DO YOU REMEMBER the GREAT RECESSION?
I certainly do. Some of my friends lost a lot of money back in 2007-2009. So, I’m not sure that the Fed is going to be able to lasso inflation or recession today using the methods they used previously before the Great Recession 0f 2007-2009.
That financial crisis was a big bust brought on by Wall Street moguls trading ‘insurance contracts’ with each other. These contracts were called ‘derivatives’ i.e. derived from an underlying financial product.
Many of the of the heads of big banks, insurance companies, and investment mangers hawking derivatives back in 2007-2008 are still residing in comfortable offices on Wall Street today. But don’t think nothing has changed. That crisis seriously changed the face of their financial products.
Money market certificates were the first large financial products to fail along with the banks 2007-2009. Since then another category that working people relied on for savings faded away. Those were U.S.government bills and bonds.
And since then the Federal Reserve began to lower interest rates while hundreds of banks and credit unions in the U.S. declared bankruptcy.
Meanwhile our Federal Government hurried into action and came up with several programs to protect the “too big to fail” big U.S. corporations, e.g. City Bank, Lehman Brothers, Goldman-Sachs, AIG, etc. using taxpayer money.
THE REASONS THAT THE MOGULS CHANGED THEIR PRODUCTS
Those giant coporations that survived the Great Recession are now hawking ETFs and Index funds. (ETFs) Exchange Traded Funds have almost driven mutual funds out of the stock market by offering low fees.
One lone investment management advisor, Vanguard, is using TV ads to seek out working people who desire to be owners of their mutual fund products. So why is this important to understand?
ETFs are derivatives of mutual fund and index funds. ETFs can be traded on the stock market all day while mutual funds are less flexible – mutual funds trade only once a day. (Index funds, such as the S&P 500 or Russell 2000 are also now widely used by options traders for buying and selling stocks to control risk of losses).
Vanguard’s appeal to those who would be owners of mutual funds reminds me of seeing a money show speaker back in 2007 who claimed that real estate products (REITS) were better than other kinds of investments because they were REAL. I couldn’t help snorting!
At that time I owned a condo unit that was full of mold and could not be lived in, sold, or rented.
This happened because the Homeowners Association Board members refused to remediate my condo, and even kept on watering our porous siding in winter.
That VERY REAL investment was a nightmare that stretched over six years while embroiled in a court suit that ended with our larcenous attorney taking every penny and more from pathetically small settlement she negotiated for us on order of the court.
So why have ETFs and Index funds taken over the stock market? The Moguls in the Giant Wall Street corporations no longer want to own products that they can’t quickly buy or sell (i.e., liquid products). When there is upheaval in the market, buyer beware! Do your research!
BACK TO OUR SUBJECT – THE FEDERAL RESERVE
I’ve thought for decades that relying merely on two variables out of the many variables in British economist Lord John Maynard Keynes’ 20th century algebraic formulas used by economists to end the GREAT DEPRESSION of the 1930s are too few to stave off Inflation or Recession.
I still have no idea why the FED has confined itself to balance Keynes’ variable Employment against Keynes’ variable Interest Rates to control inflation and recession.
Our biggest economic challenge right now seems to be broken supply chains, a variable that didn’t exist in Keynes’ life time. (but would probably fall between two of Keynes’ variables Imports and Exports now).
The second biggest challenge is the churn in Employment that’s going on that is causing employees to try to get better jobs and make more money.
THE FED—WHY NOT USE A DIFFERENT VARIABLE?
Why not? There are other choices. For example, in Keynes secondary formula there is a variable called Wages. Wages are workers earnings.
Many working people earn Wages too low to live on in this year. On the other hand, raising the Minimum Wage is hard on Main Street employers who have lost customers when Covid hit.
Ever since 2020, Big Pharma has been working overtime along with Covid vaccinations and opiods as well to over use the Internet and cable companies to sell products galore on TV.
Also, numerous other small entrepreneurs are shilling online. And we have bought their products with taxpayer money from the government. That tapered off this year. Dramatically!
Right now, there is a scarcity of workers due to the low-wage service sector that has blossomed in past decades. And many workers are losing their jobs because Congress’ Trade Adjustment Assistance for Workers program (TAA) has allowed the program to expire on July 1st.
Wherever I walk on the Main streets or shopping centers where I live, there are “We’re hiring” signs on the windows. The Employment variable has been doing quite well. What isn’t doing well is the Wages variable.
Why isn’t this variable doing better? You’ll notice that after the the GREAT RECESSION of 2007-2009 the FED began lowering Interest rates, thus dampening down savers and encouraging many people to pay off their credit cards and other debts and spend like crazy.
The FED is now raising interest rates in hopes that consumers will start using their credit cards again to offset rising inflation. But what is happening is that there is still too much money chasing too many empty buildings, empty store shelves, and empty car lots and broken-down supply chains. Basic human needs are not being served like they were before.
So where are those good paying union jobs that President Biden promised to spend taxpayer money on???
See my next post, WORD OF THE DAY —INFLATION +THE FED Part 2