Archive - Nov 1, 2014

Two headlines came across my screen today, which taken together pretty much sum up the effects of policy decisions made by Central Bankers and politicians since the financial crisis. The financial oligarchs got bailed out, and the rich got richer due to decisions made by “leaders” around the globe. As such, the entire planet has now been transformed into a neo-feudal tinderbox.

On the one Hand: "Consumers expect better economic growth and rising incomes in the coming months, pushing a measure of confidence to a seven-year high in October. The University of Michigan said Friday that its index of consumer sentiment rose to 86.9 from 84.6 in September. That's the highest since July 2007, five months before the Great Recession began. Richard Curtin, the survey's chief economist, says that almost six in ten of the respondents said the economy has improved recently, the highest proportion in more than 10 years."

On the other: "Voters are deeply frustrated with the economy as they head to the polls Tuesday for a midterm election Republicans hope will yield them control of the Senate."

If and when a country resorts to having it central bank buy up – the equivalent of – all sovereign bonds it issues, the snake truly eats its tail, and not in a metaphorical sense. Japan eats it children, most of them as yet unborn, to keep its rapidly ageing population contented and in relative wealth, because the alternative would cost Tokyo’s financial-political power cabal their jobs and heads.

This is only going to usher in the next round of the Great Crisis that much faster. Only this time around, entire countries will go bust, NOT just banks.

"The decline in asset yields especially during QE3 created large wealth effects. Since the Fed's QE started at the end of 2008 the PE multiple of the S&P500 index (12-month forward) went up by five points, from 10.5 at the end of 2008 to 15.5 currently. This PE multiple expansion is responsible for around 650 index points or 32% of the current S&P500 index level. Extending that to the total stock of US corporate equities ($29tr currently), it implies an equity wealth boost of $9tr."

A look at the currency market as if analysis mattered.  

After peaking in 1999 at 37%, the prosperity line has gradually declined since, and is now sitting at 34%. In between there was a housing boom and a global financial crash, both with noticeable effects on the line. That decline may not sound like much, but it will take years to rebuild all that wealth – assuming that the economy is moving in the right direction. And it was exactly at the bottom of the earnings scale that things got pretty bad. People earning less than $35,000 per year went from 31% at the turn of the century to 34% today, more or less matching the decline in percentage points at the top of the table. The new century brought a lot more discomfort to a growing number of Americans, fueling a lot of talk recently about income inequality in the country. Therefore, despite all the subsequent economic growth, large fiscal stimulus packages, unprecedented Federal Reserve intervention and booming capital markets, we could say that PROSPERITY IN AMERICA PEAKED IN 1999!