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Great Recession, Part II

Written by Briton Ryle
Posted April 13, 2020

A decade ago, we were just crawling out of the hole. 

Of course, in 2010 most Americans couldn't see it. That's how it usually is when the tide is turning. We get used to seeing things move in one direction. It's tough to see change as it's happening. 

When inertia is carrying everyone you know toward one conclusion, are you going to be the heretic who tells the church, no, actually, the Earth revolves around the sun?

Part of the reason is that you have to go against convention. That's never easy. Because as we know, popular opinion speaks loudly and carries a big stick. Personally, I try to avoid public floggings whenever I can, especially when they end in banishment. 

In 2010, most Americans had so many bruises from the 08-09 grinding two-year bear market that the mere thought of putting money at risk in the market would make a person start trembling like a whipped dog. If you had any extra money. Americans had their heads down. Focus on just the next step and you might get back on track...

Direct stock ownership in the U.S. fell to 52% for the first time since this statistic started being tracked. Bank of America (NYSE: BAC) didn't make it to double digits until early 2013. It didn't break $20 until the 2016 presidential election. 

You could say the 10% unemployment rate was the root cause. You could point to stagnant wages. You could highlight the plunge in value for most people's primary asset, their house. But none of these are the real reason why. They are all symptoms of the same disease...

Fed QE: Wealth Effect for the Wealthy

Almost exactly a year ago I wrote here in Wealth Daily: 

We need to talk about automation that is going to take as much as 30% of low-skill U.S. jobs in the next 10 years. 

We need to talk about an education system that is saddling our kids with obscene amounts of debt. (Hint: Have unlimited government loans encouraged colleges to lower or raise tuition?)

We need to talk about merger and acquisition activity that leads to nothing but thousands of layoffs and huge payoffs to investment banks and private equity firms. 

And we really need to talk about a Federal Reserve system that runs unchecked and will always favor big money over the average American. 

Look at what Bernanke did in the wake of the financial crisis. A crisis like that is supposed to be a reset, a time when those who have gone to excess get their due. Bernanke and his QE did the opposite.

He saved the banks and Wall Street's precious bonuses, while the average American saw his most valuable asset — the home — plunge in value. Average people got fired, got foreclosed on, or had to raid retirement savings to pay the bills. 

The wealthy got a 10-year head start while the S&P 500 tripled in value. The average American is just now getting back to where he or she was 10 years ago. 

It is simply no wonder that income disparity has gotten worse. How could it not? 

We are 10 years out of the hole. The PTSD from that stark look into the abyss has finally faded to a distant memory. Just a couple months ago, a vast majority of Americans were back to the optimism that they could look to a better future. 

Sadly, the Fed and the Treasury are dialing the clock back once again. That 10-year recovery for the average American is about to become another lost decade. 

Trickle-Down is a Bad Joke

Fed Chief Jerome Powell and Treasury Secretary Steve Mnuchin have made a big deal about getting together to help American businesses. They have to work together because the Fed cannot make money directly available to companies, so it has to have the Treasury to help. 

Of course the Fed can buy bonds, as we learned during the financial crisis. Funny thing: former Fed Chief Bernanke had standards. Ten years ago, the Fed would only buy top-rated bonds and mortgage-backed securities.

This time around, Fed Chair Powell will pay top dollar for any and all corporate debt, The Fed will own the junkiest of the junk. Shale drillers, non-traded REITs — when bankruptcies come, and they will, the Fed could end up owning oil wells and strip malls.

But it won't own any small businesses. For that part of the economy, which accounts for just about half of U.S. GDP, loans are available at local banks. But, the small business will have to go through the entire lending process. So the money will not be forthcoming. And approval will be subject to banks' credit policies, which just got a lot tighter.

So let's see... your business has no revenue because it's closed. And you want a loan? Good luck...

The government is about to lend $2 billion to United Air, even though the airline blew virtually all of its cash on share buybacks over the last decade. 

16 million Americans have lost their jobs in less than a month. It took the financial crisis almost two years to accomplish that. But don't worry, your $1,200 check will be in the mail... sometime soon? 

And if you need more to make ends meet, Congress said you can borrow from your retirement savings without a penalty. No word on how to pay that back when you don't have a job...

The government has made it crystal clear that it's Wall Street first, Main Street last. Just like in 2008-09, corporations will be saved, wealthy investors will be made whole, and the average American will once again be abandoned to slog it out over the next few years.

And once again, the rich will get richer.

Until next time,

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Briton Ryle

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A 21-year veteran of the newsletter business, Briton Ryle is the editor of The Wealth Advisory income stock newsletter, with a focus on top-quality dividend growth stocks and REITs. Briton also manages the Real Income Trader advisory service, where his readers take regular cash payouts using a low-risk covered call option strategy. He also contributes a weekly column to the Wealth Daily e-letter. To learn more about Briton, click here.

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