NOTE: I’ve been re-running this article every time over the last three years a temporary downturn on Wall Street causes progressive idiots to celebrate. The last run was in January 2019, but here we go again.
Dear People Wishing for Stock Market Trouble:
Stock market trouble will not make Trump go away.
You can have fun posting memes though! He’s owned! He screwed up the one thing he says he’s good at! Rich people will abandon him! Hah hah!
First of all, that is not what is happening. But if people want to panic based on panic journalism, by all means go ahead.
But for the rest of us from 1929 to 2018 the S&P averaged 8–10% gains. It is up well above that for this year, so declines are expected and normal. Recessions on the other hand are CAUSED by things, they do not happen in cycles per se just because it is time. Or because the MSM wants “recession” to replace “Russia” as the magic bullet to end Trump.
Everything tangled by US-China can be untangled, suggesting its long term effects are able to be mitigated directly. You can spend as much time as you like blaming/congratulating whomever that the fundamentals are strong, but they are and that speaks better to longer term trends than other factors. Even in the short term there is money to be made; if you bought on Friday’s drop you are already making money on today’s rise.
If you are learning about inverted bond yields roughly the same way you learned about Emoluments and the 25th Amendment and Russiagate, you are still listening to the wrong people.
But let’s look into what progressives are cheering for, hoping to happen, a real live recession. Any serious downturn in markets will cause more economic inequality. Wealthy people depend on periodic downturns to force middle class people to sell. The rich then buy cheap and wait for the inevitable swing back. They end up owning more stuff, and they got it cheaply.
About half of all American households own stock, in most cases indirectly through mutual funds, and, more and more via 401(Ks) and whatever company pension accounts still exist. Yet despite that broad base — half of us own something in the stock market — the richest 10% of Americans owned 84% of the total value of the market as of 2016.
Though those numbers roughly match those of America’s worst period of inequality, the so-called Gilded Age, they are a big change from 2001, when the top 10% owned only 77% of all stocks.
Today, they have more. You have less. Your part of the market exists because the few wolves need lots of rabbits to eat. You are predator or you are economic prey. Guess where this goes? Think of it as one of those pictures where parallel railroad tracks seem to get closer and closer as they recede into the distance. The theoretical end point is one person owns 100% of everything. But modern wealthy would be happy if .01% owned just 99%, close enough.
In case you missed it, that’s what the 2008 mortgage/housing crisis was all about. Middle class people lost their homes when they could not pay their mortgages. “The banks” then owned those homes and you did not. It took a few years and most prices started back up. You in turn now rent from someone who now owns those homes.
The inequality of net worth, after almost two decades of little movement, went up sharply from 2007 to 2010, and relative indebtedness for the middle class expanded. The sharp fall in median net worth and the rise in overall wealth inequality over these years are traceable to the high leverage of middle class families and the high share of homes in their “portfolio.”
What that means is middle class people have most of their net worth embedded in their homes, but see most of that “worth” is actually debt (leverage.) When times get tough, they may lose the home because they can’t pay the debt. People rich enough to spend money in downturns buy up those homes. They have extra money to ride out the tougher years until the government bails out the markets like Obama did in 2008. Same story for the stock market.
It gets worse, because you get money by working for wages. Rich people get money through capital gains, basically stuff they buy cheaply becoming worth more over time. That’s why the downturn is bad for you, ultimately good for most of them. It is math!
If you like math with letters in it, it is written as R > G. All explained here if you want to understand precisely why you are going to be poorer. And as a bonus, be sure to note the part about how in the U.S. wages are taxed at a higher level than capital gains. You can never have too many advantages.
Note also that until slavery was ended in the United States, human beings were also considered as part of capital. Meanwhile, because rich people pass on their wealth to their relatives, the children of rich people are born rich and unless they get really into hookers and blow, will inevitably get richer. They almost can’t help it. The gap between the 1 percent and the 99 percent must grow. This will create the society reminiscent of the pre-Enlightenment past we are in the early stages of now. You know it from Jeopardy! as “feudalism.”
Downturns are a huge sucking, a redistribution of wealth upward. You’re basically fucked in this process. Poverty is ennobling, so you do have that. Have a nice day!
BONUS: I wrote a whole book about this called the Ghosts of Tom Joad but few people wanted to read it, so this is all kind of a fun secret between us.