The Fragile US Economy : Front-Running the Fed and Neofeudal Inequality

The Fragile US Economy: Front-Running the Fed and Neofeudal Inequality 

The contemporary economy is precariously reliant on the continual rise of the stock market, with much of its success driven by investors attempting to predict the Federal Reserve's next move. This tactic, known as "front-running" the Fed, involves buying stocks in anticipation of interest rate cuts, long before they are officially announced. It has become the dominant strategy for generating financial success, with many investors and analysts embracing it as a cornerstone of market behavior. Yet, it is perplexing how such an unstable and skewed system could be viewed as anything other than problematic, let alone as the best approach to a healthy economy.

In truth, the wider economy rests on an unsteady foundation. A massive disparity exists between the wealthy elite, who benefit from rising asset values, and the rest of the population, particularly the bottom 80%, who are left struggling with increasing debt and a lack of financial mobility. The "Everything Bubble" encapsulates this problem perfectly: nearly every type of asset, from stocks to real estate, continues to inflate in value. However, only those who already hold significant assets enjoy the rewards of this inflation. The appearance of economic prosperity is sustained by the "wealth effect," a phenomenon in which people spend more as the value of their investments increases, even if their actual income remains the same. This effect is propped up by the Federal Reserve's policies, particularly its interventions to keep asset prices high. Without these interventions, the economy could easily plunge into a downward spiral.

Few are willing to confront the real issue at hand. The current arrangement resembles a form of modern feudalism—an economy where a small, elite group accumulates the vast majority of wealth, while the majority of people labor to maintain the lifestyles of the top earners. This neofeudal structure means that the benefits of economic growth are not evenly distributed. Instead, they are captured primarily by the wealthiest 10%, who control nearly all financial assets. Despite this, the public, by and large, seems content with this arrangement, celebrating every time the Federal Reserve cuts interest rates, as it usually results in stock market gains. However, these gains disproportionately favor the wealthy, not the average person. The idea that anyone can profit from these stock market movements is an illusion. In reality, the bottom half of the population holds a meager 2.6% of the country's financial assets, meaning they have little to gain from the market's rise.

The reality is that many investors do not even bother with traditional measures of a company's worth, such as analyzing earnings reports, balance sheets, or future growth potential. Instead, the majority of investors focus on predicting how the Federal Reserve will behave. Most financial research produced by major firms is little more than a facade, acknowledged but largely ignored. The real driver of investment decisions is the belief that the Fed's next move will create a buying opportunity. When investors think that interest rates are going to be cut, they rush to buy stocks, assuming that the resulting market rally will mirror past behavior. The cycle continues: everyone tries to outmaneuver one another in this game of anticipating the Fed's actions.

This system disproportionately benefits the wealthiest segments of society. The top 10%, who own the bulk of financial assets, are the primary beneficiaries of these Fed-driven market surges. As the value of their investments grows, so too does their spending. Their consumption keeps the economy humming along. In fact, the spending of the top 10% is crucial for maintaining economic stability, as they account for nearly half of all consumption. Should the Federal Reserve fail in its efforts to keep asset prices climbing, this elite group may reduce its spending, and the economy could suffer greatly as a result.

At its core, the US economy now revolves around a cycle of investors trying to outwit one another in anticipating the Federal Reserve's interventions. This speculative strategy, based on little more than a belief that past trends will continue indefinitely, has become the primary engine of economic growth. However, there is no guarantee that this strategy will always yield positive results. External factors, like global economic shifts, could easily disrupt the status quo. For example, China's current economic stagnation, compounded by the deflation of its real estate bubble, has dramatically altered the conditions that once allowed for endless asset price inflation. As China's wealth effect diminishes, it casts doubt on whether the US can continue relying on the same strategies that worked in the past.

The notion that stock markets will reliably produce an 8% annual return is deeply flawed. Investors who cling to this belief may soon find themselves facing significant losses. Meanwhile, the more astute investors—the so-called "smart money"—have already begun selling their positions, leaving retail investors, who are less aware of the shifting landscape, to bear the brunt of the decline. The world is not a machine that will always deliver predictable outcomes based on past performance. Economic conditions are fluid, and they have changed. The patterns that investors have relied on may no longer hold, and this could spell trouble for those who assume that history will always repeat itself.

An economy built on the perpetual increase of asset prices is inherently unsustainable. As wealth continues to concentrate in the hands of a few, the system becomes increasingly fragile and exploitive. The current economic structure bears striking similarities to a form of modern-day neofeudalism, where the rich get richer while the majority struggle to survive. This widening gap between the wealthy and the rest of the population cannot persist indefinitely. Sooner or later, the system will break down, whether through an economic collapse or social unrest.

The consequences of unchecked greed and excessive confidence in an ever-rising market are likely to be severe. Hubris, the belief that success is inevitable and that the system will always work in one's favor, inevitably invites a backlash. In this case, that backlash could come in the form of economic Nemesis—a correction that brings the system crashing down. While the timing and nature of this reckoning are uncertain, one thing is clear: the current economy, built on front-running and wealth concentration, is far from stable. The question is not if this system will fail, but when. And when it does, the consequences will be felt far and wide, particularly by those who have placed blind faith in the idea that the market will continue to rise indefinitely.

Ultimately, the economy's reliance on front-running the Fed, enriching the already wealthy, and ignoring the fundamentals of sound economic growth is a recipe for disaster. As this neofeudal system of extreme inequality teeters on the brink, we may be closer to a reckoning than anyone expects. The time to address these underlying issues is running out, and the consequences of failing to do so could be catastrophic for the economy and society as a whole.