Salient to Investors:

David Stockman writes:

  • The Fed has generated a $50 trillion financial bubble and made money and capital markets to little more than gambling casinos.
  • Speculative rent-seeking in the financial market has replaced entrepreneurial innovation and supply side investment and productivity, resulting in a severe drop in real growth and a massive redistribution of windfall wealth to the few, who own most of the financial assets.
  • Keynesian stimulus has artificially goosed the price of bonds and lowered their yields, while the implicit Fed “put” underpins the economics of buy-the-dip speculators.
  • Keynesian economics originated during the Depression: it was wrong then, and utterly irrelevant now in our global post-industrial economy. The Fed can do nothing to cause the US steel industry’s capacity utilization rate to be 90% or 65%, given today’s world of open trade and the vastly over-sized global steel market.
  • Keynes advocated for stringent protectionism and economic self-sufficiency 6 years before his General Theory – they are absolutely necessary to state management of the business cycle. Keynes made sure to publish his works in German, believing Nazi Germany was the ideal test bed for his economic remedies.
  • Potential labor supply is a function of global labor costs and comes atomized as hours and temporary contracts, not census bureau head counts. The government has no idea what the real world’s potential labor force computes to, thus the pursuit of “full employment” by Yellen is nonsensical and target of 5.2% on the U-3 unemployment rate as ridiculous.
  • The real unemployment rate is not 5.5%. The 210 million Americans between ages 16 and 68 represents 420 billion potential labor hours in full-time jobs, but BLS estimates only 240 billion hours were supplied to the US economy in 2014, meaning 180 billion unemployed labor hours, meaning that the real unemployment rate was 42.9%, a result of global economic forces of cheap labor and new productive capacity.
  • The Fed improved GDP and the labor utilization rate from the Kennedy administration to 2007 but only by using the one-time pony of leveraging up households and businesses through cheap debt. Households are still deleveraging relative to income, businesses are incrementally borrowing for stock buybacks, M&A deals and LBOs and not for new plant, equipment and other tangible assets.
  • At the limits of peak debt, the Fed’s default business becomes inflating the financial bubble and subsidizing carry-trade speculation.
  • The student debt bomb is $1.3 trillion, versus less than $300 billion only a decade ago, and will explode in the years ahead.
  • Off-shoring has spread to service work, resulting in wage suppression as those replaced workers accept low wages in adjacent activities.

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