Robert Aro
mises.org
Whether you call it the state, system, Swamp, or establishment, now we get to watch as they cry foul because recent trading activity has, as the Wall Street Journal puts it:
upended the natural order between hedge-fund investors and those trying their hand at trading from their sofas.
Or, like Andrew Left of Citron Research, one of the short sellers who found himself on the losing side of the GameStop trade, said:
I didn’t realize it was this cultlike….It’s just a get-rich-quick scheme.
The historic short squeeze of 2021 is more than a simple underdog story. Perhaps the best thing to come out of this is that it exposes the hypocrisy of the “game.” In order to understand, we must look at those who brought us here.
First there’s the Federal Reserve, which on Wednesday announced it will continue its $120 billion money creation scheme for the stated purpose of creating jobs and increasing prices on consumer goods. Then, there’s the Bank of Japan, which just last month became the biggest owner of the nation’s stocks. Over in Europe, we see billions of dollars of bond buying and negative interest rates thanks to central bank intervention, while Switzerland’s central bank continues to literally create Swiss francs in order to buy assets to add to its $128 billion US equity portfolio.
As for government’s culpability, the US debt is nearing $28 trillion. We are in an era where a rise in interest rates ever again has become unfathomable. Meanwhile one of the most popular economic books of last year, The Deficit Myth, argued for more money printing by the Federal Reserve and that we should all stop worrying about how to pay for public spending programs.
When it comes to Wall Street, it’s a mixed bag of socialistic policy. We see government bailouts for the rich while moral hazard runs rampant. Trillions of dollars over the last decade went into share buybacks. Investment firms use high-frequency trading and computer algorithms. There is (probably) a highly manipulated precious metals market, and who knows what other stock market collusion large firms participate in on a daily basis. The mainstream media and the majority of postsecondary academic programs provide nothing other than an apologetic anticapitalist bias for this unholiest of trinities: the Fed, the government, and Wall Street.
And who has been, and will continue to pay for this?
If we define an entity which can never repay a debt as being bankrupt, we must say the US government is bankrupt. It doesn’t have any savings of its own. The Fed provides a service very few people understand. Those who do understand seem to want no part of it. Despite this tax on society, the Fed remains steadfast on its tacitly understood purpose of propping up the financial system through its various money creation programs. Naturally, the people who pay for society are the only ones who actually produce goods and services people value, those same goods and services the government tried so hard to crack down on last year.
What transpired this week is that many who are likely eligible to receive a government stimulus check have, for the time being, found a way to beat a Wall Street hedge fund at its own game. This has upending the long-standing “natural order” which has taken many generations of lies and propaganda to perpetuate, all done using a fraction of the capital and tools available to those on Wall Street.
Fate, it seems, is not without a sense of irony.
After all, what is a hedge fund other than a pool of money being directed by a financial expert with the intent on taking risky bets in order to make a large return on his money? In other words, it’s a fancy way of saying a “get-rich-quick scheme.” Thanks to world wide expansion of the money supply and the favorable conditions money managers have had for entire lifetimes, Wall Street enjoyed almost guaranteed profits…until of course, an anonymous chat room on the internet left a dent in their pocket books.
Let’s not be naïve. When this ends, many retail investors will be left holding the bag. But that doesn’t take away from the profits and losses made by others, and the signal that has been sent. The fallout will be as entertaining as the show. So here we are, stuck in the casino with a possible hyperinflation and more market disorder ahead. The best we can do is either place our bets or trust the plan. What will it be?
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