Why are stock prices rising while the real economy is doing so badly?
Answer: Stock buybacks.
Mike Whitney, writing for Counterpunch, explains how corporate CEOs keep their stock prices high even when their sales and profits are lagging by borrowing money and buying back stock.
CEO salaries and bonuses are typically tied to stock prices, so CEOs are rewarded for increasing their corporate debt rather than figuring out how to improve efficiency and make better products. Whitney quoted Wall Street analysts as saying stock buybacks account for more than half the post-recession rise in the stock market.
Janet Yellen and Ben Bernanke at the Federal Reserve Board made this possible by holding down interest rates, an action that punishes risk-averse small savers who’d prefer to keep their money in insured bank accounts and pushes them into the financial markets.
That’s why the financial markets are doing so well and working Americans are doing so badly. But this cannot go on forever, and I think the next crash will be worse than the previous one, just as the current recovery is worse than the previous one.
The Rich Get Richer: Titanic Stock Bubble Fueled by Buyback Blitz by Mike Whitney for Counterpunch.
The Whisper of the Shutoff Valve by John Michael Greer on The Archdruid Report.