Jim Cramer’s Rant Against the Well-Being of Americans

Despite a stock picking accuracy that is no better than flipping a coin, Jim Cramer’s Mad Money show on CNBC has many fans. Last Friday Cramer made headlines with his screaming rant that the Fed needs to immediately cut interest rates.

My first post on this blog was about Jim Cramer. Because his demagoguery and ideas threaten the economic well-being of most Americans, it is time to revisit them.

Cramer poses as a friend of little investors. He promises over and over that he just wants to make them money. Cramer is hardly their friend; instead he is a shill for Wall Street’s vested interests.

Cramer is an advocate of cheap money and low interest rates. Cheap money results in economic distortions, inflation, and ultimately recession or depression. For example, after the stock bubble burst in 2000, Alan Greenspan’s Fed helped to create the housing bubble by cutting interest rates multiple times. In response to soaring housing prices, families took out record numbers of exotic mortgages. Many will not be able to pay back those mortgages and they will lose their homes.

For a few years, the cheap money that Cramer advocates forced interest rates for savings to essentially zero. Markets respond to incentives. Americans responded to the incentives provided by the Fed by going on a spending spree and reducing their personal savings rate to negative territory for the first time since the depression of the 30s. As late as the 1980s, the savings rate was over 10%. It is only savings that can provide the capital investment that is needed for a growing economy.

If cheap money does not benefit little investors, what does? First and foremost, little investors benefit by a sustainable and growing economy. They benefit by interest rates that rewards savings. They benefit by low taxes. They benefit by a sound currency and low inflation rate. They benefit by housing prices that they can afford.

What doesn’t benefit little investors? Little investors do not benefit by a housing bubble that pushes prices beyond what they can afford. They do not benefit by a crumbling dollar that will eventually result in higher prices. They do not benefit by economic distortions that result in excessive salaries paid to hedge fund managers and other Wall Street insiders. They do not benefit by excessive Fed credit expansion that inevitably results in recessions or even depressions.

Why does a Fed credit expansion result in recessions or even depressions? When the Fed through its policies drives down interest rates below rates which would occur on the free market, people make purchases and investments that they would not otherwise make. Housing is the most visible distorted market; but the distortions of cheap credit reverberate throughout the capital markets in often unseen ways.

To many, like Cramer, cheap credit seems like “something for nothing.” It isn’t; the price is just paid later. It goes without saying that if Cramer’s mistaken ideas didn’t reflect the views of many, he would not be on the air. Sadly, when the cost of cheap credit comes due, many will incorrectly blame free-markets rather than the unsound policies that they advocated.

The Jim Cramers of the world want a fixed casino. When results of their poor choices come home to roost, they want to be bailed out; first by cheap money and then, if necessary, by outright cash infusions from the Fed.

Free-markets don’t operate well when the game is rigged. Businesses need to be able to succeed or fail based not their ability to serve the consumer and not upon their ability to have the taxpayer bail them out. Wall Street should be no exception. Don’t let Jim Cramer convince you that his interest is your interest. It isn’t.

My conclusion to my blog post that I wrote in March still stands:

Pundits who speaks in 30 second sound bites, like Cramer, usually understand very little. Their believers want a quick fix. “Why doesn’t someone do something about it” is their motto.

It is principle of life that a reactive fix that comes from a lack of understanding will almost always make the problem worse.

Advertisements

12 Responses to Jim Cramer’s Rant Against the Well-Being of Americans

  1. Interesting post. About two years ago I set up a fake portfolio where I bought 100 shares of each company Cramer claimed was a good deal, and to date, the portfolio has lost huge amounts of (fake) money. It’s a good thing I didn’t use real money and take his advice.

  2. Barry Brownstein says:

    Given the rising market over the past two years, your experience is especially interesting.

    Henry Blodget has an excellent article about Cramer’s recent dismal stock picking record titled “Pay No Attention to That Crazy Man on TV.”

  3. askbusinesscoach says:

    The crash of 87 and a pause, the dot.com bomb and a pause, the housing bubble – now in a pause, the hedge fund bubble -soon to create a pause. It seems investors never learn. Thanks for trying to educate all those out there that are willing to follow the vested interest groups.

  4. jeremy says:

    Interesting post. I’ve never listened to any TV program about money, but a lot of this seems common sense. People weren’t spending money they don’t have… I’m looking at you, US government.

  5. […] Jim Cramer’s Rant Against the Well-Being of Americans Despite a stock picking accuracy that is no better than flipping a coin, Jim Cramer’s Mad Money show on CNBC has […] […]

  6. Chuck says:

    Your frustrations in Cramer’s comments about lowering interest rates could be said about what people say about globalization, minimum wage, rent supports and a thousand other things about which the popular opininion will almost always end up with the opposite effect that those with with that opinion think it will. I started to say that the popular opinion is always wrong, but there is no right or wrong in economy any more than any other place in the natural world. There simply is what is. What is will favorably effect some people and infavorbale hurt others. Raising minimum wage illiminates entry level jobs and increases the income of no one. When times are good, minimum wage will not attract workers, when times or bad minimum wage is too much. Rent supports cause an increase in rents and make it harder for lower middle income people to find a place to rent. But, it is good for landlords. If you try tio fix this by making it bad for landlords then you only succeed at reducing the housing stock which, again, increases prices. None of this is either good or bad. It simply is. It is in capitalism, in socialism, in communism, in anarchy. It is. People that are wishing for an end to american outsourcing should watch what they wish for, for the only end to outsourcing, will be insourcing, when we get all the crappy jobs for the more successful nations that outsource thier riskiest aspects of the economy. For those of us that want a prosperous nation, our fervent wish should be to continue to outsource capital instensive, economically volitile jobs (mostly in manufacturing, to other nations, and maintain the high margin, relatively stable jobs for ourselves.

  7. Economy says:

    Cramer as Symptom of Economic Ignorance

    Your frustrations in Cramer’s comments about lowering interest rates could be said about what people say about globalization, minimum wage, rent supports and a thousand other things about which the popular opininion will almost always end up with…

  8. Drew says:

    I just stumbled across your blog and I have to say I agree with what I have read so far. I am a masters of accounting student at Oakland University in Rochester, Michigan. I wanted to know what you think the Fed should do in light of the sub-prime woes faced by the markets. It has been my belief that the Fed should do nothing. I too saw Jim Cramer’s rant on CNBC and thought he was looking out for the investment banks. He even mentioned talking to many of the executives. I have little compassion for people who are in a tough spot because they took a teaser rate on a mortgage. I have even less compassion for investors because they should have known better. Any thoughts you have would be greatly appreciated.

  9. Barry Brownstein says:

    Drew,

    You are correct, the Fed should do nothing. Any intervention rewards risky behavior. What do you get when you reward bad behavior? You get more of it. More of it makes the ultimate problem more severe.

    The problem is that those who engage in this behavior have much political clout. They try to convince the public (and they are largely successful) that their interest is a shared by all. I do have a follow-up post to this post planned and I will talk more about the issue.

  10. Patty says:

    I agree with what you say. My father always said that the people who really know their stuff don’t go around tooting horns, especially their own. I recall Cramer slamming anyone who didn’t get on board the tech train. Tis was back in 2000, and look what happened there. I looked up his biography and he graduated from Harvard a screaming Democrat and I just think he still thinks that way….the government needs to pull us out of our mistakes, no matter what we do. Well, nothing is free, like you say….we all have a price to pay!

  11. lol I got here looking for cramer’s rule

  12. catherine says:

    There’s also a Jim Cramer fed rant one-year anniv widget: http://madwidget.cnbc.com

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: