How Capitalism Went On A Brief Sabbatical Which Became A Permanent Vacation: Rosenberg Explains "The Artificial Recovery"

Tyler Durden's picture

There is little if anything that can be added to the latest commentary from the original skeptic.

Indeed, this 2009-2011 recovery and cyclical bull market has been as artificial as the 2003-07 expansion. That last one was fuelled by financial engineering in the financial sector. This one is being underpinned by unprecedented government intrusion in the credit markets. As of this quarter, your government has replaced the private sector as the largest source of outstanding mortgage market and consumer-related credit (see front page of the Investor's Business Daily). So not only is the U.S.A. turning Japanese in many respects, it is also now resembling China where the government also redirects the flow of private sector credit.

When we said capitalism went on a sabbatical three years ago, we didn't expect this to be a permanent vacation. In the past five years, private sector loans have deflated by $1.9 trillion, while public sector assisted credit has surged a similar amount. Roughly nine in 10 dollars of mortgage flow is being dominated by the Federal government — Fannie Mae, Ginnie Mae, Freddie Mac, and the FHA. That is amazing, and these entities have actually been tightening their scorecards to avoid political taxpayer backlash.

Be that as it may, in this new era of socialized credit, the private sector now accounts for 42% of outstanding residential mortgages, down from nearly 60% at the bubble peak in 2006. The only reason why consumer credit has not shown a complete implosion is because in the past three years, federally- assisted student loans have soared by $250 billion.

But not even the government can prevent credit from retrenching — the best it can do is cushion the blow. The front page of the weekend WSJ runs with an article on the aftershocks of the credit collapse — Tighter Lending Crimps Housing. Credit applications are still being rejected at a rapid rate.

About 20% of new home loan applications have been refused this year, up from 18% in 2010; 27% of refinancing requests have been turned down, up from 24%. And if you need any proof as to how this is playing out in the consumer space, have a look at Property Investors Face Losing Their Shirts with Strip Malls on page C14 of the WSJ. The low-income consumer that tends to shop at strip centers has been completely hobbled by weak job market conditions and punishingly high food and gas prices this cycle. Somehow the benefits from QE1 and QE2 bypassed the $50,000 and lower income club, and this group represents half of the U.S. consumer spending pie, for all the talk of Coach, Tiffany's, and Saks for much of the past 24 months.

The WSJ emphasizes the implications of the on-going deleveraging cycle on the front page of today's paper — Debit Hamstrings Recovery. It is so obvious that as much as the government tries to slow the process, it cannot prevent the private sector from healing itself after decades of tremendous credit excess. U.S. consumers have 30% more credit card and other revolving debt on their balance sheet than they did just a decade ago. While outstandings are down 6% from the peak, there is still considerable contractions to go before household debt levels revert to the mean relative to both income and assets. At the same time, an estimated 23% of mortgages are "underwater" and it is against this backdrop that home-equity and credit lines have almost completely dried up. The necessity of climbing out from under this unprecedented amount of debt-related stress means that interest rates are very likely going to remain near the floor for a very long time. Ben Bernanke may publicly state that "extended period" means over the next few FOMC meetings, but anyone with a sense of history knows that they will stay close to zero for years to come.

And whoever thought we'd be seeing headlines like this, four years after the initial detonation in the U.S. housing market — Lennar Profit Slides 65% on page B8 of the weekend WSJ. Incredible. Revenues are down 6.1% YoY, margins are still compressing and order books are flat.

Source: David Rosenberg, Gluskin Sheff

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jtz5's picture



A great interview with David Stockman...may be worthy of its' own article/forum.

mynhair's picture

I junked you for being first, and having no "capitalism, bitchez".

molecool's picture

I junked you for being an infantile dick.

Hulk's picture

Good video, but Kiyosaki just told the world he has guns, gold,cash and food at his house. Not smart at all...

FlyPaper's picture

The Rich-Dad-Poor-Dad guys have been talking about this for a long time.   Why the stampede now?  

Atlas Shrieked's picture

I've been long gold since 1998, and silver since 2008, post-Lehman, so I've been lucky with PM's.  But wasn't Kirosaki advising people to flip real estate in the 2000's?

That's not enough of a contrarian indicator for me to sell my PM's, but I would not take his advice as gospel.  Like most marketeers to the masses, he profits more from selling his advice to suckers.

Hedge Jobs's picture

thanks for link. Great interview. Cant work out why you would get junked for posting a link on failed cpaitalism in relation to a post on failed capitalsim.

UK debt marsh's picture

"The Wall Street Blackberry Panic of 2008".

I love it!

AbbeBrel's picture

A Blackberry Panic - yes this could happen again !   Great term by Stockman in the video.

It isn't until I read Cohan's "House of Cards" that I fully got how incestously the investment banking community opportunity operates, and how dependent they are on the overnight repo function.   Once that dried up, mostly from an acceleration in the deterioration of trust, the Bear was dead in a week.

If China stops covering the bad debt in the Euroland (and the US) then we could be in for another rapid deterioration of trust, leading to asset dumping, while the banksters watch their iPhones in horror.

mynhair's picture

What's Capitalism?  Think I read about it once, in a galaxy far,far away...

Michael's picture

"What's Capitalism?  Think I read about it once, in a galaxy far,far away"

It's now called Fascist Feudalism. Get it strait.

Finally someone is recognizing what the so called recovery really is, as I have been referring to it for quite some time, Artificial.

Xibalba's picture

Corporatist Communism....every banker gets a bonus.  NO QUESTIONS ASKED!!

Caviar Emptor's picture

...And everyone's terrified they might hear the dreaded words: "No bailout for you!!!"

Oh regional Indian's picture

CE, notice a curious thing.

Bail Out = BO

Baaa Obaaaa = BO

I think this is beyond a passing case of serendipity or synchronicity, don't you think?

Oh, and no BO for you!


blindman's picture

who needs capital when you have a technology called
the printing press. just print the capital, it is so
much easier. or better yet just punch it into the
digital file then convince the idiot on the street
that he has to pay for it with his life, the system
works until it doesn't!

Rodent Freikorps's picture

For the duration of the crisis...

All the old shit is new again.

BayAreaAlan's picture

The problem with entering into evil is sometimes you forget to exit.

mynhair's picture

You dated her, too?  Dam....

KennyG09's picture

Capitalism died in 1913.

ub40onlyonce's picture

True, and they said the men in black were the fools of American society:

[In a 1961 IRS press release, the IRS recognized the Amish stance that "Social Security payments, in their opinion, are insurance premiums and not taxes. They, therefore, will not pay the ‘premium’ nor accept any of the benefits."]

As a reminder of the ten (10) planks of the Communist Manifesto:

JuicedGamma's picture

The Amish, with horse and buggy, and no electricity have a website? Who would have ever thunk it?

falak pema's picture

do they provide women and booze? for body heat generation!

falak pema's picture

Maybe its correct to say American style Oligarchic MONETARY capitalism was born in 1913.

As for the birth of the concept of capitalism per se : 1848, the Communist manifesto. Marx is the first philosopher who recognises that the capitalist means of production have created new paradigm in society : the industrial age.

He proposes class war and proletarian dictatorship as solution. So one can't say capitalism died at its inception. It transmutes itself, like today; it is now totally in the hands of a feudal, international, transnational oligarchy.

Oh regional Indian's picture

Falak, monetary capitalism has always been the primarily understood meaning of capitalism. I'm not an econ. PhD, but from what I understand capitalism is merely the most efficient allocation of resources (capital, which used to be primarily monetary, but is now Human Cattle, I mean capital too).

Nice, pure, unadulterated. 

Back then.

Like you said, and like all of our other institutions, it went from hallowed to hollowed.

And just to clarify, I loosely associate capitalism with the industrial revolution. Equal opportunity cancers.


RockyRacoon's picture

The taste of free money will be hard to eradicate from the maws of bankers.

Now that they've tasted blood, the free market picnic is over.

Wait til the politicians find out how inflation solves all their (immediate) problems!

Mercury's picture

When we said capitalism went on a sabbatical three years ago, we didn't expect this to be a permanent vacation.

At this point Obama is pretty much the inverse of Calvin Coolidge: 

The business of America is government.

mynhair's picture

Not if I can affect it.  (Screw you that want to change to infect.)

LawsofPhysics's picture

Can we export that for a profit?

Mercury's picture

Could we have Goldman design and internationally market a CDO of select American government programs and politicians...and then short the crap out of it ??

Caviar Emptor's picture

Would you settle for a Franklin Mint set of commemorative coins celebrating the bailout program alphabet soup of 2008-10? With national parks on the reverse? TARP, TALF, TSLF, TAF, PDCF, AMLF, FSP, PPIP, CPFF......

Mercury's picture

The kitsch value alone on those would be substantial, especially if they were cast in pure aluminum.

Caviar Emptor's picture

Good ole Cal. Who woulda guessed a Depression was just around the corner

tiger7905's picture

Charles Nenner Interview, still calling for 5000 DOW, getting back into gold.

Corn1945's picture

ZIRP is the worst of all the scams. You earn 1% (if you are lucky) on your money while Bernanke promises he will devalue your cash by at least 2%. It is destroying savers, senior citizens, and anyone who wants to save to start a business or own a home.

Widowmaker's picture

You are absolutely correct.  That is the heart of "heads I win, tails you lose" systemic risk dripping with moral hazard blessed by the best incorporated Congress police state money can buy.  (you get the idea)

Thank Bush, "mission accomplished."

snowball777's picture

Highly-dependent on your medium for saving, methinks.

cranky-old-geezer's picture

You earn 1% (if you are lucky) on your money while Bernanke promises he will devalue your cash by at least 2%.

Yes, this is Bernokio's plan for destroying the middle class ...and it's going along quite well too.

Actually that's not entirely accurate.  Bernokio doesn't care about the middle class one way or the other.

Bernokio is looting America, passing America's wealth to the federal government and Wall Street.  That's what he's really doing.  

Everybody's being looted, not just the middle class.  It's every class ...except Wall Street elite of course.

ZIRP, TARP, TALF, QE, POMO, etc.  These are methods Bernokio uses to loot America.

It boils down to printing currency and giving it to insider cronies, which debases the currency (the dollars in your paycheck, in your pocket, in your savings account, in your CDs, in your money market fund, in your pension fund, in your 401k, in your IRA, etc).

It's called monetary inflation.  Which will lead to monetary hyperinflation eventually.  It always does.

The ONLY way to prevent Bernokio looting YOUR wealth is get it out of US dollars and into something else, like PMs or some other physical asset  ...except real estate of course.

At $33.60 silver is an incredible bargain. It should be $150 right now. 

When (not if, when) the US dollar collapses and loses WRC status, silver will rocket to hundreds of dollars per ounce.  And many other physical assets will likewise rocket up against the dollar.

GOLD-USD will take off.

FOOD-USD will take off.

GAS-USD will take off.

AMMO-USD will take off.

JACKDANIELS-USD will take off.

These are markets Bernokio can't manipulate and suppress with naked shorting.

These are things Bernokio can't print on a printing press till they're worthless he can US dollars.

mynhair's picture

The most fun of pounding the pavement for a candidate is having the voter list.

It has Dim and R registered, and their voting history, ie. elections they showed up for.

Total hoot to go to a Dim address and pitch conservative, though a lot now agree, but when you hit a rabid moron, you get to go to the neighbors and talk about the rabid moron next door.  Meet & greet at its finest.

chipshot's picture

smile and wave....nice one

centerline's picture

Ooooh,  serial junking again.  Must be a disgruntled public sector employee from a previous thread who just realized that pension money is already vaporized.

Cognitive Dissonance's picture

Even someone as dialed in and aware as Rosenberg carried some hope that the insanity would end and the bad guys would be ousted if not locked away behind bars. False hopes die hard and Rosenberg is spiraling in for a really rough landing.

This is one of the reasons the thieves get away with murder. Not only are average Joe's bargaining with denial, but people with influence and those in authority as well are all waiting for Superman to show up and save the day. It just keep going on, it just can't get worse than this. But of course it does and it can and we are always the last to admit it.

Denial isn't just a river in Egypt.

buzzsaw99's picture

...anyone with a sense of history knows that they will stay close to zero for years to come. ZIRP 4 EVAH BITCHEZ!

Juice Box's picture

Zirp is prolonging this recession.  At these rates and with the Fed Bond put protection in place, no one has any desire to risk lending their money.  Higher rates would actually flush money out of its cold storage.  When rates are finally allowed to rise to a normal and natural level, then and only then will we see progress. 

LudwigVon's picture

...then and only then will we see: significantpriceinflation

Caviar Emptor's picture

Interestingly, US Gov bailouts began under a Republican presidency. And the biggest of all the bailouts were also all under GOP presidents! 

1970 and 1971: Penn Central Railroad and Lockheed started it all under Tricky Dicky. He was the first to cross the line. And the very first Government bank bailout of 'em all: Franklin National Bank in 1974. 

During the Reagan administration, the huge Continental Illinois Bank bailout happened in 1984 ($9.5 billion), followed by the mega huge S&L bailouts of 1989-1994 (Bush Sr) ($293 billion). 

Then under Bush Jr came Bear Stearns ($30 billion), Fannie/Freddie ($400 billion), AIG ($180 billion) and TARP ($700 billion). We do know that Citi, BAC, and other large non-financials deemed TBTF received bailout loan guarantees and access to Fed programs. 

Dems? Jimmy Carter had the distinction of being the first to bail Chrysler ($4 billion), and Obama officiated the GM bailout ($130 billion) (although Bush Jr extended the first $25 billion in 2008) and final Citi ($220 billion) and BAC deals ($118 billion)

Guess this is what it means to be "Pro Business" 

Westcoastliberal's picture

Love the Stockman interview.  It's an all-time classic and so weird to hear these words coming from anyone credible, even a reformed Reaganite.

We need a reset, a jubilee.  Hell, the CDS's will not wind up paying off, so since this market is 10x the GDP of the entire world, can't we just wipe out all debt?  If not, why not? Give me one reason, beetches!

essence's picture

A  reset/debt jubliee likely means system meltdown. In other words, anarchy interspered with pockets of martial law, or vise versa. This period of disarray could potentially form a feedback loop resulting in ....tada TEOTAWKI.

How many of you are prepared to live without credit? How many business owners, Governments? How many retirees are prepared to have their pensions suddenly drop out from underneath them? A worldwide default would have everyone gunshy about being a lender for a decade or however long it takes for greed to overcome memory.  So, while a default/juliee seems attactive on the surface, just realize the entirely of the ramifications.

Note how all the countries (except small/isolated Iceland) have pulled back from the brink each time they get close, despite all the chickenhawks out there (somewhere else) crying out for them to default and be the guinee pigs in facing the full wrath of the banksters.

Don't get me wrong, not that I'm against a 'reset'. But I have no dependents and spend most of my spare time thesedays working on my escape plan. The bulk of the population has no plan B.

It could very well be that a pyrrhic victory is the only option left to dislodge the banking cabals grip on government and the economy. Just be mindful of what you call for and be prepared to walk the walk when the time comes.