Bond market turmoil as Wall Street speculation reaches new heights
A conference of US economic and financial regulators to be held tomorrow may have more on its agenda than was originally planned as signs of turbulence in financial markets continue to grow.
The 2021 US Treasury Market Conference, which is being held virtually, will hear a series of reports from Fed officials, representatives of the US Treasury and the stock market regulator, the Securities and Exchange Commission.
The conference, an annual event, was first convened in 2015 following a “flash rally” in the US Treasury market in 2014. Bond prices rose sharply during a 12-minute period, sending yields plummeting, and then reversed with no apparent trigger—an event that was not supposed to take place in the world’s biggest debt market.
The agenda for tomorrow’s meeting is to consider “proposals to improve overall market functioning and reliance.”
It is being held in the shadow of the events of March 2020 when the Treasury market froze. No buyers could be found for US government debt at one point, an extraordinary occurrence in what is supposed to be the deepest and most liquid financial market in the world.
The crisis was only halted through the intervention of the Fed which injected more than $4 trillion into the financial system and initiated a program of buying $120 billion of financial assets a month.
At its last meeting the Fed decided to taper its purchases by $15 billion a month. There is uncertainty about what effect this will have under conditions where the rise in inflation over the past months has completely changed the financial landscape. Price rises hit a 30-year high of 6.2 percent for October, the fifth straight month the inflation rate has topped 5 percent.
With the Fed’s assurances that inflation is “transitory” having been blown out of the water, there are indications of growing instability.
Last week, as the latest inflation figures were announced, yields on the two-year Treasury note climbed nearly 10 basis points—0.1 percent—as bond prices fell in the biggest movement since March of last year. The downward movement went across the board with a government auction of $25 billion of 30-year debt reported to have met only “weak demand” from buyers.
The uncertainty in the debt markets was articulated by Peter Tchir, head of macro strategy at Academy Securities, in comments to Bloomberg.
“The current structure enables the markets to function well when volumes are running around average levels,” he said. “But it leads to these periods of large and aggressive moves that seem inexplicable relative to the data. It also makes it hard for asset managers to manage their risks.”
Bloomberg reported that an index it has constructed to measure liquidity in the government debt markets “showed conditions were the worst since March 2020.”
In comments to Bloomberg, the weakness in demand for the 30-year Treasury bond last Wednesday was described by Michael Cloherty, head of US rates strategy at UBS Group AG, as a “clear sign of illiquidity.”
“For the past two weeks the market’s been extraordinarily erratic and is having difficulty in handling large transfers of risk,” he said.
The volatility has gone against expectations that markets would calm somewhat following statements by Fed chair Jerome Powell. He said that he was not going to raise interest rates any time soon following the central bank’s decision to begin tapering its asset purchases. These assurances are being overwhelmed by the belief that the Fed will have to move because of the continued rise in inflation.
Writing in the Financial Times (FT) last week, economic commentator Mohamed El-Erian repeated his warnings that the Fed’s monetary policy, based on the claim that inflation is “transitory,” was continuing “to fall behind realities on the ground.”
“The lack of a credible central bank voice on inflation also leaves markets in somewhat of a muddled middle. Witness the high volatility in government bond markets that is managing to whipsaw even the most sophisticated and seasoned investors,” he wrote.
El-Erian voiced some of the most significant fears in financial circles, noting that “wage demands are going up across more sectors, as is the threat of strikes.”
Asked on the CBS program “Face the Nation” on Sunday whether price rises would be down in a year’s time, US Treasury Secretary Janet Yellen said: “It really depends on the pandemic. The pandemic has been calling the shots for the economy and for inflation. And if we want to get inflation down, I think continuing to make progress against the pandemic is the most important thing we can do.”
However, the policies of the Biden administration, like its counterparts around the world, are going in the opposite direction as virtually all public health measures are scrapped.
Yet, even as a new surge of COVID infections develops, financial speculation continues to accelerate, driven not by improving economic conditions but by what the FT characterised as the “fear of missing out.”
In an article published at the weekend, the FT noted that the MSCI All-World Market share index had almost doubled since its lowest point in March 2020 and the crypto currency market was valued at $3 trillion compared to $500 billion this time last year.
It reported that on November 5, a record $2.6 trillion of stock options changed hands in the US, the highest trading volume on record, according to Goldman Sachs. The majority of these options were “calls,” a derivative that allows investors, using large amounts of borrowed money, to make bets that share prices will continue to rise.
This allows the making of massive profits if the prediction is met, but large losses if it is not.
Goldman Sachs has estimated that option trading volumes are greater by about 50 percent in dollar terms than all actual stock trading.
While the general sentiment is the rise in share prices will continue and may even become more ferocious, warnings are being sounded about when the speculative binge will end.
“There’s more volume in options than in actual equities,” one unnamed senior executive at a big trading firm told the FT. “I don’t think this can go on forever.”
Erik Knutzen, chief investment officer at the investment management firm Neuberger Berman, told the newspaper: “Everything seems crazy, there are bubbles here, bubbles there, everywhere. It’s become a cliché, but we are really in uncharted waters, very unusual territory.”
Amid “enormous economic uncertainty,” Biden reappoints Powell as Fed chair
After considerable toing and froing within the administration, US President Joe Biden has decided to renominate Jerome Powell for another four-year term as chairman of the US Federal Reserve.
Having boosted the stock market to record highs by pouring trillions of dollars into the financial system over his term, including $4.5 trillion in response to the March 2020 financial crisis, Powell had strong support on Wall Street with gushing praise for his management of the pandemic crisis.
He also received bipartisan support for his role, including from Treasury Secretary Janet Yellen who made clear her support for Powell’s reappointment some months ago.
But there was opposition to Powell, a Republican initially appointed by Trump, from the so-called “left” of the Democratic party on the grounds he had eased bank regulations imposed in response to the 2008 crisis and was not sufficiently attuned to the issue of climate change.
Last month Massachusetts senator Elizabeth Warren labelled Powell a “dangerous man” to lead the Fed.
Powell was also under something of a cloud because of a scandal which emerged in September involving members of the Fed’s governing body who were found to be active investors last year as the Fed was propping up the market.
Their preferred candidate was Lael Brainard, who was regarded as stronger on regulation. On the issue of monetary policy, however, Brainard has supported all the actions taken by the Fed chair and is regarded, in words of the Financial Times (FT), as “mildly more dovish than Powell.”
In the event, Biden sought to have a bet each away, appointing Powell to the top post while elevating Brainard to the post of vice-chair, creating the “impression of continuity in monetary policy with a more robust approach to regulation” as the FT put it.
In his remarks on the decision to reappoint Powell, Biden gave a nod to the Democratic “left,” saying Powell had told him he would make accelerating the Fed’s efforts to address the risks posed to the financial system by climate change a priority.
Biden said Powell had also underscored the importance of making sure that “our financial regulations are staying ahead of emerging risks be they from innovations and cryptocurrency or the practices of less regulated nonbank financial institutions.”
Warren repeated her opposition to Powell’s renomination as did two other Democrat senators. But the appointment is expected to pass the Senate easily with broad support from both parties.
This is because of the massive expansion of the Fed’s intervention into the financial system to prop it up after the Treasury market froze in March 2020, threatening a full-scale collapse on an even greater scale than 2008.
The Fed conducted this intervention on the grounds that it was necessary to defend jobs and help prop up the labour market. But Powell’s record shows his policies are directed to sustaining the stock market where speculation, funded by cheap money provided by the Fed, has driven it to record heights.
In 2018, the Fed had started to lift interest rates in order to try to restore more “normal” monetary policy. But when Wall Street cracked the whip, Powell rapidly reversed course. After a significant market downturn in December 2018, he promised to end interest rate rises in January 2019 and then cut interest rates in the middle of the year, well before the pandemic struck.
In August last year, amid the signs of rising inflation, Powell initiated a major shift in Fed policy. It would no longer seek to keep inflation to 2 percent but allow it to rise above that level in order to maintain an average 2 percent rate over time.
According to Powell, it would not move to lift rates when the unemployment had reached low levels—the procedure adopted in the past—and this decision reflected “appreciation for the benefits of a strong labour market, particularly for many in low- and moderate-income communities.”
As the founding American Trotskyist James P. Cannon once remarked, there is always a “good reason” and then there is the real one. In this case the real reason for the policy shift was to assure Wall Street the Fed would not cut off the supply of money that has enabled the multi-billionaire Wall Street oligarchs to rake in money hand over fist during the pandemic.
As inflation started to rise, Powell, maintained it was “transitory”—another assurance to Wall Street that interest rates would not be lifted immediately.
But with inflation going above 5 percent for the past several months, reaching an annual rate of more than 6 percent in October, this claim has become impossible to maintain.
The Fed responded at its last meeting by deciding to taper its monthly purchases of $120 billion of financial assets—US Treasury bonds and mortgaged-backed securities—by $15 billion, ending them completely by next June.
In announcing the decision, Powell assured the markets this did not mean interest rates would soon be lifted.
But this course is now under fire and there is a growing chorus of criticism that the Fed is moving far too slowly in the face of rising prices.
Former US treasury secretary Lawrence Summers started the campaign warning several months ago of the danger of an inflationary spiral like that of the 1970s and has since been joined by others.
Last week the chair of Obama’s Council of Economic Advisers, Jason Furman, said the stance of monetary policy should move “in a less expansionary direction.”
“While the Fed has raised rates too much too soon in the past, this alternative timing may result in the opposite error,” he wrote.
The Fed is caught on the horns of a significant dilemma. On the one hand, it fears that moves to lift interest rates will set off a major crisis in financial markets which have become totally dependent on the supply of ultra-cheap money used to finance increasingly risky bets and the orgy of speculation in so-called “assets” such as cryptocurrencies.
On the other, it fears the rising tide of class struggle as workers strive, in what is taking the form of a rebellion against the suppression of the trade union bureaucracies, to win back the wages they have lost during the pandemic and in the decades that preceded it.
In a tweet on the news earlier this month that John Deere had been forced to restore cost-of-living adjustments (COLA) stolen from workers in 2015, Summers pointed to the wages as the key issue.
“Those serene about inflation should ponder the fact that the new John Deere contract has reinstated previously dropped cost-of-living allowances,” he wrote.
An editorial in the Wall Street Journal raised the same issue, saying the restoration of COLA should be “an alarm bell for the Fed” and the longer inflation remained higher the more workers would demand the same.
Speaking on his announcement that he would reappoint Powell, Biden said there was “enormous uncertainty for our economy.”
Powell responded by declaring that the Fed would “use our tools both to support the economy and a strong labour market, and to prevent higher inflation from becoming entrenched” while “vigilantly guarding the resilience and stability of the financial system.”
The problem for Powell in his second term is that these goals are inherently contradictory. The Fed is being driven to tighten monetary policy to contain the growing wages movement sparked by inflation, but at the same time, such is the extent of indebtedness in the financial system, that moves in that direction could see a collapse in asset valuations, both on the stock market and more broadly.
THE DEMOCRAT PARTY AT WORK:
Make Amazon Pay was formed in 2020 and has since helped to organize a number of strikes and protests against company policies. The campaign states on its website: “During the COVID-19 pandemic, Amazon became a trillion dollar corporation, with Bezos becoming the first person in history to amass $200 billion in personal wealth. Meanwhile, Amazon warehouse workers risked their lives as essential workers, and only briefly received an increase in pay.”
During the 2020 Democratic primaries, every candidate pledged to repeal the Trump tax cut for the rich. Biden has repeatedly called his domestic agenda a “blue collar” program. While declaring ad nauseam that “I am a capitalist,” who has nothing against people becoming billionaires, he has called on Wall Street to “pay their fair share.”
Bezos ‘Greases’ Way Into Dem Establishment With $100 Million Obama Donation
Obama-Biden alum Jay Carney arranged the massive gift
Faced with scorn from lawmakers on both sides of the aisle, Amazon billionaire Jeff Bezos appears ready to "grease" his way into the Democratic establishment with a $100 million donation to the Obama Foundation, according to Puck News.
The donation was arranged by Amazon executive and former Obama press secretary Jay Carney. The no-strings-attached gift comes as Bezos faces growing opposition from the left. The gift is the largest ever made to the foundation, which has chosen to forgo the traditional presidential library in favor of building a privately managed presidential center.
Bezos's donation comes at a difficult political moment for Amazon. Lawmakers from both parties fault the company for its poor treatment of workers and abuse of its market power. The company has also come under fire for banning conservative voices. This year, Amazon banned a book that criticizes transgender ideology and blocked an ad for a book that criticizes the Black Lives Matter movement.
Bezos has tasked Carney, who served as then-vice president Joe Biden's communications director, to ingratiate Amazon with Democratic lawmakers. Under Carney's leadership, Amazon's lobbying team has grown from about two dozen to 250 members. Reuters reported Friday that Carney has successfully lobbied to kill privacy protections for consumers in 25 states.
Amazon is not the only Bezos project to pique the ire of leading Democrats. NASA administrator and former Democratic senator Bill Nelson blamed Bezos's Blue Origin for causing a delay in a U.S. return to the moon. The space exploration company sued NASA after it lost a major contract to Elon Musk's SpaceX.
Obama's presidential center is the first presidential library or museum to be run by a partisan nonprofit, rather than by the National Archives and Records Administration. Bezos's ex-wife Mackenzie Scott and Bill and Melinda Gates have already made substantial donations to the center, which presidential scholars worry will become a partisan slush fund.
Activists on Chicago's South Side said the center will force out longtime neighborhood residents. The center received a tax-free, 99-year lease on almost 20 acres of public parkland from the city of Chicago, for $10 in total. The center will be allowed to charge fees and keep the profits.
Bezos has ramped up his philanthropy over the past four years, pledging millions of dollars to liberal causes and figures. Earlier this year, he pledged $1 billion to conservation efforts and gave $100 million to CNN contributor Van Jones.
Inside Jeff Bezos Mansions
https://www.youtube.com/watch?v=EVURsBK1-zY
Jeff Bezos' $400 Million Flying Fox Yacht
https://www.youtube.com/watch?v=MRYEcushHjc
Inside Jeff Bezos' $21,000,000 Car Collection
IRS data shows: US billionaires' true tax rate
far lower than that of workers
On June 8, ProPublica published the first in a projected series of articles documenting the massive scale of legally sanctioned tax evasion carried out by America’s ever-expanding class of billionaires. The article, based on an exhaustive study of leaked Internal Revenue Service (IRS) documents, focuses on the period from 2014 through 2018. It demonstrates that in the course of those five years, the 25 richest Americans paid federal taxes on their increased wealth at a far lower rate than the typical US household.
The report also cites tax data on billionaire oligarchs such as Jeff Bezos, Warren Buffett, Elon Musk and Michael Bloomberg going back to the first decade of the current century, showing that they paid little or no taxes regardless of which big business party—Democrats or Republicans—occupied the White House. It explains as well that even were the Biden administration to carry out its promised increases in income tax rates for the rich, the impact on the vast fortunes of today’s robber barons would be minimal.
The authors state that in determining the increased wealth of America’s “top 0.001 percent,” they included not simply their salaries, which in many cases comprise only a small share of their actual income, but also “investments, stock trades, gambling winnings and even the results of audits.”
Billionaires Warren Buffett, Jeff Bezos, Michael Bloomberg, Elon Musk (All originals from Wikimedia Commons)
The result, they note, demolishes “the cornerstone myth of the American tax system: that everyone pays their fair share and the richest Americans pay the most.” They continue: “The IRS records show that the wealthiest can—perfectly legally—pay income taxes that are only a tiny fraction of the hundreds of millions, if not billions, their fortunes grow each year.”
ProPublica’s revelations provide insight into how the capitalist system and its various state institutions and rigged legal system promote a parasitic financial aristocracy that lives in a world apart from the rest of humanity. Unlike workers, who depend on their wages to survive and pay the full income tax rate, the ultra-wealthy avoid taxes by obtaining massive loans from banks, borrowing against the value of their ever growing and artificially inflated assets, such as stocks and real estate, which are not taxable until they are sold.
In order to calculate what ProPublica terms the “true tax rate” of the 25 richest Americans, the report compares how much in taxes these individuals paid over a given period to how much their wealth grew, using wealth estimates published by Forbes magazine.
Between 2014 and 2018, Forbes estimated that these 25 people saw their wealth increase collectively by $401 billion. The documents obtained by ProPublica show that these same individuals collectively paid $13.6 billion in federal income taxes over the same time period, for a true tax rate of only 3.4 percent. By contrast, ProPublica found that between 2014 and 2018, a typical US worker in his or her 40s experienced a net wealth expansion of about $65,000. That same worker’s tax bills “were almost as much, nearly $62,000, over that five-year period.”
Over that same period, according to ProPublica, Warren Buffett’s wealth increased by $24.3 billion, but the Berkshire Hathaway mogul paid only $23.7 million in taxes, resulting in a true tax rate of 0.10 percent.
Amazon boss Jeff Bezos’ wealth soared by a staggering $99 billion, but he paid just $973 million in taxes, yielding a true tax rate of less than 1 percent.
Tesla CEO Elon Musk is another “pandemic profiteer.” He saw his wealth skyrocket this past year, in part by violating a state-ordered shutdown and illegally restarting production at the Fremont, California, Tesla factory, leading to hundreds of coronavirus infections. Between 2014 and 2018 his wealth grew by $13.9 billion, while he paid $455 million in taxes, resulting in a true tax rate of 3.27 percent.
The reporting confirms the Marxist analysis of the capitalist state, described in the Communist Manifesto as “… a committee for managing the common affairs of the whole bourgeoisie.” The various loopholes and tax avoidance schemes employed by the ruling class are legal, have been for decades, and will continue to be so under Biden or any other Democratic administration.
As then-candidate Joe Biden assured wealthy donors at a Manhattan campaign fundraising event in January 2019, should he become president, “no one’s standard of living will change, nothing would fundamentally change.” Nearly six months into his presidency, Biden has kept his promises to his wealthy benefactors, as evinced by his recent retreat from his proposal to raise corporate taxes by a few percentage points.
Among other facts included in the ProPublica report:
· Bezos, the world’s richest man, did not pay a penny in federal income taxes in 2007 and 2011. In 2011, despite his overall wealth holding steady at $18 billion, Bezos filed a tax return in which he claimed to have lost money. The IRS not only approved the billionaire’s tax return, it granted him a $4,000 tax credit for his children!
· Musk, now the second richest person in the world, did not pay any federal income taxes in 2018.
· Former New York City Mayor Michael Bloomberg, as well as billionaire investors Carl Icahn and George Soros, have also had years when they paid nothing in federal income taxes. Soros, worth an estimated $8.6 billion as of March 2021, paid no federal income taxes for three years in a row.
According to the ProPublica report, when the super-rich do pay something in income taxes, their true tax rate is far lower than that of the typical working class household, with a median income of $70,000. For instance, between 2006 and 2018, while Bezos’ wealth surged by over $120 billion, he paid, on average, $1.09 in taxes for every $100 in wealth growth. But over the same period, the median American household paid $160 in taxes for every $100 in wealth growth—paying more in taxes than it gained in wealth.
Overall, ProPublica found that the richest 25 Americans pay a far lower income tax rate, an average of 15.8 percent of adjusted gross income, than do many workers, once taxes for Social Security and Medicare are included. To highlight the point, ProPublica found that by the end of 2018, the 25 richest Americans were worth $1.1 trillion and collectively paid a federal tax bill of $1.9 billion.
The $1.1 trillion in collective wealth hoarded by 25 people equals the combined annual wages of roughly 14.3 million American workers, who in 2018 paid $143 billion in federal taxes, or over 75 times more than the billionaires.
On Tuesday, in response to a reporter’s question about the ProPublica report, White House Press Secretary Jen Psaki had nothing to say about its damning content. Instead, she threatened criminal prosecution of those who leaked the IRS documents to ProPublica.
“Any unauthorized disclosure of confidential government information by a person of access is illegal and we take this very seriously,” said Psaki. She added that the IRS commissioner has referred the matter to investigators and that the FBI and Justice Department would also be investigating.
THERE'S NO ONE UP HIGH TECH'S ASS MORE THAN BIDEN! THERE WILL BE NO HIGH-TECH ANTI-TRUST UNDER THE BIDEN REGIME!
The donation comes after the House Judiciary Committee’s Subcommittee on Antitrust introduced five bills last summer aimed to curb anti-competitive practices in the tech industry. The bills have been presented as a bipartisan effort to rein in the power of dominant Silicon Valley companies.
IT PAYS TO OWN A FEW DEMOCRAT POLS
A video on the Make Amazon Pay website further states: “Amazon’s wealth has increased so much during the pandemic that its owners could pay all 1.3 million of its employees a $690,000 COVID bonus and still be as rich as they were in 2020.”
Read more at Business Insider here.
Jeff Bezos Donates $100 Million to Obama Foundation
Amazon founder Jeff Bezos is donating $100 million to the Obama Foundation in the wake of Amazon clashing with the Biden administration over antitrust issues.
Bezos’ $100 million donation to the Obama Foundation, made in honor of late Rep. John Lewis, is the foundation’s largest individual contribution received to date, the Obama Foundation announced in a Monday press release.
Jeff Bezos lectures normal people about climate change Pool/Getty)
GLASGOW, SCOTLAND – NOVEMBER 08: Former US President Barack Obama delivers a speech while attending day nine of the COP26 at SECC on November 8, 2021 in Glasgow, Scotland. (Photo by Christopher Furlong/Getty Images)
The donation comes after the House Judiciary Committee’s Subcommittee on Antitrust introduced five bills last summer aimed to curb anti-competitive practices in the tech industry. The bills have been presented as a bipartisan effort to rein in the power of dominant Silicon Valley companies.
One bill aimed to prevent technology companies from favoring their own products and services on their platform, a practice that Google and Amazon have been accused of. Another targeted the use of data obtained from competitors to gain an advantage over them, a practice that has made Amazon the subject of an EU antitrust investigation.
Moreover, Lina Khan, the Chairperson of the Federal Trade Commission (FTC), is reportedly probing Amazon’s $8.5 billion acquisition of MGM Studios. In June, Amazon demanded that Khan recuse herself from any FTC probes of the company, reported New York Post.
Bezos’ nine-figure gift to the Obama Foundation was arranged by former Obama press secretary and current Amazon senior vice president of global corporate affairs Jay Carney, according to a report by Puck News.
The Obama Foundation says Bezos’ donation will “help expand the scope of programming that reaches emerging leaders in the United States and around the world,” adding that Bezos “has asked for the Plaza at the Obama Presidential Center to be named the John Lewis Plaza.”
While the foundation was vague regarding what Bezos’ donation will be spent on, it said that the money will give “the next generation of emerging leaders” the “necessary tools, resources, and training needed to be the change they want to see in the world, just as Congressman Lewis did.”
“I’m thrilled to support President and Mrs. Obama and their Foundation in its mission to train and inspire tomorrow’s leaders,” Bezos said.
Earlier this month, former President Barack Obama jetted into Glasgow, Scotland, for the COP26 climate conference to tell “old folks” to “get out of the way.”
“From the perspective of the Obama Foundation, one of the things I’m most excited about is to see the young activists from around the world who are taking up the baton and not just working in their own countries, but now forming a collective movement across borders to tell the older generation that has gotten us into this mess that we all have an obligation to dig our way out of it,” Obama said in a recorded a video message.
You can follow Alana Mastrangelo on Facebook and Twitter at @ARmastrangelo, and on Instagram.
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