Many voices are hinting, or stating, that we face ominous signs. One prophet of doom is a writer named Mike Whitney
The Fed’s easy money policies have pushed margin debt on the New York Stock Exchange (NYSE) to record levels laying the groundwork for a severe correction or another violent market crash.
In December, margin debt rose by $21 billion to an all-time high of $445 billion.
Oh dear. I think it was John Kenneth Galbraith who said that, in the stock market, every generation learns the dubious "magic" of buying on margin. And then disaster hits, lessons are learned, and things stay more or less normal for a few decades. Then the siren call of ludicrously high margin debt is heard once again...
Our current situation is unusual in that a very recent disaster taught us nothing. Five+ years after the crash of 2008, we're still acting like idiots.
Investors have shrugged off dismal earnings reports, abnormally-high unemployment, flagging demand, droopy incomes, stagnant wages and swollen P/E ratios and loaded up on stocks confident that the Fed’s infusions of liquidity will keep prices going higher. It’s only a matter of time before they see the mistake they’ve made.
Here’s more on margin debt from Wolf Richter at Testosterone Pit:
“On the New York Stock Exchange, margin credit has been hitting new records for months. All three mega-crashes in my investing lifetime have been accompanied by record-setting peaks in margin debt. In September 1987, a month before the crash, margin credit peaked at 0.88% of GDP. In March 2000, when the crash began, margin credit peaked at 2.7% of GDP. In July 2007, three months before the downdraft started, margin credit peaked at 2.6% of GDP. Now, margin credit has already reached 2.5% of GDP.” (“Plagued By Indigestion, Fed Issues Asset-Bubble Warning”, Testosterone Pit)
Stock market crashes are always connected to massive leverage, loosey-goosey monetary policy and irrational exuberance (“excessive risk taking”), the toxic combo that presently rules the markets. The Federal Reserve is invariably the source of all bubblemaking and financial instability.
What is to be done? I'm starting to think: Nothing.
Nothing is politically possible.
The only smart move is for politically engaged people to have a narrative ready when that famous fan says hi to the fecal matter. Maybe Naomi Klein is right: Truly important change becomes do-able only after a shock. The Milton Friedmanites will certainly exploit the coming opportunity.
They stand to benefit because they have a narrative
. The other side, the Good Guy side, doesn't. Just look at the (non-)answers I received when, in the preceding post, I asked "What is to be done?"
A lot of people fought hard to make sure Janet Yellen got appointed to the Fed. Maybe Larry Summers should have gotten the gig. It would have been more pleasant to have Summers to blame after everything goes to hell.
Speaking of narratives:
The Wall Street Journal has published a piece claiming that the "war on the one percent" is actually code for old-school anti-Semitism
Expect to hear that meme a lot more. It's nonsense, of course.
Read the article: You will rarely encounter a more daunting collection of emotionally-resonant scare-words that never coalesce into a comprehensible argument. It's a classic piece of propaganda.
When you get down to it, the propagandists for the plutocracy don't really have many cards to play. They can commie-bait us or they can Auschwitz-bait us. And after that, what can they do?
You can expect to see many more well-paid media shriekers offer up this sort of word salad:
"So, you want those 85 people at the top to have less? Well, you know who else wanted a more equitable distribution of wealth? Hitler! Yes, Hitler tossed a bunch of Jews into the gas chambers, and now YOU want THIS! Occupy Wall Street. The gulags. Neville Chamberlain. Karl Marx. Hitler. Marx. Hitler. Marx. Hitler. Marx. Hitler. Hitarx. Mitler. Adolf Marxlegruber. Karl ad Hitlerum. And Michael Moore wants to eat your puppy. Alive. That's right. That's what will happen if you say you want want income nequality to be more like the way it was under Eisenhower: Michael Moore will come to your house, barge through your front door and make you watch as he EATS YOUR FUCKING PUPPY. And then all the Jews are going to be rounded up. Really, the only way to stop another Auschwitz from happening is to give even more to the one percenters. Perhaps we should pass around a collection plate for Lloyd Blankfein and the Koch Brothers. You don't want me to call you an anti-Semite again, do you? GIVE UNTO LLOYD! NOW!!!"
Hey, that was fun. Maybe I
should get a gig writing propagandistic nonsense for the Wall Street Journal.