The Flight Back Down to Reality Ahead for the Rich

Stock Market Bubble Starting to Show Signs of StressSix years ago this month, in the midst of the Great Recession, Lehman Brothers, one of the most well-known investment banks in the U.S. economy, filed for bankruptcy.

At the time, Lehman’s bankruptcy sparked widespread worries…and the U.S. financial system teetered on the verge of collapse. For those of us who remember that time, there was too much uncertainty.

So, the Federal Reserve and the government stepped in to help the crumbling U.S. economy. Loans were made to companies that were “too big to fail,” interest rates fell to historic lows, and trillions of dollars in new money was printed (out of thin air).

Six years later, is the U.S. economy better off now?


Looking at Wall Street today, it looks like things couldn’t be better. The markets are close to all-time highs. The big banks are in better shape; their profits are rising and executives’ incomes and bonuses are big once again.

And speculation is back, big-time. As just one example, Facebook, Inc. (NASDAQ/FB) recently reached a market capitalization of more than $200 billion in hopes that the company will be able to make more money on mobile ads. Facebook is trading at a price-to-earnings multiple of 100!

The luxury market is hot again. Exotic cars are being sold at record prices. Sales of million-dollar-plus mansions are on the rise.

Sadly, on the other side of the coin, there have never been so many poor people in the U.S. economy, and the middle class hasn’t seen a return to the wealth and income they had before the Credit Crisis.

In 2013, 14.5% of the U.S. population was living at or below the poverty line. In 2008, this rate was 12.5%. (Source: U.S. Census Bureau, September 16, 2014.)

In June of 2014, there were 46.4 million Americans in the U.S. economy who were using food stamps. In 2008, there were only 28.2 million Americans using food stamps—a jump of more than 64%. (Source: U.S. Department of Agriculture web site, last accessed September 18, 2014.)

When it comes to the jobs market, there isn’t much to be excited about either. Well-paying jobs are hard to come by in the U.S. economy. The “job boom” has been in low-wage retail jobs. The underemployment rate, which includes those people who have given up on looking for work and those people who have part-time jobs because they can’t find full-time jobs, has been above 12% for years now.

Dear reader, while I can list many other problems with the U.S. economy, the point here is that since the collapse of Lehman, only the well-to-do, the rich, have rebounded and even flourished. The Fed’s policy of keeping interest rates so low for so long has benefited those who have been able to borrow money at historically low rates while investing the money in assets that are appreciating, like stocks.

But this might soon change. The stock market has taken the shape of a huge bubble. And some of the air in that bubble started to leak out this week as stocks had three sharp days of losses. When the stock market bubble does burst, and it will, those who have benefited from the Fed’s low-interest-rate policy (NYSE margin debt is at a record-high) will come back down to reality very quickly.