Rabo: The Fed Wants Everyone Putting All Their Money Into Stocks

By Michael Every of Rabobank

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However, there are times when important nuance is lost. “Put this product in the fridge vs. put this product on the fridge”, for example. That something important missing can really matter is a second reason to be echoing Yossarian at the start of Catch-22, and eliminating all the vowels. In particular, consider that we will today see the Bank of Japan meeting. Obviously, we should not expect anything much of interest to happen there. But following that this week, we get the Fed meeting – and while once again nothing is likely to happen, what this misses entirely is that the Fed has no good options.

The FOMC cannot draw too much attention to the fact that global supply chains are snarled, and input-price inflation is soaring because there is nothing monetary policy can do about it. As such, it will wait and see if there are second-round inflation effects via demand-pull.

The Fed CAN do something about those via tapering QE – but that would undermine frothy asset prices, which always seems to be something the Fed is loath to do, and still do nothing about supply chains. Moreover, given more and more of US society is now on the financialisation bandwagon, with a growing share of stock trading in retail hands, it could be sold as hurting the poor too.

Or it can raise rates, but that will undermine its social goals, also without doing anything about supply chains. That’s what the Fed did under Volcker decades ago after oil prices had gone up by over 1000% in a few years – which I will turn to in a moment. So, the Fed will do nothing and hope this all goes away. Which it won’t.

As an aside, there has been a lot of talk about helicopter money of late. Even with multi-trillion stimulus packages and mailed-out checks in the US, we aren’t there yet. However, if the Fed can get EVERYONE putting ALL their money in stocks, would that not provide them with a method of pumping up the economy while making it look like a “financial market” was at work? If so, how does that differ from Keynes’ 1936 proposal to bury printed bank notes in old coal mines, and watch businesses and individuals turn into miners to try to retrieve them? And how does that actually differ from crypto-mining? Thr r lts f mprtnt thng tht ppl r mssng hr!

Meanwhile, the Biden White House is tapping Vice-President Harris to lead a commission that will spend 18 months looking into the issue of unions in the US, and how they can be boosted. Let me be clear. Growing up in the UK, I have a very clear memory of strong unions – and it is best summed up by the 1971 movie ‘Carry On At Your Convenience’: ”…the tale of industrial strife at WC Boggs’ Lavatory factory. Vic Spanner is the union representative who calls a strike at the drop of a hat; eventually everyone gets fed up with him. This is also the ideal opportunity for lots of lavatorial jokes.” The point is that in 1971, the average British working-class movie-goer was as familiar with “Right, lads, tools down!” unions as they were with lavatory humour. Which really says something if you know the Brits and toilets.

Yet having said that, how else are we going to see a rebalancing in the economy between the power of labor and capital, which even Treasury Secretary Yellen is now talking about? And without that, how do we move away from the agglomeration of capital in fewer and fewer hands, and with power to match? Perhaps via taxing them – which is a proposal also on the table right now too.

But here is the key dilemma when talking labour vs. capital: Marxism offers no ideas, apart from bad ones, on how to run an economy. Hands up who wants the ‘Dictatorship of the Proletariat’, or expects the state will just “wither away” after a revolution? A third of those in the US under 35 – which says a lot about what else is missing: socio-economic opportunity, and quality education. Yet Marxism as critique of *unfettered* capitalism is on the money, even if the Labour Theory of Value (LTV) is wrong. How else did we end up in this whole mess? Coincidence? Bad luck?  

While I want to avoid being teleological like Marx, one has to note the zeitgeist seems to be moving against the free hand Big Business has had up until now. Look at the ESL debacle, for example. And in the US, not only are the Democrats talking about higher taxes and unions, but the Republicans are writing Op-Eds which argue ‘Corporations That Undermine American Values Don’t Deserve GOP Support’. Here is one key passage:

“More politicians are realizing what I understand: As our corporate leaders care less and less about the strength of our nation, the policy advice they give lawmakers makes less and less sense for our country…Cutting corporate taxes, and especially investment taxes, makes sense if US companies are going to invest in American industry. But if they’re instead prioritizing offshoring operations or simply returning windfalls to shareholders, then policymakers are going to start being more careful in how we structure tax cuts. Employer-friendly labor laws make sense in a world where corporate CEOs feel an obligation to their fellow countrymen and workers. But the logic of resisting labor representation on behalf of corporate management falls apart if an American worker is no different to the corporation than any other input.”

Yet this precisely describes the global economy created to deal with the last supply-chain, cost-push inflation spike back in the 1970’s, a world in which we all adapted to not notice that, like vowels, labor power was missing. More of that policy won’t sell and can’t work today. But then what? And more so as, in complete contrast to Marx’s LTV predictions, firms automate to maximize their profits if forced to otherwise raise wages? Does anti-globalisation then have to become Luddite too? Or does the state have to play an even larger role? And where does the Fed then sit – and markets?

(And for Brits of a certain age, how long until we get ‘Carry on Central Banking’ starring a digitally-recreated Kenneth Williams as Jerome Powell, Hattie Jacques as Janet Yellen, Charles Hawtrey as President Biden, Kenneth Connor as Anthony Blinken, Bernie Bresslaw as John Kerry, and Sid James as Donald Trump?)

In short, one can see why the FOMC will do nothing this week. Fingers crossed until hard choices finally have to be made will still be preferable to some of the other potential future outcomes.

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