SVET Reports
Why High Rates Do Not Bother Them?
We have a lot of self-congratulatory comments coming from mainstream media on how “brilliantly” the Boomer-led Fed managed to keep rates at an astronomically high level without hurting economic growth. Let’s look at this BS.
They claim that unemployment is low. Really? It’s low among low-paid employees in government, transportation, manufacturing, and healthcare. This is supported at an unsustainable level by corporations, which have pushed SMBs — incapable of financing their businesses with such overpriced loans — out of the markets. Unemployment is high and rising among the most valuable and productive parts of the workforce in technology, finance, and high-value-added services. This is especially true for new, fledgling, and the most innovative businesses.
They claim that stock market highs increase the wealth of consumers, who then spend it in retail shops. It’s not true. In the USA, institutional investors, which include both active and passive funds, own ~80% of all stocks. So, private investors only hold USD ~$8 trillion of the ~$40 trillion worth of the local stock market.
Moreover, for an “average” asset holder, real estate makes up ~50% of holdings (including primary residence) and stocks & investments only ~25%. The rest is cash & savings (15%) and other (10%, including vehicles, retirement accounts, and valuables). With that, only 40% of homes in the USA are mortgage-free, according to various sources.
You might not be a genius to see that a positive impact on private asset holdings from rising stock prices (~30% YoY, or +5% (15%*0.3) to individuals’ wealth) can’t beat the combined effect of almost doubled prices on food, shelter, or -7% (15%*0.5) and cosmically high mortgage rates (~10%), or -3% (50%*0.1*0.6).
So, we have a combined effect of -5% yearly decrease in private wealth or -8.2% if you count the +3.2% inflation. Only brain-empty Boomer politicians can’t see this obvious fact and continue to preach the great “success of economic policies”.
That’s not all. If the present political trends of establishing a “strong government” with high taxes, high rates, and increasing regulatory burden continue, the economy might enter a Japanese-style stagnation. Here’s how it plays out.
The decades-long economic stagnation in Japan can be attributed to various factors, including a surplus in corporate savings (check), policy mismanagement (check), structural impediments (check), and the close ties between economic bureaucracies and corporations (double check).
Policy mistakes, such as the consumption tax hike in 1997 (check) and slow disposal of nonperforming loans (check), exacerbated the economic challenges. The complex structure of Japan’s political economy, characterized by symbiotic relationships between economic bureaucracies and corporations (check), also played a role in impeding progress.
The link between Japan’s economic stagnation, high asset prices (check), and low levels of innovation and entrepreneurship is multifaceted. The prolonged economic slowdown has hindered innovation and entrepreneurial activities due to risk aversion (rapidly growing with Millennial and Gen Z generations) and limited opportunities for growth (almost check).
The aging population (check, if immigration channels are closed) impacted the labor force and innovation landscape. Moreover, the dominance of large corporations and conglomerates in Japan’s economy (check) has created barriers for small businesses and startups to thrive (check), contributing to a lack of dynamism in the entrepreneurial ecosystem.
So, as you can see, we are on a straight road into the classical economic dystopia, where the current abyss between the haves and have-nots will widen for the next 20–30 years before the current system collapses and the new free-market, supplemented by UBI and politically decentralized system is built