These are the two points U.S. voters need to carefully consider at this point of the crisis.
One, a large section of the mainstream is pushing the idea that the stock markets will, to use Trump's words, "bounce back very big at the right time." The "right time" is not specified, but one supposes that it's when the spread of COVID-19 is finally checked and people return to the lives they had before the crash.
The other point concerns that stimulus package, called the "phase three" bill, or CARES (“Coronavirus Aid, Relief, and Economic Security“) Act. It's just over double the size of Obama's "The American Recovery and Reinvestment Act of 2009 (ARRA)," which had a price tag $787 billion, and has three main sections.
The first is a single direct transfer of cash to citizens who pay taxes ($1,000 for each adult, $500 for each kid) and expanded unemployment benefits. The second takes the form of relief to small businesses. And the last part is basically a $425 billion bailout for corporations. Opponents of the bill have a big problem with the language and construction of the third part.
The bill, rejected by Democrats on Sunday and again today, gives $425 billion to the head of the Treasury Department, Secretary Steven Mnuchin, a man who played a huge role in the crash of 2008. (He was known as the "foreclosure king.") It would then be up to him (on his own) to pick who gets what and under which rules.
Indeed, the public would never know for 6 months how much this or that corporation received from tax payers, nor how it would be spent. But it's not hard to guess where this cash would go. One, a given corporation would settle outstanding contracts to executives; two, it would be hoarded; three, it would re-inflate the value of collapsed shares. (For example, a little over a year ago, a Boeing share was worth $400; now it's around $100.) There is nothing so far in the language of the assistance in the present bill that bans any of these options from being realized.
So, that's what the voter must consider at this moment: Will the markets really bounce back? And who will really benefit from the massive stimulus?
Before you reach your conclusions, I must now give you the really bad news.
Pres of @afa_cwa Sara Nelson (@FlyingWithSara) applauds Democrats for “heroic” vote against the GOP’s corporate bailout. She says it’s “critically important” that any relief package helps workers on the front lines. Say no to the $500 Billion #GOPSlushFund. pic.twitter.com/qhmH2eqSDi
— The Daily Edge (@TheDailyEdge) March 23, 2020
What exactly is happening with the crash of 2020? The first thing to come to terms with is that markets are not tied to productivity as such (or conventionally understood) but to earnings reports, which come out quarterly and impose on corporations the kind of unrealistic performance and growth schedules that result in planes falling out of the sky.
Because earnings are checked every three months, compliance with what is called shareholder value maximization (a concept that did not exist 50 years ago) results in two things: one, the manipulation of the Generally Agreed Accounting Principles (GAAP); and, two, cutting production costs. Because production has two sides, constant capital and variable capital, the former cut takes the form of wage stagnation or redundancy (unemployment). Another victim of meeting earning targets is, of course, business investment, which is, in the U.S., "around the lowest level [it has been] for more than sixty years," as Marianne Mazzucato explains in her book, The Value of Everything (one my four guides during this crash).
This is all pretty understandable. I now want to face the real monster of the present crash, the Minotaur that CARES is trying to feed and placate. The fact that is invisible to most citizens is the actual source of much of the money that rapidly inflated stock market values over the past 3 years of exceptional euphoria. Where did it come from? If the stock value of companies isn't matched by their real earnings, and if these companies haven't really invested in conventional forms of economic growth (i.e. new products, start ups, and so on) during the boom, then what accounts for a vast part of the wealth poured into the markets? Where was it before the boom? Was it sitting around with nothing to do? Unproductive capital longing for an opportunity to express itself? Recall that Bjork line: "You are gorgeous, but I haven't meet you yet." Is this what the money was doing before the market boom? Waiting for the loved one it knows exists but who isn't there yet?
The answer to this question will remain elusive if, one, borrowing is not factored into the value inflation of stock markets, and two, if one believes that banks lend funds from existing capital (savings and profits). Remove those fictions and what you will see is this: The financial institutions that run our economic system loan money that is made out of thin air.
The often neglected work of the American economist of Hyman Minsky relentlessly exposed the nothingness at the heart of Wall Street transactions. He began thinking along these lines in the late 1950s. By the second half of the 1980s, he had established a model of the financial system that accurately described the steps markets take from boom to bust. This model was based on his “financial theory of investment.” At the center of that theory, which has its complications, is an understanding that banks loan money that's made with a "keystroke," as Minsky's student L. Randall Wray calls it in his book, Why Minsky Matters. Wray: "Today the entries are made through computer keystrokes. Before computers, they were written in pen and ink. In any event, it is not at all misleading to say that these entries are 'created out of thin air,' even if ink is used. The amount of real resources used up is insignificant—even in the case of paper notes."
This insight has been rejected by mainstream economists on both the right and left (see, for example, Paul Krugman's 2012 debate with the Minskian, Steven Keen). Mainstream economists have, for a very long time, insisted that either money is neutral or it comes from a real place, from capital accumulated by conventional means. But they're wrong. Money is political and banks create money out of stuff that's even less real than dreams.
With that in mind, let's turn to a report posted on March 12, 2020 by Markets Insider:
Thursday's massive sell-off has erased any remaining stock market gains made since President Trump's 2016 election win... US stocks are down more than 8% Thursday afternoon as coronavirus risks build and investors fear near-term recession. The total market cap of the US equities market, as measured by the Russell 3000 index, has declined by $11.5 trillion from its February 19 peak to $23.8 trillion as of Thursday morning.
The catch in modern finance is this: It is easy to create money, ex nihilo but it is not so easy to erase it. Or, put another way: It's easy playing God, but it's much harder playing the devil. The button for delete is notoriously hard to find on banking keyboards. And even if it is found, it is useless because that created money has been realized as debit or credit in someone's books.
The debit side is now the problem, and so corporations in the banking sector and service sector and industrial sector must turn to the lender of last resort, the Feds and the Treasury (or, to use Minsky's language: Big Banking and Big Government) to balance their books. This means receiving from the public on the credit side and sending to the public from the debit side. What will not be permitted is the total destruction of the wealth that was made up over 3 years of what some call the Trump Bump. We will be forced to live under the weight of so much money that did so little for most Americans. And as we carry this impossible financial load, we will be told, again and again, that the markets will bounce back and clear the debts on the government's books.
This is where things stand at the moment with the stimulus package. The $500 billion will be used to keep our society away from the delete button.