The Federal Reserve is directly buying stocks, bonds, junk bonds, mortgages, junk mortgages, all to prop up the value of assets owned by the top 5%. This does not spur much new production or create jobs. Michael Hudson joins Paul Jay on theAnalysis.news podcast
Hi, my name’s Paul Jay, and welcome to theAnalysis.news podcast. Michael Hudson is a distinguished research professor of economics at the University of Missouri, Kansas City, and also a professor at Peking University in Beijing. He’s written or edited over 10 books on international finance, economic history and the history of economic thought. His newest book is J is for Junk Economics and most recently, And Forgive Them Their Debts, which Martin Wolf of the Financial Times cited as a Book of the Year for 2018.
Thanks for joining us, Michael.
It’s good to be here, Paul.
So with so much bad news in the world, and when the stock market crashed in late February, why didn’t it stay crashed? Two months after the crash to 14 month lows, So at a certain point, almost historic lows, the Nasdaq composite is closing in now on all time highs. Why?
There is only one reason for a stock or bond prices to go up. And that’s because of the flow of funds into the stock market. What had been supporting the stock market for the last 12 years was very largely stock buybacks by companies using their revenue to sort of close down their business, disinvest and buy their own stocks to at least keep the prices up. Well, what’s flowing into the market right now? Obviously, it’s not corporate profits buying their own stocks, and it’s certainly not popular money coming into the market by small investors thinking that stocks are going to earn more. All this money is coming into the market from the 10 trillion dollar bailout via the Federal Reserve. The Federal Reserve is going out directly and is buying stocks, bonds, junk bonds, mortgages, junk mortgages, all to prop up the value of assets.
Now, when it’s putting this money into the stock market, it’s buying stocks that are already issued and have long since —the proceeds have been spent on building factories or enterprises or as means of making money. So none of this bailout money, none of this 10 trillion going into the stock market has any effect at all on the real economy of production and consumption. It’s solely to support the assets that are held almost eighty five percent by the wealthiest 10 percent of the economy.
So the Fed has revived the stock market downturn. It’s come up, and what it said is, “Folks, you can bail out of the stock market, give us your junk bonds. That’s sort of like the Statue of Liberty for wealthy people. Give us your stocks. Sell your bonds. We’ll buy them all up at Federal Reserve expense and will purchase them. And we’ll also do our own forward buying to manipulate the stock market by promising to buy our stock, so the higher price in the forward market. So that’s going to create a speculative demand for stock. So the speculative demand for stocks by Federal Reserve manipulation and the actual flow of funding money into the stock market from the government has been pushing it back up, giving the illusion of prosperity, at least for the 10 percent.
But are they actually straightforwardly buying stocks to they’re buying corporate debt, which allows them to go buy their own stocks and also just making so much money, so cheap people can buy stock?But is the Fed actually straightforwardly buying stock?
That’s what it said it’s been doing. Or it’s buying packages. It’s buying—We don’t know exactly what it is buying because it doesn’t have the report. That’s why the Treasury left the Fed to do something that doesn’t have to be followed carefully. It took up Randy Wray at Bard College’s Libby Institute about a year just to untangle what the Fed had done after 2008 and 2009 with the big Obama bailout of quantitative easing. So we’re not going to know for later what’s been happening. But certainly corporations are not buying their own stocks now because that would make that that would be a political disaster and they just wouldn’t get more bailout money. So the money is coming almost entirely from speculators or from the Fed promising to buy what speculators buy at a higher price later on. So it’s manipulating the foreign exchange market just like the Leibor market was manipulated. Almost all the financial markets these days are manipulated by high finance in cahoots with the Central Bank. And if you don’t have that central bank backing, then there’s not going to be the flow of funds going into the markets.
And certainly small investors are not buying. Regular investors have already been getting out of the stock market for quite a few years now. It’s only for our professionals, often for a computer trading gets into the act. It’s an insider’s game that is basically fueled by the Central Bank.
So you wrote an article called, The Coming Financial Horror, that the Federal Reserve Chairman Powell is essentially promoting a fantasy that there’s going to be relatively quick recovery, although recently he was saying it’s not going to be quite so quick as people thought. But this stimulus program they have, whether it’s propping up the stock market or buying corporate debt or funneling money directly to corporations—Is it going to have any effect that’s longer term than what it seems to be, because one can see that if they try to get the economy going again, and they haven’t done more on the side of consumer demand, who the heck’s going to buy us off to get the economy going again?