Every day the world presents us with astonishing realities that seem straight out of a fantasy. From opulent purchases to extraordinary constructions, remarkable events unfold around us constantly.
Take, for example, the recent news that Wang Jianlin, China’s wealthiest individual, purchased Pablo Picasso’s painting, “Claude et Paloma,” for a staggering $28.2 million—more than double its auction estimate. Christie’s in New York certainly enjoyed this profitable sale.
Yet, one might wonder about Jianlin’s rationale for such an extravagant purchase. After all, with a net worth of $13.2 billion, it raises the question: why allocate $28.2 million for a painting of someone else’s children? This seems quite irrational.
Another fascinating sight is the massive excavation at the intersection of Wilshire Boulevard and Figueroa Street in downtown Los Angeles. Many days, we find ourselves at the high-rise office nearby, diligently working while enjoying unlimited free coffee.
Occasionally glancing outside, we watch the small figures laboring to lay the groundwork for what will soon be Los Angeles’ tallest building. Korean Air has decided to invest $1 billion in this ambitious project. While we are skeptical about the venture, we eagerly anticipate the stunning views from the summit when it opens in 2017.
But that’s just the beginning…
Going Bananas
If you seek something truly astonishing, just take a look at the stock market. It’s quite beyond belief.
Not a day passes without us marveling at its fluctuations. The S&P 500 has surged 24 percent this year, while the Nasdaq boasts a remarkable 30 percent increase during the same period.
This is particularly astonishing when you consider the lackluster economy underpinning these gains. The soaring stock prices indicate that markets can sustain significant rises, seemingly disconnected from the actual economy. This seems to be our current reality.
Despite an economy that isn’t driving stock prices higher, the relentless influx of capital from the Federal Reserve is doing just that. Eventually, this trend will culminate in a substantial market correction. Nevertheless, the upward trajectory may persist longer than anyone with common sense would anticipate.
We understand this situation well; at Economic Prism, we’ve watched in amazement as the stock market has shot up year after year. It’s as though there are no brakes on this incredible ride.
Redistributing Wealth to the Rich
Regrettably, this stock market boom hasn’t translated into tangible benefits for the average worker. Many people still find themselves struggling, far behind where they stood before the recession began in 2007. Indeed, median household income remains down by more than 6 percent compared to December 2007.
As Simon Baker, CEO of Baker Avenue Asset Management, remarked, “Main Street is a long way from back. If the question is, ‘Is Main Street happy?’ I don’t think so.”
Baker describes the Fed’s extensive stimulus efforts as “a massive, $3.7 trillion redistribution of wealth” that has primarily favored banks, financial institutions, and the top 5 percent of earners who own significant assets like stocks and real estate.
“They’re the ones benefiting,” Baker asserts, “not Main Street.”
Up until this fall, we believed the Fed would eventually need to taper its asset purchases, a scenario that would likely disrupt stock prices and impact the wealthiest Americans. However, since September, we’ve begun to suspect that the Fed might continue its money creation efforts indefinitely, even expanding its quantitative easing program.
What lies ahead?
One thing is certain: this situation cannot persist forever. One day, it will all come to a halt, and that day will definitely stand apart as extraordinary.
Sincerely,
MN Gordon
for Economic Prism
Return from Redistributing Wealth to the Rich to Economic Prism
