On July 15 Goldman Sachs reported $2.42 billion in profits during the second quarter of 2020, much higher than what was predicted by analysts. Amid a huge recession and a global pandemic, one of the world’s premier investment banks is doing just fine. How is this possible?
In response to the economic recession that began at the beginning of the year (remember the big crash happened in February, before most of the world had locked down because of the coronavirus), the Federal Reserve cut already low interest rates and flooded the market with cash, increasing its balance sheet to more than $7 trillion by buying corporate bonds, municipal securities, as well as billions of dollars each month in Treasuries and mortgage-backed securities. In other words, there are now trillions of dollars in cash in the economy looking for new investment.
Inevitably, this cash has ended up in the stock market, which is why a firm like Goldman Sachs is doing so well. Not only are investors putting more money into the market, driving up stock prices, investors are taking advantage of the near-zero interest rates to speculate wildly, leading to astronomical returns in the short-term.
Federal Reserve Chair Jerome Powell seemingly has no intention of raising interest rates any time soon, which means the current bubble in the stock market (and housing market) could continue to grow until 2022 or later. At the same time, the United States faces record unemployment that could extend well into 2021.
All of this is intended to “buy time” for the actual economy to recover from the dramatic shock of the COVID-19 pandemic. It of course has the added effect of making Donald Trump look like some sort of economic Dr. Frankenstein, doing anything possible to bring life to a body that has been long dead. The only difference is that he himself will not have to deal with the horrific consequences of his actions.
The truth of the matter is that the economy is not coming back, at least in any substantive fashion. As Robert Kurz said in a 2010 interview, “there are no new mechanisms for resolving the crisis at the currently attained level of productivity.” With abstract labor becoming more and more superfluous, it is unclear whether we will ever be able to reach the employment levels we saw prior to the beginning of 2020.
If we do, it won’t be due to any new real accumulation, but will rather be the result of yet another financial bubble. The problem will be pushed further and further into the future until eventually everything collapses, leaving millions without the means to reproduce their daily lives. This is already the situation for hundreds of millions of people around the world. It’s only a matter of time before the monstrous problems externalized by the developed western countries come knocking at their doors “just wanting to talk.”
Oliver Blackwell 