The value of the U.S. stock market surged to an unprecedented $51.8 trillion in early December. On Jan. 1, 2020, the market valuation of all U.S. stocks—traded on the New York stock exchange, the American stock exchange, and so forth—stood at $33.9 trillion; on Jan. 1, 2021, it stood at $40.7 trillion; and by December of this year, it reached the $51.8 trillion mark. This constitutes an increase of 53% in less than two years.
The rise is powered by multiples of leveraged loans. The value of margin loans to investors—a margin loan from a bank or dealer allows an investor to buy a much larger stock investment portfolio than he could buy just using his own cash—rose from $561 billion in March 2020 to $918 billion today, an increase of 64% in just 21 months.
But there are other forms of highly leveraged investments to the stock market: the Standard and Poor’s 500 index futures, based on 500 stocks, which are traded on the Chicago Mercantile Exchange, are derivatives based on an index of 500 stocks, through which one speculates on the stock market. Trillions of dollars are invested annually in the S&P 500 index and related stock futures and options. Using such futures, banks and investors can deliberately raise or lower the stock market, called “updrafting” and “downdrafting.” Hedge funds, private equity funds, banks feed this leverage orgy.
But the effect doesn’t end there. One can use the fictitious valuation of an inflated stock to secure a personal loan, with which one can buy all sorts of consumer goods. The stock bubble has infiltrated into the pores of the U.S. economy (in a 2020 Harris poll survey, 43% of retail stock investors said they are using margin loans, options, or both).
