Here Stockman has it right again, but he is missing one thing, first read:
Needless to say, even as the main street economy of work and production has been going nowhere, the financial system has erupted skyward. During the last 35 years according to the Fed’s flow-of-funds calculations, the sum of credit market debt outstanding plus the market value of equities has soared from $6 trillion to $95 trillion or by 15X. By contrast, since 1981 the nominal GDP has risen by only 5X.This is “financialization” in its full brobdingnagian glory. A financial sphere which had occupied 212% of GDP in 1981 now weighs in at 537%. And, no, the starting figure does not represent some temporarily aberrant low bequeathed by the hapless Jimmy Carter; the 1981 ratio was actually the historic norm. During the halcyon times of 1955, for instance, the sum of credit market debt and equity market value actually posted slightly lower at 197% of GDP.
Now... in 1981 almost all credit was still privately extended, almost nothing was through banks.
So is the just a reflection of the shift from private to industrial banking?
It may be, but then all that private was once interest-free, and it is all now at very high interest rates, a tax on the economy by banks, who get to privatize the gains and socialize the losses, by law.
That in itself is no small thing. but here is the challenge:
Stated in constant 2015 dollars, real GDP was $7.2 trillion in 1981, meaning that it has grown by about 2.5X over the last three and one-half decades to $17.7 trillion at present. All the rest of the 15X gain in financial market value since then is not reflective of capitalism, or human greed or even “deregulation” at work. This is the baleful handiwork of a rogue central bank.
Think in terms of what our gdp can throw off in payments. Next look at the claims on those payments:
No, the entire financial system is infected by the endemic carry trades which result from falsification of the money market by the Fed. There are hundreds of trillion of futures, options and OTC “bespoke” contracts outstanding, for example, but they are inherently and systematically mispriced owing to the pegging of money market rates at zero percent for the last 7 years and at a fixed, below-market rate for the past 30 years. The economic evil is as much in the pegging as in the zero bound level because it is the powerhouse peg of the fed that reduces the risk of carrying financial assets with cheap short-term borrowings.
Too many people think those payments are coming to them in fiull measure. Un debatable is there is not enough to meet obligations. There are only two questions: at what per cent is the system short, and in what time frame will the news get out. And then, how will peple repsond to the new reality.
But the fights will be in asset class categories:
Namely, would the value of corporate equity have soared from $1.3 trillion to $36.5 trillion or by 28X since 1981 in an honest free market?
Got equities? Equities are not private credit, they are savings invested. How would collecting 1/28th of your claims impact you, or just 1/2?
Now comes the course of credit hperinflation:
Next, throw into the mix the Fed’s severe interest rate repression in the bond market and you get more financial inflation. When debt is priced drastically below its economic cost and receives a deep tax subsidy to boot, a variation of the supply side theorem manifests itself. Namely, when the cost of servicing debt capital is made artificially low, you get a lot more of it—–from the public and private sectors alike. As to the former, the present day proclivity of politicians to kick-the-fiscal-can is a direct consequence of financial repression.
and then how come your pension will be bust...
With respect to the latter, consider the explosion of corporate bond issuance, which in 1981 amounted to just $550 billion of outstandings or a mere 17% of GDP. Today that figure is $11.6 trillion or 20X larger and amounts to 65% of GDP. Yet, self-evidently, that explosion of new borrowings did not go into the acquisition of productive assets. If it had, real GDP would have grown a lot more rapidly than the 2.7% rate recorded for the 33 years ending in December 2014—-and by the mere 1.1% recorded during the sub-period since Q4 2007.Instead, the debt was overwhelmingly used for financial engineering—-or what is ultimately a Ponzi scheme by which new corporate borrowings are used to shrink the outstanding float of stock via LBOs, stock buybacks and cash M&A deals. Consequently, carry trade gamblers are enabled to bid up the shrunken supply of secondary market equities to ever higher levels.
The above is where your pension contributions go... and went...
Not surprisingly, therefore, the US corporate sector’s market capitalization has exploded from $2 trillion in 1981 to $48 trillion at present. That’s right. The nominal value of corporate debt at par plus equity at market has risen by 24X, and most of that gain has occurred since the inauguration of monetary central planning under Greenspan in October 1987.
That is not employees accepting a delay in a paycheck, or wholesalesrs extending credit to retailers, that is Amazon, Google, Walmart, Petco, Lowes, Homedepot wiping out the small neighborhood stores. The means for that tactic is over. There will be a vacuum of demand for small business unknown before in history.
Then this:
Stated differently, had the US economy not been “financialized” over the past 35 years and if the historic 200% ratio of credit market debt and corporate equity at market value still prevailed today, the size of the financial system would be $35 trillion, not $95 trillion. On a playing field $60 trillion smaller would there not be far fewer fast money sharks churning, scalping and strip-mining the secondary markets in stocks, bonds, loans and their derivatives?
OK so figure about 2/3rds of your pension is forfeit... will that be OK for you? Anyway... you can always work more for others:
But here’s the thing. Maybe 100,000 people “live large” off today’s $95 trillion casino. By contrast, according to the Social Security Administration’s wage records, there were 100 million workers who held any kind of paying job during 2013, who earned a collective total of just $1.65 trillion that year. That amounts to the incredibly small sum of just $16,500 per average worker——and not for a small slice of the labor force but fully two-thirds of all Americans with a job.
Or work for yourself... but work you will.
0 comments:
Post a Comment