Bankers Versus People: The Future of Democracy
The Standard & Poor 500 Index dropped 7.1% in the week ended September 23, the largest fall since 2008. This happened after the US and Europe had infused nearly $10 trillion in the system, primarily to prevent a global banking meltdown. Now, after the liquidity push of QE1 and QE2 failed to ramp up the US demand and jobs, Ben Bernanke appears unsure. He is gingerly exploring the technicalities of debt conversion, applying a twist that did little to help investor confidence, as thousands of Americans join protest against the increasing Wall Street influence in policy making of major democracies.
The cash from ‘quantitative easing’ did not trickle down to the American consumer to result in demand growth. Instead, it empowered the Wall Street banks to buy and hoard commodities, and raise prices of farm products. The price of US Corn jumped by 78% this year, maize by 45%, wheat 25% and livestock 20%. Texas crude was up by 22% and copper jumped by 26%, though off take remained low. J.P. Morgan and Goldman Sachs bought warehouses in Detroit and London to stock metals and commodities.
The big question about the Fed actions now raises its ugly head. Did the Fed help the average citizen by unleashing loads of low-cost cash into the banking system? Reuters reports that the number of poor in USA climbed for the third consecutive year to scale 46 million and it became the first among OECD nations to break the 15% psychological benchmark of poor people. The high commodity prices killed the consumer demand. Besides, it increased the Gini coefficient for income disparity to over 45 for the US.
More bad news was on the way from Europe. The Eurozone needs a non-existent trillion dollars to set its house in order. The Greek default is the hottest story in the CDS market, though the $25 billion outstanding CDS for Italy on its $2000 billion debt smells like freshly brewed coffee for the punters. The Greeks, the Irish, the Spanish and the Portuguese did not have a benevolent Fed to pump in a few trillion dollars when debt ballooned and growth slumped. Rather it was a matronly IMF that forced these governments to cut back on spending and squeezed the liquidity out of a malnourished system. Not surprisingly, Greece saw a tremendous cash crunch and a negative growth of 5% this year and Spain saw unemployment spiral to around 20%, the highest in OECD.
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