Courtesy of Karl Denninger, The Market Ticker
Well, no, that would be a bit arrogant — Dave has been talking about this stuff for a long time. But it is rare to see something like this in print:
Stockman suggests you'd be a fool to hold anything but cash now, and maybe a few bars of gold. He thinks the Federal Reserve's efforts to ease the pain from the collapse of our "national leveraged buyout" – his term for decades of reckless, debt-fueled spending by government, families and companies – is pumping stock and bond markets to dangerous heights.
Uh, not just dangerous heights, unsustainble ones.
But where Dave doesn't go, and should, is that it is in fact the government that provides most of the fuel for these games via deficit spending. Without it there would be none of the "official distortion" as there'd be nothing to engage in it with.
So let's point the finger where it really belongs, shall we? It's not just a problem with banks, or The Fed. No, the real rot lies in Congress, which loves to make political promises to spend money they don't have, and then egg people on in blowing bubbles to cover up their malfeasance.
The problem is that all compound growth functions eventually terminate. They must, becasue it is physically impossible to have compound growth in a finite place on an indefinite basis. Yet nobody ever asks "but what about the groth ends?" when people talk about 3% inflation, 4% GDP growth, or the roughly 3% spread between debt and GDP accumulation over the last 50 years, just like nobody said "what happens when the 10% growth in house prices stops?"
The answer to that, if you've loaded up on leverage, is always the same:
Read the rest — it's good — but don't point fingers just at the private sector.
But for the government — either in its refusal to prosecute frauds or its intentional overspending — none of these games would be possible.
The head of the snake resides between Constitution and Independence Avenues, both words that have become utterly foreign to the viperous traitors within.
*****
AP Photo/Kathy Willens
Why David Stockman isn't buying it
By BERNARD CONDON AP Business Writer
Excerpt:
Now 65 and gray, but still wearing his trademark owlish glasses, Stockman took time from writing his book about the financial collapse, "The Triumph of Crony Capitalism," to talk to The Associated Press at his book-lined home in Greenwich, Conn.
Within reach was Dickens' "Hard Times" – two copies.
Below are excerpts, edited for clarity.
—
Q: Why are you so down on the U.S. economy?
A: It's become super-saturated with debt.
Typically the private and public sectors would borrow $1.50 or $1.60 each year for every $1 of GDP growth. That was the golden constant. It had been at that ratio for 100 years save for some minor squiggles during the bottom of the Depression. By the time we got to the mid-'90s, we were borrowing $3 for every $1 of GDP growth. And by the time we got to the peak in 2006 or 2007, we were actually taking on $6 of new debt to grind out $1 of new GDP.
People were taking $25,000, $50,000 out of their home for the fourth refinancing. That's what was keeping the economy going, creating jobs in restaurants, creating jobs in retail, creating jobs as gardeners, creating jobs as Pilates instructors that were not supportable with organic earnings and income.
It wasn't sustainable. It wasn't real consumption or real income. It was bubble economics.
So even the 1.6 percent (annual GDP growth in the past decade) is overstating what's really going on in our economy.
Q: How fast can the U.S. economy grow?
A: People would say the standard is 3, 3.5 percent. I don't even know if we could grow at 1 or 2 percent. When you have to stop borrowing at these tremendous rates, the rate of GDP expansion stops as well.
Q: But the unemployment rate is falling and companies in the Standard & Poor's 500 are making more money than ever.
A: That's very short-term. Look at the data that really counts. The 131.7 million (jobs in November) was first achieved in February 2000. That number has gone nowhere for 12 years.
Another measure is the rate of investment in new plant and equipment. There is no sustained net investment in our economy. The rate of growth since 2000 (in what the Commerce Department calls non-residential fixed investment) has been 0.8 percent – hardly measurable.
(Non-residential fixed investment is the money put into office buildings, factories, software and other equipment.)
