Saw a quick blurb on BusinessInsider this weekend. It featured a well-known chart correlating jobless claims with the stock market and pointing out that lower claims mirror the path of higher stock prices. I saw the chart and don’t doubt the data but what made me laugh was their conclusion that it was NOT the Fed that was responsible for the current market rally. It was in fact lower jobless claims according to BI.
Let’s think about this for a moment (and not too much longer!). It’s 2008 and Lehman and Bear Stearns have already gone under. Bank of America is so weak (and too important in the government’s eyes to fail) that they take a major bailout. In addition, the government makes them “bail out” Merrill Lynch. Goldman gets quick approval to “become a bank” so that the Fed can “legally” pump them full of money. Uncle Ben Bernanke lowers rates to ZERO.
Let’s think of the results. Without the Fed, we’d have no Bank of America, maybe no Goldman, and a bunch of other financial firms. There wouldn’t be money available at zero percent interest so that large investors like Goldman wouldn’t be able to turn around and buy up thousands of single family homes across the US and rent them back to the people who were foreclosed.
Also as an aside, remember that Fed zero interest rate policies means that you earn ZERO or about ZERO, in your bank accounts. Your loss was Goldman’s gain.
FInancial jobs would be far fewer in number.
Car loans would not be ZERO percent. And all of the people whose jobs were saved by zero percent rates wouldn’t be buying cars. Dealers, car salesman (ok this wasn’t all good), people who charge $150 to detail a car all would not be doing as well.
The real estate bonanza – with goodies for agents, mortgage brokers, appraisers, contractors, builders, home improvement stores (never mind local municipal property tax collections – HELLO Stockton CA) would not exist like it is today.
Retirees and their investment accounts would not be propped up. NO retiree spending on vacation homes, cars, and lifestyle like travel. How would travel agencies and sites be doing without the bailout?
Ignoring the Fed as the entity that pulled the strings behind all of this “low unemployment” (remember, more people are “dropping out of the workforce” each week which in a sick way lowers “official” unemployment) is just silly. People like to toss out stats and charts and make the basic statistics mistake – thinking that correlation = causation. Correlation should pique curiosity but it should cause us to investigate further, not stop and be satisfied that we found a chart that looked good.
This just shows me that after 4 years, people still don’t get it. Especially when they’ve paid for all of this (subsidized) through their bank accounts. Earning 0.10% in your bank account is a direct result of Fed policies to lower rates so that financial firms could survive and so people would borrow and spend more. So if you’re a saver, you have been sacrificed at the altar of GDP growth – and your government thanks you (that’s a guess – they probably don’t give a crap about you). Congratulations.