Stocks Aren’t Everything

90% of stocks are owned by 10% of the people. Propping up stock prices is not crucial to the survival of the average man. The stratospheric heights of the stock market have been produced by the dispersal of unlimited credit to certain favored bankers who don’t have to obtain funds by hanging up a shingle with an interest rate that is high enough to entice savers to walk through the door.  A fire hose of money is pumped into their institutions which then park a lot of that money in the stock market either directly or through collateral beneficiaries of the fraud.  So, why do we allow the politicians and the news readers to suggest that the health of the economy is based on the height of the stock market? Most normal savers would benefit from a posting of actual market interest rates in bank windows.  The real interest rate is out there.  It is merely obscured.

For decades, a gallon of gas was set at a nickel in Venezuela.  The real gas price was out there to be discovered by the market, if it had been allowed to do so. The technocrats are still working to find that price in Venezuela, but they will never be able to do so without market signals.  The same goes with interest rates in the U.S.  If the fed went all Volker on us and stopped shooting out money to privileged banks at fake low interest rates, we would eventually know the market interest rate.  What kind of a sign would a bank have to hang in its window to get broke Americans to walk in the door with their piggy banks?  How much interest would they have to offer to overcome fears of inflation or loss from an unstable banking system? What are the actual time preferences of American savers contrasted with legitimate vetted entrepreneurial demands for funds?

The market would sift through those things and reveal the real interest rate for the U.S. economy — if allowed to do so.  Is it 12%? Or 24%? Who knows.  It is clear that it would be way higher than it is now.  And many people would be glad for it to go way up.  A cautious old lady who wants to enhance her savings or her fixed income should be able to reap the benefit that thrift would bestow upon her.  The way it is now, she can’t. If it would take 24% interest to make some Americans switch from consumption to savings, they should be able to earn that reward if the unhampered market would offer it to them.

So, back to the original point. Most people are not big beneficiaries of an extremely over-valued stock market that is the result of artificially low interest rates.  Even people of lesser means could benefit if a lower time preference was rewarded by a pat on the back in the form of higher interest rates on savings.  All that the artificial low rates have produced is an explosion in the prices of housing, stocks, education, vehicles, medical services, etc.   Even many libertarians say that, “We will have to endure some pain to straighten this thing out. “ But, it makes no sense to say that normal people would be harmed by legitimate interest rates that encourage and reward savings.   Sure, the stock market would find more reasonable levels.  But, that wouldn’t take food away from the common man.  Higher interest rates on savings benefit the average man a lot more than high stock prices.

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