The Right Opinion

Killing the Middle Class

The Federal Reserve continues to sign on to Obama's war on the poor.

By Arnold Ahlert · Dec. 20, 2013

If one takes the mainstream media seriously, Ben Bernanke's announcement that the Federal Reserve would begin “tapering” its purchase of government bonds and mortgage securities by $10 billion dollars per month was the reason for Wall Street’s rally on Wednesday. Yet as the chart here reveals, the reaction to the Fed’s decision was a rapid and precipitous drop first, followed by a large rally, when Bernanke dropped the far more important shoe: interest rates would remain near zero for the foreseeable future. Thus, the nation remains wedded to a policy best described by Andrew Huszar, who was responsible for executing the first round of Quantitative Easing (QE), as “the greatest backdoor Wall Street bailout of all time.”

And while Wall Street has flourished, Main Street remains mired in the “new normal.” It is the new normal where a staggering 75 percent of the jobs created this year have not only been part-time, but low-paying. It is the new normal where the “decline” in unemployment to 7 percent is belied by the reality that a record high 91,541,000 of Americans are no longer in the labor force as of October, and the workforce participation rate is 63 percent, the lowest its been since 1978. Some of that decline can be attributed to Baby Boomers retiring, but the participation rate of workers aged 16-54 also declined during the recession – and has yet to recover.

And that’s assuming the figure of 7 percent unemployment itself hasn’t been manipulated, apart from not counting those who are no longer looking for work. The House Committee on Oversight and Government Reform has initiated an investigation into a New York Post report that employment data leading into the 2012 election may have been deliberately manipulated. “Just two years before the presidential election, the Census Bureau had caught an employee fabricating data that went into the unemployment report, which is one of the most closely watched measures of the economy,” writes the Post's John Crudele. “And a knowledgeable source says the deception went beyond that one employee – that it escalated at the time President Obama was seeking reelection in 2012 and continues today.”

Tellingly, the Fed’s announcement on Wednesday makes yet another reference to the reality that the continuing implementation of QE has been predicated, at least in part, on the unemployment rate. For months, Bernanke insisted he would continue QE and its low-interest rate environment until the unemployment rate dipped below 6.5 percent. How the Fed could base anything on employment figures that are deceiving at best, or an outright hoax at worst, demonstrates how desperate they are to pursue their policies irrespective of reality.

Yet a little reality intruded nonetheless. As CNBC noted, in the midst of Wednesday’s stock market euphoria “a sharp jump in new jobless claims in the latest week to 379,000 and an upward revision to the number of the prior week’s new claims offered the market little support.”

What really offered the market support was the far less subtle change in interest rate policy that accompanied the taper. Just under two years ago, Bernanke announced that the Fed planned to keep interest rates low through 2014, as part of a policy that even the New York Times characterized as one “that began as shock therapy in the winter of 2008” and transformed “into a six-year campaign to increase spending by rewarding borrowers and punishing savers.”

Last month, Boston Fed President Eric Rosengren contended that particular brand of shock therapy could continue into 2016. “You could easily imagine if we have relatively slow growth in the overall economy, even though it picks up from where we are now, that it could be 2016,” he said. “You’d certainly need to have growth 3 percent or faster if you’d want to see short-term rates rising at that point.”

On Wednesday, that assessment changed once again. The Fed will now keep interest rates near zero, “well past” the time when the unemployment rate falls below 6.5 percent. What does “well past” mean? Whatever the Fed decides it means.

Those interest rates have been a godsend for Wall Street, forcing many investors out of low-yield bonds into equities, which have soared. But the harsh reality of the Wall Street boom underscores the phoniness of Democrats' concern with regard to addressing the “income inequality” President Obama characterized as a “fundamental threat” to American prosperity: 5 percent of Americans hold 60 percent of stock market wealth, and the top 10 percent own 80 percent of it.

It is that asset wealth that has fueled income inequality more than anything else over the last five years. A study conducted by economists at the University of California, Berkeley, the Paris School of Economics and Oxford University reveals that the top one percent of earners garnered 19.3 percent of household income in 2012. That’s their largest share of the pie since 1928.

One of the study’s authors, Emmanuel Saez of the University of California, Berkeley, contends that the surge may be due in part to those Americans cashing in stocks to avoid higher capital gains taxes that kicked in last January. He admits that some of the data is based on projection and could be revised, but his established data covering the years 2009-2012 is equally telling. “Top 1 percent incomes grew by 31.4 percent while bottom 99 percent incomes grew only by 0.4 percent from 2009 to 2012,” he writes. “Hence, the top 1 percent captured 95 percent of the income gains in the first three years of the recovery.”

In spite of this data, Bernanke insists that the Fed’s objectives “are squarely tied to Main Street,” as he insisted in response to questions at the National Economists Club last month. “The economy has been growing, jobs have been coming back and the Fed has been an important factor in maintaining that momentum.”

Again, this is the weakest recovery since the Great Depression, job growth is overwhelmingly part-time and low-paying, and the Fed has created a massive asset bubble best described by David Stockman, who was President Reagan’s director of the Office of Management and Budget: “The Fed is exporting this lunatic policy worldwide,” he explained. “Central banks all over the world have been massively expanding their balance sheets, and as a result of that there are bubbles in everything in the world, asset values are exaggerated everywhere.” This is due to the reality that there is a virtually unlimited supply of money – printed out of thin air, no less – chasing a fixed set of assets. As a result, Stockman noted one other unfortunate reality: most bubbles come to a violent end.

Thus, the art is letting the air out of the bubble gently, which is what the taper is all about. Yet there is an unseemly level of hubris attached to the idea that the Federal Reserve can maintain that kind of control. As the NY Post’s John Crudele explains, there comes a point in time when those willing to finance American’s unconscionable level of debt begin to realize “they too are being fleeced” by near-zero interest rates “simply because the Fed has been the shill in the crowd at each bond auction for half a decade.”

That would be the same half a decade in which the rich got much richer and the middle class stagnated, even as Americans have been told time and again by this administration that things are getting better – even as interest rates remain at historic lows precisely because they aren’t. Art Cashin, director of floor operations for UBS, best explains what is occurring after five years of unrestrained stimulus: “This market, this whole economy has kind of a split personality,” Cashin said. “Wall Street is making a record, and yet your brother-in-law can’t find a job.”

Originally published at FrontPage Magazine.


Kevin from Arkansas in USA said:

" the “decline” in unemployment to 7 percent is belied by the reality that a record high 91,541,000 of Americans are no longer in the labor force as of October, and the workforce participation rate is 63 percent,"

The graphic as of 12/06/2013

The chart is real time and updates as new data is reported.

Friday, December 20, 2013 at 8:37 AM

Tapdaddy in Indiana said:

The real estate bubble has had everybody, including the government,
crying for years what's going to happen to the world, not just America,
when the Wall Street bubble explodes?

Friday, December 20, 2013 at 9:21 AM

TheHarp in Oregon said:

That's what "spreading the wealth around" is intended to do; kill the middle class. It's what the Traitor in Chief was put in office to do.

Friday, December 20, 2013 at 9:31 AM

Dick Belmont in Fergus Falls, MN said:

You're the only one I know of that said the surge of the market was caused by the Fed keeping interest rates low and NOT the miniscule easing of QE. Good call! Unemployment rates jiggered with right before the 2012 election to aid Obama. We've had nothing but lies and coverups from this administration from day one, and the Republicans have done NOTHING but flap there gums on Fox. The only truth Obama has spoken is that he is out to transform America, and he is succeeding gloriously at the expense of the American people. The Repub. have no spine, virtue, or moral character to fight. Great article Mr. Ahlert.

Friday, December 20, 2013 at 11:34 AM

Rod in USA said:

"How the Fed could base anything on employment figures that are deceiving at best, or an outright hoax at worst, demonstrates how desperate they are to pursue their policies irrespective of reality."

--- How indeed. Manipulating the data is done by people who are focused not on solving the problem itself but rather by people who want to implement their own agenda without regard to or in fact in spite of the fact that the *objective* data would say the agenda/plan is a failure and people are being harmed by it.

Friday, December 20, 2013 at 11:51 AM

Rod in USA said:

Excellent article. One point not discussed is that many 401k and retirement funds are invested in equities, the stock market. So it sort of does impact Main Street and letting the air out gently is indeed the key if you want to jump start the economy without letting the stock market crash.

Friday, December 20, 2013 at 12:00 PM

wjm in Colorado said:

most bubbles come to a violent end.

Powder Dry?

Friday, December 20, 2013 at 12:56 PM

Orf in PA said:

We are witnessing another repeat of history. During the fall of the Roman Empire, " much suffering, anguish, and violence, so much unnecessary ruin and so many unpunished crimes... the tyranny of a corrupt bureaucracy choked all disposition for political progress. Science stagnated and revealed no more unknown truths. Growing poverty discouraged the spirit of enterprise. The idea gained ground that humanity was afflicted with incurable decay, that nature was approaching her doom and that the end of the world was near. In the heavy atmosphere of a period of oppression and impotence, the dejected soul longed with incredible ardor to fly to the radiant abode of heaven." [from Franz Cumont's "Oriental Religions in Roman Paganism"]. And so arose the new religions with Christianity finally the dominant one. What will be the dominant belief after the final collapse?

Friday, December 20, 2013 at 4:39 PM

rab in jo,mo replied:

"What will be the dominant belief after the final collapse?". First it will be some sort of bastardized, new-age Christianity. When that collapses (as it is doomed to), there will be a strong swing towards total Atheism/State-worship. Finally, the muzzles will have reached sufficient numbers & influence that Shari will become law. Sure, there will be some Biblically sound holdouts, but it will be a small minority of 2nd class 'citizens'.

Tuesday, December 24, 2013 at 12:34 AM