Corrections Part I: The COVID Stock Market Corrections
Posted On April 7, 2020
This article contains commentary which reflects the author's opinion
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What Will We Remember
One of the lasting memories of the COVID-19 crisis will most assuredly be the massive corrections we have seen in the stock market values during the crisis. The global focus on this change is one of the primary reasons for this series of articles on general corrections within society. We had something that was horribly broken, but we ignored it because of our enjoyment of the broken nature of the system. As a result, when there was a collapse, people began to suffer. Without getting too Biblical, building a house on the sand is never a good idea (Luke 6:46-49).
A System Based Upon Finance Capitalism
The stock market is gambling. While this is not a popular opinion, this series of articles is built upon a series of unpopular opinions. When you place your money in the stock market, you are betting on it going up rather than going down. Proponents of the market will argue this is “investing.” However, investing is just another word for speculation. Thus we have built an entire economic system on betting whether a company will increase or decrease in value. This brand of capitalism is called finance capitalism. On its face, it is no more evil or good than any other type of capitalism.
Under the concept of finance capitalism, the capital itself is the product while the goods and services are secondary products. This, in effect, allows the capitalist to “buy” money, most commonly in the form of bonds. The reason this form is not primarily based in currency exchange, which would be a theoretical base, is because of the stability of the US dollar over the last 100 years. Unlike other forms of capitalism, the currency of choice (the US Dollar) does not act as a buffer for change. Thus, when there is a change, society feels the full effect of the change.
Adjusting and Accepting the Correction
The critical element of this correction is the market was worth more than the value of its component parts. Business have in rent value. That value is based on the value they bring to society. The viability of the market should never have been in doubt as we see the rise of less valuable industries, sports, movies, ect. replacing classical high-value items, manufacturing, and agriculture. The market itself was perfect. It was the investor (us) who were flawed. Thus, when the hiccup came into the system, we felt the brunt of the collapse because of our hubris.
When the market approached 32,000 and beyond, we knew it was unsustainable. No one wanted to use the word bubble for fear the gravy train would stop. The scary part is once this crisis is over, the rocket ship of a market will likely return 32,000 and blast up near 40,000. This will result in another correct. This time, perhaps, without a crisis. Understanding this gives us a chance to correct the system. A corrected system will not be as exciting, but it will be more stable for the world community.
Positive Market Choices in the Future
Accepting investing as a way to maintain wealth is the key problem in this system. If we address this problem, then we have some hope at stabilizing the system. A great thing about our system is social security does not invest in the stock markets. However, if you are relying on social security as your retirement, that is a bad thing. Most people have their money in an IRA or 401(k). Both of these systems are highly dependent on the market. Safer options, such as savings accounts, have been gutted by the Federal Reserve with the low interest rates. If we revitalize these types of accounts, we can balance the system. There will not be giant gains, but also no giant losses.
The issue with the Federal Reserve is simple. The Federal Reserve invests its money in institutions, which invests in stocks. The Federal Reserve makes more money (as a private bank) when the stocks are doing well. Thus, we see a lowered interest rate to increase the likelihood of people gambling their money on stocks instead of placing it in a bank with an abysmal return. The justification of the low interest rate is it increases investment. They do not even hide this fact. However, the misconception that the Federal Reserve is a government bank makes it look like this process is completely legitimate. The Federal Reserve does not care what stocks you invest in. They are only concerned that you are investing because doing so increases the worth of bank holdings, thus increasing the worth of the system.
What Stock Market Corrections Mean
The corrections the stock market needs is twofold. First, we need to eliminate the Federal Reserve and return currency control to the United States Government. This eliminates the for-profit interest of an artificially low interest rate and increases the likelihood of the market actually controlling the interest rate. Second, we need to see an interest rate of approximately 3-5% in savings accounts and CDs. While this is 10 times the current rates, it would have people invest in a standard banks with a doubling effect approximately every 10 years. Such a move, however, must be paired with an “inflation tax” of 1% of every transaction. This would allow the government to reabsorb the money into the system, effectively taking it out of circulation.
The tertiary effect of this policy would be countries using the US dollar as their currency or the global currency, would be able to bank via US banks, not the Federal Reserve, infusing trillions of dollars into the banking system. The deflation tax alone on this would allow for the stabilization of the bond market. Tariffs would become a thing of the past as the inflation tax would be adjusted for country of origin to manage market deficits.
Overall, these stock market corrections would be difficult to achieve. Too many people see the lottery of the stock market as a right and any adjustment a form of “Communism.” Individuals would still be allowed to invest in the market, thought the rates at banks would be competitive giving them a safer option. Retirement accounts could be individualized. This would end the Social Security pyramid scheme and would protect accounts from Congress’ predatory borrowing. Further these accounts could be large enough to sustain the retiree without robbing the next generation to keep the system solvent. These factors alone would create an outcry from the public, the same as if we took the lottery away. Economies cannot be built on gambling, because eventually the house always wins.
Dr. Christopher Smithmyer is a writer for NRN, the Vice President of International Affairs at Brav Online Conflict Management, and an Adjunct Professor of MBA Business at Doane University. He is also part of the founding team at BlackWalletLTD, one of the leaders in stable coin 2.0 ecosystem maintenance. Dr. Smithmyer’s focus is international business and finance, along with reviews of board games, weapons platforms, and survival items.