The facts are in and you're an idiot. You continue to vote in these 'law and order' assholes and you've managed to turn the greatest country on the planet into a zoo. While the politicians, pharmaceutical CEOs, Big Oil and Wall Street bankers laugh all the way to their offshore bank accounts.

Thursday, June 15, 2017

Debt Bubble

By Christopher R Rice


What we have is a debt bubble. The rising debt is the stimulus funding the rally on Wall Street. QE1, QE2, QE3, Operation Twist, bailouts, handouts, and now $85 billion injected into the system every month. Hmm, I wonder if there is a coincidence between enormous debt creation and 43 new highs in the Dow this year?

No, the stock market is not in a bubble. It is reacting normally to new injections of cash and buyers. The debt bubble, however, is a different matter. These things end badly, historically. Eventually, somebody has to pay the Piper.

The stock market is up, while the economy isn't. Since the stock market is supposed to reflect the economy, it looks a bit overvalued.

There is also a good reason for over-valuation: the cheap money policy by the Fed means that there is no money in bonds, so many investors have loaded up on stocks, which drives their price up.

The NASDAQ and Russell 2000 are in bubbles right now. Once the fed starts increasing its interest rate, the stock market will drop like a rock.

David Stockman, former director of the Office of Management and Budget under President Reagan, says America has become addicted to debt and that there’s no way to avoid catastrophe.

David Stockman: I think everybody in this generation, and I’m the leading edge of the baby boom — I was born in 1946 — has benefitted from a 30-year explosion of debt, which created temporary but unsustainable economic prosperity and a financialization of the system through lower, and lower, and lower interest rates that has created massive rewards to speculation but not real investments so I benefitted from it. Almost everyone who has been in the market has benefitted but they didn’t earn it.

David Stockman: No. One of the things I say in my book is we need a wealth tax that on a one-time basis is going to take back at least some small fraction of the great windfall that the upper 1 percent, or 5 percent and pay down the government debt, pay back the federal debt because we can’t put this on the next generation or they’re going to be buried paying taxes.

David Stockman: I wouldn’t do it. I think it’s a very dangerous place to be at the present time. In fact, the stock market today is almost identical to where it was in October 2007 and then there was a $7 trillion crash and before that in March 2000. In other words, the stock market today is identical to where it was 13 years ago and we’ve had two massive crashes in between. The middle class has been invited to come and buy stocks and get sheared like so many sheep. They’ve done it twice and I certainly hope they’re not lured into this again because it’s not sustainable because our economy really is failing. Yes, in the short run it’s recovered, or recreated jobs that existed in 2005. You know, the number of jobs today is the same as it was in 2005.

David Stockman: Yeah, but 0 percent interest rates is crazy. It’s lunacy. The Fed put the overnight rate at zero in December ’08. You know what that does? It doesn’t help Main Street. Main Street has too much debt already. It is simply a bonanza for speculators who can borrow the overnight money and then buy something that they can speculate on.

David Stockman: There was a massive bubble in Japan. Half the real estate value in the world in 1989 was in Japan. It crashed. Real estate in Japan has been declining ever since. It’s one of the great deformations, malinvestments, that’s ever occurred in world history. The stock market in Japan was half the world market and where has the Japan economy gone since the 1990s? Nowhere. They’ve been struggling for two decades in the aftermath of a massive bubble that’s collapsed. They’ve tried to work their way out of it by printing even more money and it hasn’t worked. Now, I’m saying this is what all the central banks are doing. There is no honest interest rate in the world today.

David Stockman: The problem is that you’re creating a system of bubble finance where interest rates are so low that people can speculate. An asset value goes up. You put it up as collateral. You borrow against it. You buy more of the asset. You then take the rising asset. You borrow against it again. This is the nature of what’s going on in the world. This isn’t an excess of real savings. This is an excess of artificial credit that’s being fueled by all the central banks.

David Stockman: Because, you’re in a race to the bottom by all the central banks in the world that are expanding their balance sheets at rates that have never been seen before. This money is not leaving the financial markets. All of the liquidity the Fed has pumped in, this balance sheet has gone from $800 billion to $3.2 trillion in just a few years, all of that liquidity is just circulating through the canyons of Wall Street. A lot of it comes back as excess reserves in the banking system which gets deposited at the Fed. It doesn’t go into credit on Main Street because Main Street is already saturated with debt. But, it does suppress interest rates and it makes gambling highly rewarding. When you put interest rates at zero, you’ll buy anything that’s going up and fund it with zero cost money. You will buy anything with a yield and fund it 98 percent, $0.98 on the dollar with zero cost money. So what this is, is a gambler’s dream. The 1 percent are just laughing all the way to the bank.

David Stockman: I think we’re so addicted to bubble finance at the Fed that they can’t get out of the corner they painted themselves into. I think the Fed is making federal debt so cheap that Congress has no interest, Washington has no incentive to ever face up to our massive fiscal gap that is going to grow, and grow as we go forward in time and so we have a paralyzed system.

David Stockman: Well, a lot of people said in 1999, “Yeah, maybe there’s a little bit of froth out there.” But, you don’t understand this time is different and then within three months, devastating collapse. Remember they called it the “Goldilocks Economy” in late 2007/2008? You had the Chairman of the Council of Economic Advisors saying, “No recession in sight anywhere,” in June. Okay, so no one sees it coming until suddenly there is an event, a black swan, something unexpected or unpredicted that tells everybody that the emperor is naked. You know who is naked? The Fed. They’re running a con game.

via David Stockman: We're Blind to the Debt Bubble | Making Sen$e | PBS NewsHour | PBS.

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