All Hail Our New Lord and Master, the Stock Market

The all-powerful Federal Reserve is a mere minion of the stock market, a kitten absurdly claiming in public to be a tiger. If the market threatens to drop, the Fed quickly prostrates itself and does the bidding of its Lord and Master: “No rate hikes, minions!”

By cowering in terror of a stock market tantrum, the Fed has surrendered everything: its vaunted (and completely phony) independence; its duty (yes, go ahead and laugh) to the nation and the real economy–everything.

The Fed is nothing but an abject slave of the market. It masks its servitude with Newspeak, but the reality it has only two choices: burn the market down with a series of rate hikes or surrender completely to the market, relinquishing any pretense of power or control.

The Fed is not alone; the entire financial-political system is now beholden to the stock market.

Want to impose real restrictions on the financial sector? Forget it, Congress–the market will rebel. And if the market sags–you’ll cave in like all the market’s servile minions because a significant chunk of your campaign contributions come from those profiteering off the market.

Corporate America–don’t dare miss your quarterly earnings number or you will suffer the wrath of a market that destroys all who don’t obey its demands for short-term profits at the expense of long-term profitability. Were the management of a public company bold enough to sacrifice short-term profits for long-term growth, they wouldn’t survive the market’s destruction of their stock price.

The stock market now dictates fiscal and monetary policy within the Empire because the American economy has been fully financialized. Profits flow not from innovation in products and services but from the financialization of every income stream.

While definitions of financialization vary, mine is:

Financialization is the mass commodification of debt and debt-based financial instruments collaterized by previously low-risk assets, a pyramiding of risk and speculative gains that is only possible in a massive expansion of low-cost credit and leverage.

Another way to describe the same dynamics is: financialization results when leverage and information asymmetry replace innovation and productive investment as the source of wealth creation.

When the profits from financializing collateral and leveraging those bets to the hilt far exceed generating wealth by creating products and services, the economy is soon hollowed out as the perverse incentives of financialization start driving every business and political decision and strategy.

Even Darth Vader now takes orders from the stock market:

We’re all minions now of the stock market. All hail our Lord and Master, the stock market.