Many of you have expressed curiosity or puzzlement about the apparent disconnect of equity markets from the reality of the economic outlook. In fact, the conversation has become an active topic here. It is time to put this unique puzzle to bed. Some of you (my wealthy readers who play in the equity markets) will be delighted with the details. Some of you (my less wealthy readers) will be concerned with the genesis of the disconnect. Why? Because though you are all paying for this bull market – you are not all benefiting – another transfer of wealth from the average family to the wealthy investor. Yes, the market is assisted, almost daily, with taxpayer and deficit creating funding.
HOW HAS THIS COME ABOUT? HOW HAS IT GROWN TO THE MASSIVE PROPORTIONS IN TODAY’S EQUITY MARKETS?
The Plunge Protection Plan
The Plunge Protection Plan and Team. Created by President Reagan by executive order in 1988 (order 12631) in response to the October 1987 stock market crash, the working group which was to include, and still may, the President, the Secretary of the Treasury, the Chairman of the Federal Reserve, the Chairman of the SEC, and the Chairman of the Commodities Trading Commission. It should be noted the President can include or reject any of these members of the team.
Functionally, subject to the availability of funds, the Treasury provides, at request (command) of the President, unlimited funds to acquire equity securities and futures. The purchase orders are executed through major banks (usually restricted to two banks, one guesses today Goldman Sachs and J.P. Morgan Chase). As part of the Reagan order there are no minutes kept and the PPT is not accountable to congress but acts in secrecy.
The present administration has used strength in the stock market as a surrogate for economic success. From the beginning of the Trump administration the economic growth of the nation has not met his promises. He has continually pointed to the market as a great Trump economic success. The activities of the PPP are evident from the early morning futures trades and throughout the day. It is unlikely we will ever know how much taxpayer money fueled this apparently disconnected equity market. No minutes are kept! Perhaps the banks executing orders will open up one day though I doubt they will be permitted to. It’s all a black box at the expense of the American Taxpayer.
P.S. Questions and comments are welcomed. Over the next few weeks we will be exploring the massive transfer of wealth and income from the average American to the wealthy. We are not anti-wealth but doubt the economy can function with 30,000,000 Americans going hungry and 100,000,000 Americans unable to afford housing, food, education, and medical care.