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Rodney's Ramblings: US Market Hustlers

"For quite a few years now, since the recovery from the Global Financial Crisis (GFC) failed to take off the way they wanted, almost everyone in the US markets and political life has been hyping thin air.'' writes Rodney Gascoyne.

It really started with the Government who were desperate to show things were getting better and returning to normal. Endlessly they would talk up matters putting a glossy face on any bit of news they could spin. You were also left with the view that their statistics and reports were almost doctored to ensure the best and most favourable picture was presented, with hefty revisions often made later down the road. Cabinet members and the President were endlessly before the cameras at every opportunity. Their message was often repeated and amplified by lobbyists and industry or market representatives, hoping to reinforce the message, to ensure that proposed regulations or other controls would be held off.

The Financial Services industry, to a man, were also trying to paint a rosy picture and to suggest things were picking up and investors should get back into the markets. These past few years have been devastating to them and the reduction in fees and commissions available from a wary public. On the other hand, the increased volativity they are creating, together with speculative trading volumes, are their response to lower trading levels, trying to recapture their income, while seriously raising risks to all investors.

The Banks of course were talking up a good game too, They needed to repair their image with everyone and influence regulators and the Congress that no serious changes were needed. They also availed themselves of all the subsidies they could from DC to repair their balance sheets. The Federal Reserve (Fed) was assisting them in all this, granting them almost unlimited access to funds on loan at almost no interest, and then allowing them to redeposit large sums back with the Bank at a higher rate. What does that do to incentivize them to support industry and small business by granting them loans to stimulate the economy? “Helicopter Ben” and the deluge of liquidity into the capital and money markets, have largely only caused a flood of money to head for emerging markets, with horrendous results for them. Printing money on such a scale can only ever lead to very bad outcomes.

The actions of the Fed, before during and after the GFC, will be questioned and evaluated for many years to come. Paulson’s actions as the Secretary of the Treasury will also then be seen to have been more concerned with protecting the interests and positions of the Banks before and over the interests of the economy or the public at large. Under him and before, those charged with protecting national interests, allowed the privatization of profits on Wall Street, while socializing losses at the public expense and hence tax coverage. This all speaks to the enormous funds the Banks, and Financial Services industry at large, have spent, by supporting politicians’ fund-raising, and obstructing Government with a lobbying population that is far greater than the collective member numbers in Congress. Will we never learn what little change money can buy in D.C.?

The last few years can be characterized as mini booms and busts in the markets, endlessly making some progress, or so it seemed, in the early months, heralded by all the hype that interested parties can muster, only to be set back later as the thin air evaporates and reality holds sway. Added to this, Central Bankers in the US and Europe have tried to stave off other financial crises, with vague open promises of market support, through unnamed and unspecified monetary measures, to fill the gaps left by Governmental inaction of the fiscal front. Thus we have been overwhelmed by Quantitative Easing (QE) for years now.

QE is now widely seen as having almost totally failed to produce any of the promised benefits. Instead, these measures have provided many side effects that have been negative and also had significant adverse effects on emerging economies, that have been very harmful to nations in Asia and elsewhere, that were not understood and, it seems, not now of concern to the Fed, as they attempt to find a way to reverse the bad results and to taper or exit over time from their disastrous QE programs.

All these machinations by Central Banks and Treasuries of major countries or the EU, have had the opposite impact to those they sought, but have also put the stability and recovery of the markets under continuous attack, as well as increasing systemic risks to most economies and their markets in general. This has undermined any of the forces that might have aided economic wellbeing, and so why so much effort has been made, to try to talk up and cover up, the risks to sustainable growth and try to spin the situation, to encourage the public and industry to spend, to bring about the expansion needed to ward off a collapse.

Since the GFC, those who run and control the markets, the brokers, fund managers and service members, have had an uphill struggle in the face of lack of interest, investment and trust in them by the public at large. Participation in the markets is well down from pre-GFC times and shows no signs of recovering. With the introduction of more and more complicated instruments and vehicles, and any lack of progress towards transparency in the associated markets, such as with derivatives, many more investors are seeing the markets as no more than a giant casino, trying to suck them in to ponzie and similar schemes, to milk them of their savings and assets. Their current actions are to try to reverse these images, not by clearing up their act, but by further talking up the opportunities out there and suggesting that the band wagon is rolling, and people need to get aboard or they will be left hopelessly behind for many years to come. In over words, all their efforts are at finding suckers and not in reforming their schemes that got us all into the crisis in the first place.

American nationalism is also rampant in the environment, as protectionism, in all its rotten forms, are becoming more and more obvious to any casual observer. A few years ago we saw this in US media and the Congress, using every opportunity to vilify non US corporations, such as Toyota for break failures or BP for the Gulf oil spill. All forces went overboard to undermine any overseas competition and convince Americans not to use them or buy their products. Later the major US Network news services started to regularly air stories of purchases and sales that were from foreign sources, and thus were depriving local companies, who only wanted to provide more jobs to Americans. And don’t forget the constant and ubiquitous calls for Patriotism, exerted in many ways to achieve blind obedience, to the correct course of actions, in the views of those applying the pressure. Thank Hollywood for much of that.

The US have also extended efforts to get international trade agreements with nations or other groups, like the EU, where they exert all pressure to get their own advantages, with threats, while limiting or restricting advances sought by other parties, to weaken what the US must give, to get an agreement. Canada, for one, knows very well after decades of NAFTA, that almost all disputes on unfair practices and restrictions by the US, contrary to signed agreements, and which were successfully taken to independent arbiters, who mostly found in Canada’s favour, but even then the US practices, and penalties imposed, were still followed and corrective orders ignored. They have no interest in level playing fields and their lawyers will do all they can to obfuscate the language in agreements, to make it hard to force them later to honour them. Do they never learn from history, that it was blatant protectionism and unfair practices, causing the US economy to suffer far more than most others, by such tricks, back in the Great Depression of the 30s.

Here we are five years after the onset of the GFC and the US seems to have learned nothing, and to have made almost no substantive changes to market practices and safeguards, under monied influence purchased in DC by those involved, and the almost totally corrupt political system, now at full strength in the national political culture. Add to this the fiscal and political standoffs now evidenced in Congress, let alone efforts to solve their debt, deficits and debt ceiling issues at home and in states, even dealing with unfunded liabilities at all levels within national affairs, and health-care and other disputes still in the news. It is hard to see how they can work through all these problems and somehow get a growing economy, to start showing some real progress. If that only affected the US, we could sit back and watch it all play out in our media, but their impact worldwide can bring the rest of us all down again, just as they did in 2008. God help us all.


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