Washington, DC -- (ReleaseWire) -- 09/02/2016 --In a passionate essay from April of 1776 called "Thoughts on Government," founding father John Adams wrote, "Government is instituted for the common good; for the protection, safety, prosperity, and happiness of the people; and not for profit, honor, or private interest of any one man, family, or class of men." What would Adams think now, looking at the corruption and incompetence surrounding our political process, governance, and economic policy-making?
The Clinton Foundation is under increasing and increasingly credible scrutiny. The base question: Did individuals and firms making large donations to the Foundation or paying large speaking or consulting fees to Bill Clinton get preferred access to Hillary Clinton as Secretary of State? What else could they be getting for their money? Bill Clinton, with no experience in higher education, has reportedly received nearly $17 million as "Honorary Chancellor" of an obscure network of for-profit universities. Hillary received over $21 million for 92 speeches during the period between 2013 and 2015, including nearly 2 million for 8 speeches to large banks and financial institutions. What for? Her opinions and expertise on international affairs is on record from her time at State, and her business acumen is certainly not at the top of any list of her greatest abilities. Even Donald Trump acknowledges playing the game: he himself gave somewhere between $100,000 and $250,000 to the Clinton Foundation, and now acknowledges that "It's impossible to figure out where the Clinton Foundation ends and the State Department begins."
Former President Jimmy Carter has been echoing Adams in recent months, harkening back to statements he made back as far as the 1970's. Unlimited money in politics, he says, "violates the essence of what made America a great country in its political system. Now it's just an oligarchy, with unlimited political bribery being the essence of getting the nominations for president or to elect the president." This still begs the question: what are these contributors, and donors to political campaigns, really getting for their money?
Most large companies give generously to both parties, implying that they see these contributions as a safety net or insurance. Money in politics provides protection from so called "rent extraction" from the government. In the mid 1990s, the tech industry had an extremely low profile in Washington. After the Microsoft anti-trust trial, however, this turned upside down. Now tech companies are among the biggest lobbyists in the US, with the fanciest offices in DC. The message is clear: 'If you want to play ball you pay up, or we shut you down.' That's just how it is, in every industry. Companies aren't paying for outcomes, but for access, for the right to do business. I believe the solution, rather than taking money out of politics, take away the ability of the government to intervene in economic affairs.
Speaking of intervention in economic affairs, this week provides ample evidence of both the willingness of the Federal Reserve to intervene and their incompetence at doing so. At the Fed's annual Economic Policy Symposium, held in the resort town of Jackson Hole, Wyoming, Janet Yellen continued insisting that the recovery is ongoing, despite, among other things, the 90 million Americans no longer considered part of the workforce because they can no longer bring themselves to stand in line and hope for a job. She was first hawkish, talking about purchasing more assets in broader classes, and even hinting at Congressional legislation to allow the Fed to branch out. The markets, of course, ran up on that. But then, she flipped to the other side of the record and contradicted her earlier statements, which took the wind out of the sails of the knee-jerk runup.
Our real truth is that debt is increasing while U.S. GDP is stagnating and falling; U.S. stocks are rising while U.S. corporate earnings are declining; incomes for most citizens are flat-lining, and there is over 13 trillion of negative-yielding debt out there. The Fed has now taken on the role of price-fixer-in-chief, instituting what many are calling Keynesian Puts to do so. A Keynesian Put is the expectation and action of propping up markets by fiscal policy stimulus. The Fed is taking the "demand" out of the supply and demand equation by providing it directly, rather than allowing the free market to determine it.
Here are four ways the Fed and other central banks have instituted Keynesian Puts, to the tune of $25 trillion of working central bank assets. First, there have been 667 interest rate cuts by central banks, globally, since Lehmann Brothers, a measure designed to prop up the markets by making money cheaper. Second, in that time, among all G-7 central bank governors, from Yellen to Draghi, only one (Yellen's quarter of a percent raise in December 2015) has actually raised interest rates. The third is that $25 trillion of assets that central banks own. That's larger than the GDP of the United States and Japan, combined. The fourth is the nearly $13 trillion in government-issued bonds with negative yields, globally.
Jeffrey Miller, whose bi-weekly "Miller's Market Musings" appears on StockResearch.com, said it harshly but well last week. "Central banks keep reloading and doing dumber and dumber things, and since their stupidity seems to know no bounds, I'm willing to say that I don't know how dumb things will get before they stop." Taking that a step farther, into practicalities, Dominic Konstam of Deutsche Bank said he believes that policy makers will have to be shocked into panic before taking steps to bring us out of the current uncoupled market environment and back to something at least semi-credibly related to the laws of the free market. He said, "the status quo could continue for several years yet – if nothing "breaks" in the system," but continued by noting the irony that, "the shock that is needed would require a collapse in risk assets for policymakers to then really panic and attempt dramatic fiscal stimulus." Only a shock, he asserted, can bring us out of a market with falling yields and rising equities where "all financial assets trade badly."
Again there's a question, similar to "What does political money buy for companies and the wealthy?" This question is, "Why continue doing the same things and waiting for a panic before changing tacks?" Jeffrey Miller's thoughts on the basic "dumbness" of the central bankers are certainly one answer to that, but I believe there may be another reason that leads back, at least philosophically, to "pay for play." At this point, even if you're not fond of conspiracy theories (as I am not), it's not far-fetched to imagine a joint effort, coordinated by governments, between the central banks to generate money out of thin air for the purpose of allowing the marketplace and the economy to feel like it's doing better, although the economic numbers are saying it's not. This in turn allows them to paint a false picture of recovery and smooths the way to the election of certain people. Perhaps even Hillary Clinton?
Regardless, the answer to the question posed in this article's title, "Who Pays for 'Pay to Play'?" is clearly, we do. When regulators are nudged away from big corporations, they justify their existence by coming down hard on smaller operators such as myself. When central banks build cloud-castle recoveries that benefit only high-volume traders and politicians while leaving the country sinking deeper into a very practical sort of poverty, we all pay. We see zero and negative interest rates eviscerating our pensions, insurance annuities, our retirement plans and savings. So the answer is, we're the ones who truly pay. What are we going to do about it? Allow me to reiterate the John Adams quote with which I started, but continue it to show the conclusion he reached. "Government is instituted for the common good; for the protection, safety, prosperity, and happiness of the people; and not for profit, honor, or private interest of any one man, family, or class of men; therefore, the people alone have an incontestable, unalienable, and indefeasible right to institute government; and to reform, alter, or totally change the same, when their protection, safety, prosperity, and happiness require it." What do we do? There's your answer. Reform, alter, change.
For over a quarter century, Dawn Bennett has been successfully guiding clients through the complexities of wealth management. Her unique vision and insight into market trends makes Bennett a much sought after expert resource with regular appearances on Fox News Channel, CNBC, Bloomberg TV, and MSNBC as well as being featured in Business Week, Fortune, The NY Times, The NY Sun, Washington Business Journal in addition to her highly regarded weekly talk radio program - Financial Mythbusting. Through prudent and thoughtful advice, Dawn Bennett has strived to consistently provide the highest quality of guidance.
About Dawn Bennett
Dawn Bennett is CEO and Founder of Bennett Group Financial Services. She hosts a national radio program called Financial Myth Busting http://www.financialmythbusting.com.
She discusses educational topics and events in the financial news, along with her thoughts on the economy, financial markets, investments, and more with her live guests, who have included rock legend Ted Nugent, as well as Steve Forbes and Grover Norquist. Listeners can call 855-884-DAWN a as well as take podcasts on the road and forums for interaction.
She can be reached on Twitter @DawnBennettFMB or on Facebook Financial Myth Busting with Dawn Bennett.