Don’t Cry for the Titans of Tech

Don’t Cry for the Titans of Tech

Poor and middle class people, not corporations, are being robbed

By Mark Luedtke

Dayton’s Conspiracy Theorist

Maybe you’ve heard the latest news about poor Apple. It’s stock crashed 10 percent Thursday, but the bigger story is what happened over the last few months. CNBC reports, “Thursday's losses push Apple's market valuation below $700 billion and behind the market cap of Alphabet to become the fourth most valuable publicly traded U.S. company — down from the top spot just two months ago. The company has lost $450 billion in market value since its peak of about $1.1 trillion last year.”

And of course the press identifies the reason in their narrative. We’re supposed to believe weaker than forecast iPhone sales in China caused the 41 percent drop in Apple’s market cap.

In a seemingly unrelated story, Bloomberg reports, “Mark Zuckerberg’s multibillion-dollar stock sale ground to a halt in the final months of 2018. The Facebook Inc. co-founder didn’t sell a single share in the fourth quarter, when the social media company’s stock tumbled 20 percent amid a broader market rout. It’s the first quarter in more than two years he’s refrained from doing so, according to data compiled by Bloomberg.”

Of course there’s a reason for Facebook’s stock meltdown, different than Apple’s. In Facebook’s case, the narrative is privacy issues are causing the stock to collapse.

Speaking of the FAANGs - Facebook, Amazon, Apple, Netflix, and Google’s parent company Alphabet - they’ve all been dropping. Weak demand is blamed, but David Stockman, Reagan’s former budget director, issued a prescient warning a year and a half ago. “During the last 70 days, the FAANGS have gained $260 billion in value, while the other 495 companies in the S&P 500 have lost an identical amount. And on that utterly unmistakable pattern history is absolutely clear,” he wrote. “That’s a radical narrowing of the market if there ever was one. It’s also evidence that the eye of a financial hurricane now sits dead atop the canyons of Wall Street. When the market narrows to a handful of momo names, it’s all over but the shouting. Like the case of the Nifty Fifty back in the early 1970s, a crash is just around the corner.”

It’s as if the people writing these articles don’t know this same situation has occurred before many times. Maybe they never heard of the dot.com crash of 2001 or the housing crash of 2008. The common denominator in these articles is they all fail to mention tech stocks, and everything else, are in the biggest bubble in history created by the Federal Reserve, and that bubble is collapsing.

The same scenario is happening all over the world for the same reason: Central banks have been printing money in concert like never before. They’ve created a worldwide bubble, the biggest in history. The coming crash will be the biggest in history. Apple, Facebook, and all the FAANGs stocks are falling because the bubble is bursting.

But don’t cry for Cook, Zuckerberg or any of the rest of the tech titans. They’ll still have billions after the wreckage. The real victims of central bank printing are poor and middle class people.

After ten years of hearing fake news about a recovery from the last bubble-crash, CBS News recently published an honest story about the consequences. “A decade after the financial crisis, the U.S. economy seems to be firing on all cylinders, with unemployment at a 50-year low and growth hitting its stride. But a deeper look reveals a more troubling picture: Between 2012 and 2015 -- a period when the recovery seemed to be gaining speed -- nearly half of all counties nationwide saw flat or declining growth, according to new government data,” it admitted.

Except for those who never leave the big city, we’ve all seen places the supposed recovery never reached. That’s because half of the country never recovered.

In fact, the recovery for the other half is an illusion. Here’s how it works: The Federal Reserve, or any central bank in any country, prints a bunch of money and hands it out to the big banks. Not backed by anything, the money is essentially counterfeit except by law. The big banks counterfeit more money and hand it out to commercial banks. That money tends to go into the coffers of big corporations like the FAANGs first, then it trickles down to rulers and their cronies. Banks, corporations, and rulers at every level amass wealth with the counterfeit money, and they create temporary jobs that are touted as part of the economy recovery.

But people who don’t receive the counterfeit money early - most of us - become poorer. It’s the same as if you printed a bunch of perfect counterfeit money and gave it to your friends. You and your friends would amass real wealth, but everybody else would become poorer because of it. It’s invisible theft. Eventually, when you’ve stolen too much, the bubble bursts.

This is how the rich get richer while the poor get poorer and income inequality grows.

Central bank counterfeiting also sucks wealth out of the economy into wasteful projects. Soon we’ll see more empty factories, shopping centers, condos, half-developed housing developments, and other unfinished projects join the rubble we already see from previous bubble-bust cycles.

Follow me on Twitter

Blame the Fed

With President Obama stomping all over the world, destroying wealth like Godzilla, and making deadly foreign enemies and domestic political enemies of Democrats, it’s easy to blame him for our economic problems. And there’s a lot of truth in that. Personal Liberty Digest reports, “‘From 2009 to 2013, regulators have published $494 billion in final rules,’ Sam Batkins, director of regulatory policy at the American Action Forum, wrote in the report. ‘This figure dwarfs the gross domestic product (GDP) from countries like Sweden, Peru, and Ireland. With more than $87.6 billion in proposed rule costs this year, burdens will continue to increase in 2014.’”

Obama has also increased taxes and spending, which takes resources away from the productive private sector and squanders them in the parasitic political economy. Economist Robert Higgs explains, “Private investment is the most important driver of economic progress. Entrepreneurs need new structures, equipment, and software to produce new products, to produce existing products at lower cost, and to make use of new technology that requires embodiment in machinery, plant layouts, and other aspects of the existing capital stock.”

Higgs tells why Obama compounds the lack of investment problem with regime uncertainty. “Regime uncertainty pertains to more than the government's laws, regulations, and administrative decisions. For one thing, as the saying goes, ‘personnel is policy.’ Two administrations may administer or enforce identical statutes and regulations quite differently,” he writes. “A business-hostile administration such as Franklin D. Roosevelt's or Barack Obama's will provoke more apprehension among investors than a business-friendlier administration such as Dwight D. Eisenhower's or Ronald Reagan's, even if the underlying ‘rules of the game’ are identical on paper.”

But while Obama visibly stunts economic growth, the Federal Reserve (Fed) is quietly doing even greater damage. Since the 2008 financial crisis, the Fed has printed untold trillions of dollars in an attempt to recreate the bubble that popped in 2008, as if that is a good idea. Most central banks followed suit, and they’ve succeeded to an extent. US and world stock markets are near record highs. Yields on bonds remain low. The number of millionaire households is soaring. Demand and therefore price for luxury items, especially New York City condos, has skyrocketed. Even the International Monetary Fund has warned of a global housing bubble. Because the Fed has printed an unprecedented amount of money, this bubble is unprecedentedly large.

When the Fed prints money, it doesn’t reach everybody at the same time. It first goes to the big New York banks. The bankers spend it first, which drives up prices for luxury items, especially condos in New York. The money meanders through the economy, inflating the bank accounts of rich people first, and causing prices to rise. Poor people see little of the money, but they have to pay the higher prices. Printing money also steals people’s savings. The result is a fantastic transfer of wealth from poor people to rich people.

Our rulers tell us this creates jobs, but they lie. The poor jobs report in May exposed the lie that harsh weather kept the economy down during the winter. Because of all this printing of money, our economy remains stagnant. Official unemployment remains over 6 percent, but that’s only because seven million people have dropped out of the workforce since Obama took office. And the jobs that have been created are low paying jobs compared to the jobs destroyed.

Economist Frank Shostak explains in order to begin growing again, the economy must liquidate unproductive businesses, but the Fed won’t let that happen. “Most commentators are of the view that the Fed’s massive monetary pumping of 2008 has prevented a major economic disaster. We suggest that the massive pumping has bought time for non-productive bubble activities, thereby weakening the economy as a whole,” he writes. “Contrary to popular thinking, an economic cleansing is a must to ‘fix’ the mess caused by the Fed’s loose policies. To prevent future economic pain, what is required is the closure of all the loopholes for the creation of money out of ‘thin air.’”

Banker Patrick Barron describes central bank policy, “[Central banks] are following Keynesian dogma that increasing aggregate demand will spur an increase in employment and production. So far all that these central banks have managed to do is inflate their own balance sheets and saddle their governments with debt.”

Barron concludes, “New fiat money cannot conjure goods out of thin air, the way central banks conjure money out of thin air… In fact rather than stimulate the economy to greater output, bank credit expansion causes capital destruction and a lower standard of living in the future than would have been the case otherwise. Governments and central bankers should concentrate on restoring economic freedom and sound money respectively.”

Like all bubbles, this bubble will pop. It’s inevitable, and it’s global. Because it’s the biggest bubble in US history, it will produce the biggest crash in US history. The only unknowns are when the crash will strike in earnest and whether it will be inflationary or deflationary.

Government Exacerbates Income Inequality

President Obama thinks income inequality is the biggest problem facing Americans. The Pope thinks it’s the most important issue in the world. The two men recently met to discuss it, but if they were honest, the solution would be readily apparent to both of them. Obama’s policies, and the economic policies of all governments, create the outrageous income inequality we see around the world today.

Still, income inequality is far from the worst problem facing society. For example, income inequality in China today is far greater than it was when Mao Zedong killed 65 million equally poor people in his Great Leap of Mass Murder. Obama is a great demagogue of income inequality because it benefits him personally. The reality is older people tend to make more money because they’re more skilled and they tend to have amassed more wealth because they’ve worked longer. If government hadn’t broken our economy, young people would do the same.

There’s nothing inherently wrong with income inequality when it’s based on merit. Every individual is unique, with different strengths, weaknesses and priorities. In a free market, better businessmen would make more money than worse businessmen, and business owners would make more money than workers in general in because business owners incur more risk than workers. More skilled workers would earn more than less skilled workers in general because there would be a smaller supply of higher skilled workers. The incentive of earning more income based on merit would create an environment of generally increasing productivity that would benefit everybody.

At the same time, no business owner would earn outrageously more income than others, at least not for long, because as soon as they did, competitors would enter the market to take a share of those profits until unrestrained competition lowered the profits back into the normal range.

On the other hand, it’s grossly unfair when government uses it power of coercion to enrich some at the expense of others, but that’s the only reason government as we know it exists. It’s a law of economics that taxes and regulations benefit the richest by protecting them from competition because their big businesses can absorb the additional expenses better than smaller competitors. Taxes, regulations and printing money are the tools government uses to create giant banks, corporations and the fantastic salaries of the plutocrats while making everybody else poorer. The problem of income inequality Obama pretends to care about is caused by US government interventions in the marketplace that keep the economy from being a meritocracy, and Obama is the worst interventionist of my lifetime. Bush the Younger was the worst before him. The more government intervenes, the wealthier the plutocrats get. It has nothing to do with partisanship. It’s the nature of all coercive governments at every level.

The Mises.org blog identifies Obama’s policies as one source of income inequality, “He has presided over corporate bailouts, not only declaring the Wall Street banks too big to fail, while a multitude of small businesses did fail, his policies continue to support the banking industry through low interest rates and the payment of interest on reserves held at the Fed. Banks holding bad mortgages were bailed out while individual homeowners were evicted from their homes.”

Economist George Reisman writes of another source, “Credit expansion is responsible for sharply increased economic inequality, in which the wealthier strata of the population appear to increase their wealth dramatically relative to the rest of the population and for no good reason.” All central banks including the Federal Reserve (Fed) expand credit by counterfeiting funny-money and handing it out to their big bank cronies. The Fed is a quasi-private entity whose owners are secret, but run primarily by political appointees. It was created by Congress for the benefit of the government and plutocrat bankers. Because it is a legalized counterfeiting organization, it could not exist without government.

So-called intellectual property rights - patents and copyright - are another source of income inequality government uses to quash competition, artificially enriching giant corporations by raising prices for consumers. Patents are described as grants of privilege, but they’re better understood as bans on competition. They are grants of monopoly. Government creates monopolies, not the free market. Patents and copyright create high tech, music and movie plutocrats.

The defining issue of our times is economic freedom or, since every decision is an economic decision, freedom. Countries with greater economic freedom invariably enjoy greater prosperity, security, health and happiness. They also invariably enjoy greater economic growth. Economic freedom in the US fell under Bush and plummeted under Obama. The Heritage Foundation ranks US twelfth in economic freedom in 2014, below Estonia. 63 percent of Americans believe the country is going in the wrong direction, and this collapse in economic freedom is why. All you have to do is look around to see Americans were better off when we were more free. When the debt bubble collapses, we’ll realize how bad income inequality really is. We’ll be stuck with a modern version of feudalism much like survivors after the fall of Rome.