Salient to Investors:

David Stockman said:

  • The baby boom generation has unfairly benefited from bubble-finance, a 30-year explosion of debt which created temporary but unsustainable economic prosperity, and a financialization of the system through lower and lower interest rates that has massively rewarded speculation but not real investments. $60 trillion of net worth in the household sector of which $45 trillion belongs to the top 5 percent.
  • We need take back at least some small fraction of the great windfall for the upper 1 to 5 percent and pay down the government debt else the next generation is going to be buried paying taxes.
  • The stock market index is up 136 percent from the bottom, but we have recovered only 1 million of the 6 million middle class jobs lost. Stock prices are not sustainable because our economy really is failing – the number of jobs today is the same as it was in 2005.
  • The stock market is almost identical to where it was in October 2007 and in March 2000 and we’ve had two massive crashes in between. The middle class has bought stocks been  sheared like sheep twice.
  • The stock market will have a crisis of confidence but no one can predict the bottom a la the dot-com crash and the Lehman crash – but it will fall thousands of points because everyone will panic. No one is buying stocks because they believe there’s a huge sunny future for the US economy but because they think the Fed can keep the thing pumped up, the bubble expanding.
  • Zero percent interest rates is crazy because it doesn’t help Main Street, which has too much debt already, but is simply a bonanza for speculators who can borrow the overnight money.
  • Every central bank is doing the same thing. The rate of expansion of balance sheets is unprecedented and off the charts. Japan has been a massive bubble for 20 years. The Bank of England is a disgrace.
  • Half the real estate value in the world in 1989 was in Japan and then it crashed and has been declining ever since. The Japanese stock market was half the world market and yet the Japanese economy has gone nowhere since the 1990s and 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.
  • This isn’t an excess of real savings. There is an excess of artificial credit that’s being fueled by all the central banks.
  • Let’s let the free market set interest rates where supply of savings is matched with demand for real borrowing for capital projects. If you let interest rates be set by the free market, they would rise dramatically. The back of the speculative bubble would be broken and we could slowly heal the financial system. But this will never happen because there’s trillions of asset values dependent on the Fed continuing to suppress, repress interest rates and inject $85 billion a month of liquidity into the market.
  • All of the central banks are in a race to the bottom by expanding their balance sheets at rates never been seen before. This money is not leaving the financial markets. And much 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. Suppressed interest rates makes gambling highly rewarding – buy anything with a yield and fund it 98 percent with zero cost money. The 1 percent are laughing all the way to the bank.
  • The Fed can’t get out of the corner they painted themselves into because we are so addicted to bubble finance. Bernanke has no clue how he got where he is or how he’s going to get out of the massive balance sheet expansion. The Fed is running a con game.
  • The problem is not goods and services inflation or labor inflation but speculation. Real inflation is higher than CPI.
  • Bernanke has already made two bubbles, didn’t see subprime, didn’t see the housing bubble, didn’t see the economy crater under the credit bubble in ’07 and ’08, and has been wrong ever since he’s been in public office.
  • In 1999, many said maybe there’s a little bit of froth out there. Many were calling it the “Goldilocks Economy” in late 2007/2008. The Chairman of the Council of Economic Advisors said there was no recession in sight anywhere in June.


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