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How Will The Stock Market React To The End Of Quantitative Easing?

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Stock Market Crash - Public DomainIt is widely expected that the Federal Reserve is going to announce the end of quantitative easing this week.  Will this represent a major turning point for the stock market?  As you will see below, since 2008 stocks have risen dramatically throughout every stage of quantitative easing.  But when the various phases of quantitative easing have ended, stocks have always responded by declining substantially.  The only thing that caused stocks to eventually start rising again was a new round of quantitative easing.  So what will happen this time?  That is a very good question.  What we do know is that the the performance of the stock market has become completely divorced from economic reality, and in recent weeks there have been signs of market turmoil that we have not seen in years.  Could the end of quantitative easing be the thing that finally pushes the financial markets over the edge?

After all this time, many Americans still don’t understand what quantitative easing actually is.  Since the end of 2008, the Federal Reserve has injected approximately 3.5 trillion dollars into the financial system.  Of course the Federal Reserve didn’t actually have 3.5 trillion dollars.  The Fed created all of this money out of thin air and used it to buy government bonds and mortgage-backed securities.

If that sounds like “cheating” to you, that is because it is cheating.  If you or I tried to print money, we would be put in prison.  When the Federal Reserve does it, it is called “economic stimulus”.

But the overall economy has not been helped much at all.  If you doubt this, just look at these charts.

Instead, what all of this “easy money” has done is fuel the greatest stock market bubble in history.

As you can see from the chart below, every round of quantitative easing has driven the S&P 500 much higher.  And when each round of quantitative easing has finally ended, stocks have declined substantially

Chart By DayOnBay

And of course the chart above tells only part of the story.  Since April 2013, the S&P 500 has gone much higher…

S&P 500

If someone from another planet looked at that chart, they would be tempted to think that the U.S. economy must be expanding like crazy.

But of course that is not happening.

This market binge has been solely fueled by reckless money printing by the Federal Reserve.  It is not backed up by economic fundamentals in any way, shape or form.

And now that quantitative easing is ending, many are wondering if the party is over.

For example, just check out what CNN is saying about the matter…

Even in this bull market, all good things must come to an end.

The Federal Reserve is expected to close a chapter in history this week and announce the conclusion of its massive stimulus program. Known as quantitative easing, the program is widely credited with driving investors back into stocks in the aftermath of the financial crisis.

“I think to some extent quantitative easing has provided an assurance to investors that (has) kept them optimistic,” said Bruce McCain, Chief Investment Strategist of Key Private Bank in Cleveland, Ohio. “Now we’re going to have to see whether investors can ride without training wheels.”

Everyone knows that quantitative easing was a massive gift to those that own stocks.

So how will the stock market respond now that the monetary heroin is ending?

We shall see.

Meanwhile, deflationary pressures are already starting to take hold around the rest of the globe.  The following is an excerpt from a recent Reuters report

After months of focus on slack in U.S. labor markets, the Federal Reserve faces a new challenge: the possibility that weak inflation may be so firmly entrenched it upends the return to normal monetary policy.

The soft global inflation backdrop, from sliding oil prices to stagnant wages in advanced economies, has triggered debate over whether the Fed and its peers merely need to wait for a slow-motion business cycle to improve, or face a shift in the underlying nature of inflation after the global recession.

That uncertainty has become the Fed’s chief concern in recent weeks, likely to shape upcoming policy statements and delay even further the moment when interest rates, pinned near zero for nearly six years, will start rising again.

If the Federal Reserve and other global central banks were not printing money like mad, the global economy would have almost certainly entered a deflationary depression by now.

But all the Federal Reserve and other global central banks have done is put off the inevitable and make our long-term problems even worse.

Instead of fixing the fundamental problems that caused the great financial crash of 2008, the central bankers decided to try to paper over our problems instead.  They flooded the global financial system with easy money, but today our financial system is shakier than ever.

In fact, we just learned that 10 percent of the biggest banks in Europe have failed their stress tests and must raise more capital…

The European Central Bank says 13 of Europe’s 130 biggest banks have flunked an in-depth review of their finances and must increase their capital buffers against losses by 10 billion euros ($12.5 billion).

The ECB said 25 banks in all were found to need stronger buffers — but that 12 have already made up their shortfall during the months in which the ECB was carrying out its review. The remaining 13 now have two weeks to tell the ECB how they plan to increase their capital buffers.

Most people do not realize how vulnerable our financial system truly is.  It is essentially a pyramid of debt and credit that could fall apart at any time.

Right now, the “too big to fail” banks account for 42 percent of all loans and 67 percent of all banking assets in the United States.

Without those banks, we essentially do not have an economy.

But instead of being careful, those banks have taken recklessness to unprecedented heights.

At this moment, five of the “too big to fail” banks each have more than 40 trillion dollars of exposure to derivatives.

Most Americans don’t even understand what derivatives are, but when the next great financial crisis strikes we are going to be hearing a whole lot about them.

The big banks have transformed Wall Street into the biggest casino in the history of the planet, and there is no way that this is going to end well.

A great collapse is coming.

It is just a matter of time.

  • Robert C.

    Oh yes, it’s coming real soon and people with 9 to 5 jobs are going to feel the pain.

    • VegasBob

      People with 9 to 5 jobs (except banksters) have been feeling the pain for years. So have the unemployed.

      Money-printing (AKA quantitative easing) is a gift to the already wealthy. It inflates the prices of stocks, bonds, houses and commodities (including food and energy).

      Money printing allows the already wealthy to effortlessly expand their wealth, while ordinary people are stuck with rapidly rising prices for houses, rent, food products, utilities, and, until recently, gasoline, most of which are excluded from official inflation calculations.

      My guess is that declining oil prices are a function of a slowing world economy, which will precede the next economic meltdown.

      We live in a society run by the criminally insane. In a sane society, the money-printers would have already been arrested, tried, convicted and imprisoned for counterfeiting and fraud.

      • Jane the Plummer

        And they are insane enough to want a pandemic. The world will celebrate with our demise if indeed my prediction is right. A WW3 might ensue just trying to keep amerikins on their own infected soil..i.e. Belize, Mexico.

  • K

    Does anyone doubt, some insiders already know, if the end of quantitative easing is coming, and when it will be announced. Does anyone doubt, some insiders already know how far the market will go down, before they bring quantitative easing back. There is nothing straight or honest about this game.

    • alan

      They know and it won’t end. QE will die at the same time XYZ will be launched. XYZ will do the same thing, but its called another name. It will be a success because the stock market will go up! No one will ask any questions.

  • CharlesH

    Anyone who still denies that everything is going to abruptly turn upside down is either delusional or literally living under that proverbial rock.

  • Tim

    Yesterday I was quite surprised by something I read in the latest issue of the Upstate Business Journal (dated 10/24/14), which is a free publication that comes on Fridays. In it there was an article that stated that unemployment for the State of South Carolina rose in September for the third consecutive month. (The state unemployment rate was reported at 6.6 percent for September.) Furthermore, and this was even more shocking, the article stated that the state’s labor participation rate was only 57.9 percent! (That’s even lower than the national rate.) What’s so surprising about this is that there is a lot of manufacturing industry in this state.

    • Swagato Barman Roy

      In these ages, manufacturing industry means goods and products for you to enjoy, not jobs. The age of jobs is coming to an end. This is the idea, opportunity and innovation driven economy.

      • Peter

        Your wrong “This is the idea, opportunity and innovation driven economy.”
        This is the myth they want you to believe. That through education and innovation we can we can still get ahead in life.I worked for a company that closed down and moved to china. The 1st to go were the engineers you simply cant design some thing here and make it there, for many reasons.We think in terms of robots and innovation. Where they think in terms of having some one turn screws all day, as its cheaper then what even the electricity costs. We have no clue what sort of goods are available and why without living there.Not to mention with billions of people that actually live there and speak the language they will simply never hire us for anything.The innovation will come when the system comes to an end. When we are free to bring back real capitalism.

        • Swagato Barman Roy

          If the production is going off shore, then the design and development will go as well-sooner or later. Is that what you are saying? I agree with you.

          But if you are talking about jobs, menial labour class jobs are not going to pay much anyway. That is why I meant you must come up with value creation ideas, strategies-instead of looking up to someone else for a monthly salary. Go become a technopreneur at Silicon valley, run a Mcdonalds franchise at a profitable location, be a real estate agent-whatever you want.

  • Can you say “Armageddon”?!?

    Aint gonna happen. They are gonna QE till WW3! Until those ICBMs are launched!

    Unless the PTB has decided to pull the plug and Crash the Market! That’s what will happen if they stopped QE.

    • Jane the Plummer

      David, your not considering ‘lag time’ inflation. QE to infinity is not possible. Prior QE’s inflation is now hitting hard. Hyperinflation is around the corner. Only thing left is default. Which leaves the world screwed and starving. By 2015 the average Joe/Jane is going to have real problems just buying food. That is if the Ebola thing falls short…

      • Actually, I have considered the “lag time” of this QE or digital money printing! In 2010, I wrote “Currency Wars for Dummies: How the United States is Hyperventilating the World” which you can either search for online or go to the last TECB article and the bitly link is posted there.

        The gist of that viral article is that the Fed’s QE money printing is being exported to export-driven countries like China, Argentina, etc. who are deflating their local currencies to keep up with the ever deflating USD.

        As I said in my article:

        “The joke around the world is that America exports its monopoly money (electronically created out of thin air and backed by nothing) in exchange for real goods and services provided by the sweat and hard labor from the rest of the world. But the rest of the world is finally waking up to this not- so-funny situation.

        Countries like China, which still pegs its currency very closely to the U.S. Dollar [USD] for export purposes, will be forced to allow their currency to appreciate when the USD continues to fall. This is because China cannot continue to absorb the high cost of the resultant inflation that is created there.”

        You 100% correct that 2015 is the year of the reckoning or wrecking! That is if we make it through the end of this year! We still have this week to go and two more months to go!

        • Jane the Plummer

          China must continue to export cheap trinkets to their best customer, but what is the cost of their inflated money in the long run? Will this cause high inflation too? I think I’m missing something.

          • Jane the Plummer

            I somehow think our money is deflating, this is confusing.

          • alan

            Everything is going up in Asia. So that inflation will be on its way back soon.

          • Priszilla

            Why China? American companies that own and operate factories in China.

          • Hammerstrike

            African countries, Russia and some middle-eastern countries is China´s best customers, they have the things that China actually needs.

            You know, oil, metal and whatever else one need to run factories at full capacity, instead of trash and promises of future payements.

          • Priszilla

            These places are where China outsouces to.

          • Hammerstrike

            Best customers?!? Hahahaah!

    • grumpyhillbilly

      To quote the hero of all progressives – Josef Stalin, “Death is the solution to all problems”. I’ve no clue whether they will end QE before our next …ahem… “great” war. I do know WWIII will be their answer. Ebola and other contagion will just be a bonus.

      • Hammerstrike

        “The problem with quotes found on the internet is that they’re not always accurate.”

        – Abraham Lincoln, 1864

      • You got almost everything right! These labels “progressives”, “conservatives”, “leftists”, “rightists”, etc. are for the sheeple to corral themselves into neat piles for the bonfire called the Culling which is coming up!

    • Hammerstrike

      They can still claime they are ending it while not actually doing just that.

  • Not me?

    It will crash.

  • lucy

    I spent some time while reading this to try to understand what it all means…for example, I looked up the term “derivative” and this is what I found…..”
    In finance, a derivative is a special type of contract that derives its value from the performance of an underlying entity. This underlying entity can be an asset, index, or interest rate, and is often called the “underlying”.”
    uhhhhh, WHAT?
    This is part of the reason why people don’t pay a lot of attention, I am not agreeing with the ignorance…..we all have an obligation to try to understand what is happening, but I don’t even know what this means! The general public doesn’t pay attention to this stuff because they are WORLDS apart from these agencies and banks, etc..
    Stop anyone on the street and ask them what a derivative is, or a ” mortgage backed security”…..how many correct answers do you think you’ll get? I just figured out that My husband and I are part of that MBS now that Fannie Mae BOUGHT our mortgage from our FCU about 2 years ago.
    It’s all just a stupid card game that uses other people’s money in a totally irresponsible way. What are we to do? Seriously?!
    The only thing we can do is try to have our homes in order and get as much out of debt as possible? How do you even do that when paycheck to paycheck living has become the norm?

    • Jane the Plummer

      Let the house go. Sell everything. Auction valubles. Put mortgage payment away, not in bank. When you have to leave, rent small cheap apt/home out of the city. Start buying pet/human food immediately, now. Grow food later, get seeds now. Also start thinking survival, not existing. You already see the bullcrap. America is dead, get moving.

      • No country like USA

        You are brain DEAD.

        • Jodie Lynn Gaeta

          Why write “dead” in capitals? As a matter of fact, why don’t you lay off the insults and racist comments?

  • FortuneSeek3rz

    The U.S. is still the best place to live for financial security. Like it or not, the U.S. has trillions in financial assets in the form of patents, energy reserves, natural resources, real estate, contractual obligations, entertainment, etc, etc. If you want a real hell hole, go to Venezuela, Argentina, Columbia, Iran, Iraq, Syria, North Korea or your favorite central African country. The people who live in the U.S. have very little to fear from an economic standpoint.

    • Guest

      Surely you jest.

      • FortuneSeek3rz

        I Shirley did! It’s about time Americans stop playing the “poor me” card and realize the gifted situation they live in. Sure it isn’t perfect, but neither is any other country. America is the TALLEST MIDGET. Just get over it.

        • guest

          Remember “The Tower of Babel”???

    • You probably never left the state where you were born and your knowledge of foreign countries are gleamed from the Discovery Channel.

      Hell hole, Argentina?!?

      • FortuneSeek3rz

        Have you tracked the Argentine peso in the last five years? Please educate yourself first, then post.

        • There is more to Argentina than our peso! I live in “hell hole” and it’s paradise! No, not the communist/socialist paradise that you are so brainwashed about!

          • FortuneSeek3rz

            Yet you speak freely of the U.S. dollar collapsing when you don’t live in the U.S. Try using your own logic Einstein. Meanwhile ask Cristina why they aren’t making bond payments to their debtors.

          • I have lived in your land of GMO milk and fake money for over 20 years, in 5 states and 7 towns and cities. So, I know all about your sh it!

            We have made our debt payments; it’s your King Griesa who thinks he is the Christian Scientist Lord of the Universe that is blocking payment from being distributed.

            I look forward to the day when your USD and US Toiletries are used as such!

          • FortuneSeek3rz

            Sure it will. Right after the Argentine peso does. Oh, that already happened! OOPS

          • FortuneSeek3rz

            Argentina’s economic freedom score
            is 44.6, making its economy the 166th freest in the 2014 Index. Its
            overall score has decreased by 2.1 points, reflecting substantial
            declines in investment freedom, business freedom, labor freedom, and the
            management of government spending. Argentina ranks 27th out of 29
            countries in the South and Central America/Caribbean region, and its
            overall score is far below the regional and world averages.

          • No country like USA

            Listen chino, it is not going to happen here in USA but in China when your real estate explodes, and that is very close. That is going to make US dollar King for foreseeable future, because your bubble will make everybody else run to dollar.
            Value of gold will go down to toilet, so all tons of gold you accumulated over past few years will be worthless and you will be buying again our bonds. Interesting indeed. It is not you who decides monetary policy it is Brits and Americans. So shut up and stick to your rice bowl.

          • Jane the Plummer

            no RACE bulls*it

          • No country like USA

            Jane why not, this is the problem when communists tell what is going to happen with my country.
            Stick with plumbing and shut your pie hole.

          • Mudpie

            Dream on slick.

          • alan

            LOL!

          • Jane the Plummer

            Argentina to ‘King’ Griesa: “Drop dead”. Ahahaha

          • Malcolm Reynolds

            Remember, it’s not paradise, it’s poverty.
            Remember, the news, not the Discovery channel, says that your nutbag commy president is seizing businesses and a hedge fund even seized a ship owned by your Navy…

      • Mike

        Inflation is anywhere between 10% and 25%! Sounds like a hellhole to me.

        • Inflation here is about 40%! Thanks to our 1% chasing the USD. But all good things come to an end when the U.S.S. Titanic aka USD dies!

          • FortuneSeek3rz

            Don’t hold your breath. That mantra has been beaten to death more than once. And Argentina defaulted on their bond payments again THIS YEAR. The Argentine peso has lost 66% of its value in five years. Good luck……….

          • When the USD dies, it will lose 100% of its value in minutes!

          • FortuneSeek3rz

            No it won’t. You are living in a fantasy land fueled by your own hatred of U.S. dominance.

          • Mike

            The inflation I was talking about happened in the past 2 years. That’s on top of anything else they’ve had. The dollar may someday implode, but I doubt in my life time. So I buy on the dips and am in for the long haul. I also have plenty of ammo and silver so all my bases are covered.

        • Priszilla

          Life in Hong Kong was great when we had 10% inflation. Unemployment was less than 1%.

          • Mike

            Well we weren’t talking about Hong Kong were we? Where we are talking about has almost 7% big difference.

      • Jane the Plummer

        Please don’t feed the trolls

        • Thanks Jane! In my joy of President Dilma Rousseff’s victory last night, I forgot about the paid CIA/Mossad trolls! This victory is extremely significant as it stops the “norteamericano pivot” for the next 4 years for ALL of South America! And if we make it through 2018, without the Geat Crash of GD2 and/or WW3, I will be shocked. Absolutely shocked.

          • Jane the Plummer

            The fact that Russia is making a lot of powerful friends and allies..we shall see. I think the US government has managed to “wake a sleeping giant”…Anyway, you should fare well do to your surroundings and like minded people who know the deal. Remember me as I get arrested selling black market veggies to survive..

          • I have replied to you in great detail as a new comment, so as not to get buried here.

      • Tom_F

        @Chu…..GESUNDHEIT!
        (the word is ‘gleaned’ and not ‘gleamed’, Mr. Citizen of the World)

    • Richard

      Excuse me, nobody said (or implied) that the choice was between the U.S. and any of the other countries you cite. Try Singapore for size. Or Norway. Or Sweden. Or plenty of other places. YOU ARE DANGEROUSLY MISTAKEN. THE PEOPLE ‘WHO LIVE IN THE U.S.’ HAVE EVERYTHING TO FEAR FROM AN ECONOMIC STANDPOINT. Now you can go back to sleep.

      • Jane the Plummer

        You mean ‘go back to sheep’…

    • Priszilla

      It’s great that you are better than Syria. That’s are real achievement!

  • Handog

    I don’t think this is what the founding fathers had in mind.

    • Mudpie

      You have a gift for understatement.

    • Peter J

      same old stories. i did believe the economy would collapse for a while but now its obvious the…..lies,manipulation,fraud will allow tptb to keep this going forever.

  • Richard

    “So what will happen this time? That is a very good question.”

    I think we (the readers) should be allowed to evaluate that very silly question for ourselves. Michael, how can you POSSIBLY ask a question and then pat yourself on the back for the supreme quality of the question you, yourself, have just asked?

    Stop it with the questions, my friend. Just get on with your article and say what you have to say.

    • Guest

      There you go again.

      • harshmellow

        Yes, you would think question marks are illegal in Richard’s world, I also feel sorry for his abused CAPS LOCK key.

        • Richard

          Listen, I’m sorry if you’ve received such a poor education. It is very sad. If you had had anything resembling coherent tuition in the writing of good prose, you would have learned that it is very bad form to ask and answer your own questions. Make of it what you will.

    • harshmellow

      Up vote if you think Richard should STFU!

  • No country like USA

    Well most likely correction will happen, but nothing gloom and doom. Problem will start in China and this should only strengthen US dollar and contrary what most are predicting imported goods will be more affordable.
    Don’t worry be happy.

  • Jane the Plummer

    I don’t see QE ending, we shall see. What I do see is terrifying. The very real possibility that Ebola will be used as a default on the debt. They wouldn’t do that you say? Know your history…

  • Joe D

    This log is usually pretty good but way off on this topic. As anyone who trades derivatives knows, nearly all expire worthless. They are primarily used as insurance for downside protection and/or for locking in upside growth. This writer should stick to other aspects of the pending monetary collapse, ‘Big Bank’ derivative use will help mitigate the pain, not exacerbate it…..
    Just sayin’ yo…..

  • Ian B.

    Quantitative Easing is just another government handout. But it’s funny how the wealthiest justify their handouts because they are “too big to fail” or “job creators.”

  • rentslave

    Can they bet on sports in Argentina?Roger Goodell won’t permit us to do that here.

  • patriot alice

    The Queen of hearts will continue the QE’s. She doesn’t have what it takes to stop the QE’s.

  • chilller

    What’s different this time to keep the stocks from falling back again? Not trusting guberment is something many have learned right here at Economic Collapse. Why would we suddenly believe they are telling the truth about ending QE? They will say, “Look! We ended QE and things are still going strong!”…when in fact…they never quit QE and are using this scenario to try and coax people to spend money they don’t have (borrow more from banks). These are the bankers we’re talking about here, they have total control and will stop at nothing to get into everyone’s pockets.
    Are you guilty of selecting which gubermint truths to believe and which not to believe? It’s sure starting to sound like that here…

  • alan

    Basically it won’t end because they know what the results will be. 401k’s getting whacked will make lots of people very pissed off. What will happen is a new back door will be opened and the old one closed in a big cloud of smoke. Nobody will notice what happened, everyone will look at their 401ks and go woo wee, well it looks good to me.

    Its going to be a long and slow ride to the bottom, providing the Red Chinese don’t give us any golden bumps along the way.

  • The same way it reacts to everything while QE is going on…by heading higher!

  • Thomas D Guastavino

    If I understand this correctly this is what will happen: The fed cuts QE. The US, and the world, economy remains weak, and gets weaker, because of leadership that clearly does not understand how to grow a healthy economy. Therefore, the world has a choice: slip into deep depression, or institute new QE. With interest rates already near zero the only option is massive printing of new money. This drives the markets to brand new highs after a temporary pullback. This pullback will, once again, become a buying opportunity. Once the new highs are reached with, once again, no real economic growth, it should be time to sell because the fed will have no more rabbits to pull out of the hat. Like a star imploding under its own weight when its fuel is exhausted, there will nothing further the fed can do to stop the inevitable collapse.
    Around S&P 1700 I am going all in, then around S&P 2200 I am going all out to gold, silver, water, food and bullets.

    • K2

      Exactly what i was thinking. If QE ends now, it will be started again in a few months if they think the economy is spiraling downwards. They need to keep the engine running until just before or just after the next prez elections.

  • Firstgarden

    A little off topic, but interesting:

    Owning a private island is perhaps the ultimate luxury good. It’s the pinnacle of exclusivity; your own beach, forest, house, all completely cut off from the rest of the world. Accordingly, more and more people are hopping on the private island bandwagon, with investors and rich folks snatching up small plots all over the world.

    Private islands have been popular vacation spots for the rich since the 1950’s; it was common for old-money families, movie stars, royalty, and drug kingpins to spend their summers away from the mainland. However, only in recent years has the movement turned towards buying.

  • piccadillybabe

    I thought Janet Yellin was going to continue QE indefinitely because the markets would not be sustainable without it but I guess they have decided to end it according to Michael. It could mean that interest rates will go up and people will spend even less than they do now. I am just happy to be paying around $3.00/gal for gas now and hopefully the fuel oil will also follow suit. Perhaps prices will drop across the board for basic essentials. These mega corporations have been sitting on their profits long enough and doling out peanuts to their workers. Cable TV is also becoming history and maybe now we will be able to pay for what we want and not have to buy the whole package. I’d like to think that some of these changes are a good thing but with every step forward we have done in the past 7 years, we seem to have taken 2 steps back.
    Get out of debt and live like a pauper and maybe you will survive and stay away from doctors and politicians

  • toadsticker

    Combining this article with the last one (50% make under $28,031) I have to believe there will be deflation in the economy because there has already been deflation in wages. And deflation in the economy will mean further deflation in wages and benefits. It’s a downward spiral.

  • Bella_Fantasia

    Hello, David Chu, once again. I may still get there. I haven’t ruled it out. Unlike many others here, I know we’re running out of time. The $2,000 income for a visa is still quite a bit out of reach, I’m sorry to say. I’ll be allowed to “earn” some money in a couple years. Being on SS disability means my life is an open book for the government. They’d rather see me die than make any additional income, and I’d die without having my healthcare paid for. It is a dilemma I’m working on though : )

    • Get in touch with me via my website. I can help you pro bono! That $2000 USD per month threshold is what we use for our paying clients. The actual minimum is about 50% lower.

      • Bella_Fantasia

        You are wonderful. I’ll be in touch. There’s much I’d like to ask. Thanks very much.

  • The US needs to abandon its self-destructive, debt-backed economy. First off, move to sovereign money creation, with money created by the federal government free of debt and spent into existence by Congress, in the same fashion that kept prices (relatively) constant over time from Lincoln to Kennedy. Secondly, all existing financial assets need to be jubileed in tranches, replaced by zero-interest bonds repaid in sovereign money. The Federal Reserve’s money-printing functions should end and it should receive appropriations from Congress in order to finance its remaining activities (such as maintaining accounts for the federal government, national banks, etc.). It should become a government-owned corporation along the lines of the United States Postal Service.

    Furthermore, we need to move away from the nonsense economy that we have now, propelled primarily by the purchase of unnecessary consumer products, housing, and above all oil based on debt acquired from interest. For instance the suburbanization project, in which everyone is “middle class” and owns an SUV and McMansion, is no longer feasible from an environmental, economic, and geopolitical standpoint. In addition to the private expenditure and debt described above, supporting suburbanization requires significant public expenditure on infrastructure for oil-using vehicles, as well as high amounts of military spending in order to secure markets for extraction and shipping of the requisite natural resources. Overall, about 50% of the national population should move into the largest or historically most important cities (New York, Los Angeles, Chicago, Detroit, San Francisco, etc.), while 30% should be moved from suburbs into denser midsized towns with well-defined downtowns for local businesses, connected to their parent cities by public transportation. The remaining 20% of the population that is rural can stay as is.

    The result of such changes would mean significantly lower car ownership, significantly lower costs per square foot of housing, and significantly lower consumption of oil and an increase in walking and bicycling. Thus the automotive industries will see fewer sales, the construction industries will see less business, the oil industry will see less consumption, and the healthcare industry will see less disease. Above all, the banksters who finance it all at interest will see less ill-gotten wealth flow into their pockets. As a consequence, GDP per capita will go down markedly which will send stockmarkets collapsing, and long-term growth may reduce to 1% or even less. But living standards will be higher than ever before and the population will be healthier.

    To take this project to its logical conclusion, we need to get rid of planned obsolescence in manufactured products as a means of growing the economy. There needs to be a large shift towards reducing, reusing, and recycling what can be. The best way to ensure this shift is by making all large corporations worker-owned and -operated enterprises. In such enterprises, shareholders (and thus the profit motive, needed in small amounts to create growth when it is warranted) will have only minority representation on the corporate board. Most of the profits would therefore be given to workers as salary and pension increases, or to consumers as price reductions, instead of going 95% to shareholders as buybacks and dividends. If workers keep more of what they produce, the motive for growth becomes reduced. GDP will likely go down again and growth will be low to zero except in times of technological change.

    Is this necessarily a bad thing? It is, for the wealthy whose wealth is invested in stocks and bonds and whose income and net worth would both decline precipitously in a low-growth environment. Under the existing debt-based system of perpetual growth and maximal extraction of profit, degrowth also harms the working class, which would see large amounts of unemployment and poverty. However, it need not be harmful: instead of layoffs, reduced GDP per capita (when coupled with the reduced salaries required to sustain reduced levels of consumption) could be used to reduce working hours and extend vacation lengths, perhaps with a view of even reducing the workweek by a day. Eventually we will be able to spend less time on economic activity and more on things that truly matter, like family and friends.

    Scaling back the empire, reducing the workweek, improving health and benefiting the environment are excellent. It all may sound highly utopian, but it is achievable provided that we follow a more sustainable lifestyle, end the debt-backed monetary system, and institute self-management.

  • Hammerstrike

    They believe they are the wealth creators, as far as they are concerned, the banks are the economy.

    I got a much easier solution. The state is accountable to the people through the constitution, the central banks are fully accountable to that state.
    The federal reserve and zeropean central banks are banking Money monopolies.
    No more money-printing and borrowing-spending system as a replacement to basic competence.

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