democratic Party economics of the 1930s, to a new macroeconomics for the 21st century.

Never explained is how people on the public payroll got to be such angels…and so smart! If you cut them, do they not bleed? If you insult them, aren’t their feelings hurt? If you wave a $100 bill in front of them, won’t they do your bidding?

Bob Diamond hoped so. Moyers and Winship report:

…the disgraced financier would no longer be hosting one of two Romney fundraising events for American expatriates being held in London later this month. But no worries. The Boston Globe notes that “still among those hosting the events is Patrick Durkin, a registered lobbyist for Barclays… Durkin, who has been a top Romney bundler, is one of seven chairs for the reception and among the 13 co-chairs for the dinner.

Others involved in hosting the events are Dwight Poler, managing director at the European branch of Bain Capital, the firm Romney founded; Raj Bhattacharyya, managing director at Deutsche Bank; and Dan Bricken, a managing director at Wells Fargo Securities. Each guest at the dinner event will pay between $25,000 and $75,000 for the opportunity to sup with the Republican presidential nominee…

More tomorrow…on the whole corrupt and degenerate spectacle. How the feds rigged the system…and how they use the crisis they caused to rig it even more.


Bill Bonner
for The Daily Reckoning

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success in numerous industries. His unique writing style, philanthropic undertakings and preservationist activities have been recognized by some of America's most respected authorities. With his friend and colleague Addison Wiggin, he co-founded The Daily Reckoning in 1999, and together they co-wrote the New York Times best-selling books Financial Reckoning Day and Empire of Debt. His other works include Mobs, Messiahs and Markets (with Lila Rajiva), Dice Have No Memory, and most recently, Hormegeddon: How Too Much of a Good Thing Leads to Disaster. His most recent project is The Bill Bonner Letter.

  • ken

    We can all pretty well agree on what has happened, is happening.

    The $64,000,000 (inflation!) question is “What will happen and when”

  • The InvestorsFriend


    This is completely backwards since a higher risk premium on equities requires a lower price not a higher one.

    Fed can manipulate equities in the short term but not the long term.


    Bill forgets he IS one of the rich. And good for him.

  • Andy

    I beg to differ with you (just kidding); I actually challenge the scope of your thesis. Your scope is way too narrow. It’s not just the Federal Reserve, it’s also the government programs themselves, the tax code, it’s participation within the government culture – there are many who reap direct and indirect benefits from the federal trough. It may surprise some that TALF was created solely to benefit GE (who was funding operations from the commercial paper market, which dried up in 2009). The size and reach of the federal government is huge, and this invites feeding at the federal trough. This is why, in my opinion, party affiliation is irrelevant in Washington. All coalesce around the same mindset with much lower standards than in middle America

  • fritz

    Andy is right.
    Monsanto owns the seed. that is, OWNS. The SEED that grows the FOOD.
    Nestle owns the water in the Great Lakes while Coca Cola is privatizing Drinking WATER in localities worldwide.
    Putin is a mobster, plain and simple.
    the explosion of activity in the financial sector is murderous.
    If we are to survive as a species we must evolve beyond this infintile, bean counting concept of trade.
    you are the 99%.
    wake up
    stand up
    speak up
    act up
    else sentence your children and grandchildren to an empty life of servitude.

  • The InvestorsFriend

    So, buy stocks then!

    Let them eat stocks…

  • NotaBillion

    The “fixers” and the 1% are the same people. Who knows what the dozen or so billionaires are going to stick us with if they win the 2012 elections here in the USA.

  • Al345

    Based on Forbes/Fortune reports on billionaires I calculate about half are Republicans and half are Democrats. The stuff about billionaires equals Republicans is nonsense.

  • Ryan

    This is just about the stupidest article I have ever seen posted on a major newspaper site. His basic thesis: the fed printed more money to artificially raise the price of stocks to make the rich richer… 1. Is he implying that only rich people own stock? Any citizen of any income level is free to buy stock and his stock would have appreciated at the same rate as richer citizens. 2. The rich wouldn’t be $7.5 trillion less rich, EVERYONE IN AMERICA COMBINED would be $7.5 trillion less rich. Everyone is a part of the overall American economy. I don’t understand how some people reason sometimes.

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