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"What The Left Hand Giveth, The Right Hand Taketh Away"

Tyler Durden's picture




 

One of the most insidious side-effects of the centrally-planned New Normal has been the artificial role switch of the two main asset classes, equities and bonds, which as David Rosenberg explained previously, can be characterized as follows: stocks for the yield, bonds for the price. The trouble with this is that it is contrary to everything inherent in investor and trader psychology. This in turn touches on another topic: as a result of collapsing interest rates, interest income from debt has plunged by a whopping $450 billion/year in nominal terms, forcing public corporations to shelve out dividends, as Dividend income takes the place of Interest Income, merely to keep some investor interest in capital markets awake. There is a two-fold problem with the surge in equity dividends: i) it forces management teams to reallocate cash away from projects which generate higher IRR in the longer term, such as CapEx, R&D, and innovation, or even simple M&A, and ii) the dividend spike is simply not enough to offset the lost interest income. This precisely is one the points of UBS' George Magnus in his newsletter in which he asks Cui Bono from global uncoordinated easing. His observations: "In the US household interest income from assets has dropped to below $1 trillion, compared to $1.4 trillion in 2008. That $400 billion drop is equivalent to a fall from 11.5% to below 7.5% as share of personal income, and, in passing, to the size of President Obama’s stimulus programme in 2009."

Of particular note: if interest income as a percentage  of total personal income had remained at its 2008 level, the total would now be over $1.5 trillion. It is this $550 billion annual delta that the Fed has directly, though its policies, taken away from US consumers in terms of purchasing power.

So while the Fed has taken away the bond market as a venue in which to generate current income, it is the structural failures of equities in a post-HFT world (stories of mini, amd maxi, Flash Crashes are now a daily occurrence) that prevent investors from having the same confidence about current income in a market in which terminal and fatal capital loss are all too real fears.

And there are those who still wonder why the US consumer is withering away, and absent such crutches as soaring Federal non-revolving debt, used for anything but its designated purposes, would have less purchasing power now than before the crisis as a result of the Fed's failed policies.

As George Magnus so poetically summarizes it "What the left hand giveth, the right hand taketh away."

And yet, it is not true that everyone loses equally from the Fed's policies. Bernanke does benefit one group of people: the ultra-wealthy, aka the "1%", which owns the bulk of its assets in America's $52 trillion in financial assets and which is the most direct beneficiary of QEternity.

Magnus' conclusion: it is time Bernanke woke up and smelled the coffee, because what he is effectively doing via Monetary policy could be the most socially disruptive phenomenon seen in developed Western society in ages:

Central banks don’t have a social welfare function in their remit. But it can’t make economic sense for them to pursue policies, ad nauseam, that drain interest income from the economy, threaten the solvency of pension plans, and redistribute wealth and income, in effect, to richer households with a low marginal propensity to consume. And it could result in a political backlash when the call for radical economic policy changes and innovative political thinking requires a high level of social cohesion.

The flipside to this argument is to just let Bernanke continue with his catastrophic policy, and hope he accelerates the advent of the inevitable end even more, as the final outcome is merely one which ends with the tearing down of the Marriner Eccles building. Sadly at this point, that particular outcome is no longer a question of if, but when.

 

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Mon, 10/08/2012 - 16:44 | 2869089 Ned Zeppelin
Ned Zeppelin's picture

Gee I wonder who got all of that money instead.

Mon, 10/08/2012 - 17:06 | 2869132 Richard Chesler
Richard Chesler's picture

There is a two-fold problem with the surge in equity dividends: i) it forces management teams to reallocate cash away from projects which generate higher IRR in the longer term, such as CapEx, R&D, and innovation.

But most importantly: jobs.

Mon, 10/08/2012 - 18:06 | 2869238 rbg81
rbg81's picture

Who gets the $$?  Why the Federal Government, of course.  They get it in the form of cheap loans with $$ the Federal Reserve created out of thin air.  Then Government redistributes those funds in the form of free stuff:  welfare, SSI, EBT cards, phones, health care, heating assistance, etc.

What most Sheeple don't realize is that they're paying for these low rates.  They're paying for them with lost interest income, which weakens the Economy.  Because the savers actually EARNED their interest income by making enough $$ to save in the first place.  Their interest income is paying for someone else's pork stake or mobile phone.  So its a tax on them.  But the Politicians hgave plausible deniability because most people have as much understanding of how interest rates work as they do the Weather.   So just like when it rains, no one gets blamed.

Mon, 10/08/2012 - 20:11 | 2869493 FreedomGuy
FreedomGuy's picture

Excellent point. The various analyses I have read say that about a two point rise in treasuries equals game over for the U.S. government. That is the side of the trade that outweighs grandma's variable annuity paying zilch.

Mon, 10/08/2012 - 22:03 | 2869682 rbg81
rbg81's picture

Exactly.  The deficit is so large now the ONLY way it stays under control is to keep interest rates low.  So fuck 2015....look for the FED to try to do this FOREVER.  Because the alternative is massive social chaos when the free stuff runs out--so they feel they have no choice.

Mon, 10/08/2012 - 16:47 | 2869094 LawsofPhysics
LawsofPhysics's picture

Soooo, time for both hands to start taking shit back? 

Mon, 10/08/2012 - 21:09 | 2869585 LMAOLORI
LMAOLORI's picture

 

 

All hands are on deck

Your right to resell your own stuff is in peril It could become illegal to resell your iPhone 4, car or family antiques

http://www.marketwatch.com/story/your-right-to-resell-your-own-stuff-is-in-peril-2012-10-04

Mon, 10/08/2012 - 22:31 | 2869740 A Nanny Moose
A Nanny Moose's picture

Same mercantilist shit. Different century.

Mon, 10/08/2012 - 16:50 | 2869097 SGS
SGS's picture

the last thing they'll see is me winking through my scope.

Mon, 10/08/2012 - 16:53 | 2869102 steveo77
steveo77's picture

Funny, most people come to this site directly, or from a link on another blog or news site.   But of those who stumble upon this site on a web search, the most popular is "meh girl", you know the t-shirt advertising girl, LOL!

http://www.blogger.com/blogger.g?blogID=2698360278742191782#allposts/pos...

Mon, 10/08/2012 - 16:57 | 2869109 ShrNfr
ShrNfr's picture

Bottom line, once you pay the taxes on the negative real rate, you are really below water when you bother to save. Another reason to go underground with hard assets.

Mon, 10/08/2012 - 16:58 | 2869110 ShrNfr
ShrNfr's picture

. [accidental duplicate comment]

Mon, 10/08/2012 - 16:58 | 2869113 LouisDega
LouisDega's picture

Where is this left hand you speak of? I must of missed it

Mon, 10/08/2012 - 17:54 | 2869210 LMAOLORI
LMAOLORI's picture

 

 

 

LEFT HAND

RIGHT HAND

BOTH HANDS

Real Estate Investor

127 lawmakers hold significant assets in real estate, including office buildings, apartment buildings, undeveloped land and development partnerships. 

Mon, 10/08/2012 - 19:03 | 2869363 Fredo Corleone
Fredo Corleone's picture

"Left hand...right hand..."

Indeed, not to put too fine a point on it, but regarding logic of policy, "Can't find your ass with both hands."

Mon, 10/08/2012 - 16:59 | 2869115 Rainman
Rainman's picture

Just another boulder sliding down Mt. Repression onto the head of the middle class.. like who's keepin score anymore?

Mon, 10/08/2012 - 16:58 | 2869117 tom a taxpayer
tom a taxpayer's picture

The Marriner Eccles building will be untouched (except for pigeon poop) for centuries. The population is anesthetized.

Mon, 10/08/2012 - 17:30 | 2869182 ebworthen
ebworthen's picture

Is that a new Library or something?

Is Idol on tonight?

Mon, 10/08/2012 - 17:01 | 2869120 BandGap
BandGap's picture

Seniors got properly fucked in this scenario.

I thought, rather stupidly now, that if I could get to 700-900K in IRA savings in a few years, I could kick back and enjoy things at 6% interest. Better to have ZIRP so that garbage truck drivers in California can buy 600000 houses, default on the loans and bitch about the fucking system.

Mon, 10/08/2012 - 17:36 | 2869197 hannah
hannah's picture

"Seniors got properly fucked in this scenario."

 

i guess those are the 90yr old senors that have collected soc sec for 30years now and paid basicly nothing into the system.....

Tue, 10/09/2012 - 06:42 | 2870082 GubbermintWorker
GubbermintWorker's picture

No, its the 60+ year olds who's life savings don't mean shit now. So, like your parents, they'll be reduced to coming to your house to live out their lives while you clean up after them. They cleaned your dirty ass when you were a kid and now the role will be reversed.

Tue, 10/09/2012 - 10:07 | 2870550 hannah
hannah's picture

those 60+ year old seniors are the ones that outsourced middleclass jobs. now we arent vcollecting enough tax to support them and they are helpless...welll fuck them for screwing the economy. they are getting what they desrve....

Tue, 10/09/2012 - 13:04 | 2871571 Totentänzerlied
Totentänzerlied's picture

Their life's savings DON'T EXIST because you have to SAVE to have SAVINGS. Living during the heady days of FALL IN A HOLE AND GET RICH stock markets lulled those IDIOTS into spending money with both hands (one credit card in each, dual-wield) and saving NOTHING. They are reaping what they were too S-S-S-STUPID to not sow.

You expect me to believe that over the course of more than 60 yeears - 30 to 40 of them THE MOST PROSPEROUS YEARS IN HUMAN HISTORY - there was no room for saving, for sound fiscal and monetary policy-making, for responsibility and ethical behavior? No room, none, zip, nyet, nihil, nada, zero - that's exactly how much the Boomers and Greatest Generation accomplished in their ENTIRE LIVES.

"they'll be reduced to coming to your house to live out their lives" No they will not "be reduced", they will live with the consequences of their breathtakingly moronic, short-sighted, thoughtless, childish actions.

Sixty years to say "you know what, I don't need more useless fucking junk, I have enough right now" or "you know, I think I'll pay off my debt and be done with it from now on" or "maybe I should save some money for the future" or "maybe this deficit spending is getting out of hand" or "maybe we shouldn't be fighting or financing wars on every inhabited continent" ... no that was TOO HARD and NOT FAIR, was it??

PS: To that very rare breed of adult who did live within their means and did oppose the profligate insanity of their generation, you know who you are, you know this critique does not apply to you, and you probably raised families which will and should take care of their own unlike the majority who sold out the future of this society.

Mon, 10/08/2012 - 17:47 | 2869214 dbTX
dbTX's picture

I am one of those seniors, retired March 2007 with 975K in IRA mutual funds and lost about half its value in 2008, paniced and bailed out loseing about half my savings thanks to the FED. I am pissed, mad as hell and can't do a thing about it. I'm back to work at 69 at $10.00 an hour and happy to get it. What a like!

Mon, 10/08/2012 - 17:03 | 2869122 ebworthen
ebworthen's picture

Don't worry; I hear dog food is pretty cheap and nutritious.

Seniors who can't afford dentures will have to buy the soft canned stuff which is a little pricier.

It will work out fine though; in cooperation with the S.S. Administration WalMart will cover the cost in exchange for greeters who work without pay.

Mon, 10/08/2012 - 17:03 | 2869124 max2205
max2205's picture

More like stoled. This year is ZIRP Savers. The full year of nothing.

Maybe Obamaphone s try at trickle down govt.

One day I hope Ben pays the price for stealing old people's income in toto

Mon, 10/08/2012 - 17:04 | 2869129 Satan
Satan's picture

If I use my left hand it feels like somebody else....

Mon, 10/08/2012 - 17:12 | 2869144 FinalCollapse
FinalCollapse's picture

Bernanki is reverse Robin Hood: takes money from poor and gives it to the super rich who are first in line to free Fed money. Why it is not widely discussed in MSM is just beyond me. 

This is the most shameful period in the almost 100 year history of the Fed. End the Fed and send these fuckers and financial terrorists to Guantanamo.

Mon, 10/08/2012 - 17:23 | 2869163 LouisDega
LouisDega's picture

Please explain. How does one take money from the poor? If you have negative wealth, What is there to steal?

Mon, 10/08/2012 - 17:28 | 2869171 css1971
css1971's picture

labour.

Mon, 10/08/2012 - 17:52 | 2869219 ebworthen
ebworthen's picture

Exactly.  Greek shipyard workers who haven't been paid in six months.

Bankers and their central bank lackeys still getting fat checks and catered lunches.

Mon, 10/08/2012 - 17:27 | 2869170 css1971
css1971's picture

This is exactly why the FED was created... It is fulfilling it's purpose.

Mon, 10/08/2012 - 17:26 | 2869168 Racer
Racer's picture

Stolen from the pensioners and other savers to give to the banksta pals

Mon, 10/08/2012 - 17:36 | 2869193 dbTX
dbTX's picture

This article is SO on the money and what's even worse is that not a member of congress understands what's going on well enough to challenge the Bernack on this. We are governed by a bunch of self serving idiots.

Mon, 10/08/2012 - 17:40 | 2869202 Marco
Marco's picture

How exactly would the 1% who own most of the financial assets not benefit from higher interest rates too? They benefit whatever happens because they own the political system. What Bernanke is doing is simply kicking the can, the collapse of the dollar is inevitable ... has been for decades. The US is addicted to trade deficits, it's tax base is pitiful compared to it's deficit ... it's Greece writ large, there are no easy fixes and pensioners will not be in a good position when the collapse happens regardless of what Bernanke does.

Calling for a hard collapse followed by hard or soft default (the fast way) or a hard collapse followed by decades of extremely low wages and trade surpluses where the US becomes the new China (the moral way) instead of just trying to kick the can I can understand ... pretending that somehow in the last 4 years anything could have been done which would have restored the ability of the US to consume at pre-crisis levels is idiotic or disingenious ... the free ride has to come to an end at some point.

Mon, 10/08/2012 - 18:05 | 2869241 PUD
PUD's picture

Untrue...while those who were harvesting income from bank cds are getting less, those buying homes at 3% mortgages are getting more. It's a zero sum game. Do the banksters steal a disproportionate amount by having first access to the money? Yes, but interest is money owed on money and since all money is debt, the higher the yield the more money must be created out of yet more debt. If interest rates were 20% would that be good? 10% 9%? Tell me what is the perfect rate. There is none. All money as debt systems are mathematically doomed to fail regardless of the rate. Lower rates only extend the deadline they do not circumnavigate the math

Mon, 10/08/2012 - 22:00 | 2869674 dogbreath
dogbreath's picture

those buying homes at 3% mortgages are getting more.    

That is a myth because if the rates reflected reality mortgages would be 6 or 8 percent or maybe higher but the purchase price would be way lowere with a corresponding smaller down payment.  These low rates are preventing a wholesale collapse of the mortgage market and resulting cascading bank collapse.    WhenIF the rates do go higher anyone with debt will see their equity decline and for those with negative equity refinancing may become impossible.  One big ponzi house of cards.   Brave new 1984 here we come.

Mon, 10/08/2012 - 18:20 | 2869268 youngman
youngman's picture

"Central banks don’t have a social welfare function in their remit. But it can’t make economic sense for them to pursue policies, ad nauseam, that drain interest income from the economy, threaten the solvency of pension plans, and redistribute wealth and income, in effect, to richer households with a low marginal propensity to consume."

This might be the socialists plan....get the wealth to the 1%...then rile up the masses and have a French revolution so to speak....and a new world order...with the socialists in charge of course....the Pliven way....

Mon, 10/08/2012 - 18:30 | 2869299 PUD
PUD's picture

"Interest income" is not an input into the economy like labor, natural resources, invention etc. Someone has to pay that interest. Interest is money owed on money that must be created the same way the original money is created..via debt. Pension plans et al are mathematically doomed to fail in the system of money as debt..their "interest income" is someone elses cost that requires ever more debt creation which in turn requires more interest money on and on...this is why global debt is as large as it is, why it can never be reduced, why the end game is the all in parabolic central bank exponential hail mary of money printing.

Mon, 10/08/2012 - 18:54 | 2869339 LMAOLORI
Mon, 10/08/2012 - 19:13 | 2869381 Marco
Marco's picture

I guess it's possible that there is a vast conspiracy of the people not currently on top wealth wise to get on top ... of course the more likely conspiracy is one of the people currently on top to entrench their position and diminish the ability of the peons to keep fouling up their neighbourhood with pollution and overpopulation. Socialism is not a very good vehicle to do the latter, not even as a front ... it's just an extremely dangerous ideology for people at the top (which is why so many of the Chinese rich want to flee China).

Socialism is far more likely to be the scape goat for the chaos of the financial collapse ... so the peons enter neo-feudal rule with vastly diminished living standards afterwards without too much objection.

Mon, 10/08/2012 - 18:30 | 2869294 Encroaching Darkness
Encroaching Darkness's picture

The FED cannot raise interest rates, probably ever again.

1) Raising the interest rates would raise the rates the FED must pay on the national debt as well, an unserviceable load as it is now.

2) Congress won't cut the budget - the House passed budgets for the last four years which Dirty Harry Reid won't even bring up for a vote in the Senate, lest he lose power and influence.

(Not that the Repubs are much better, but they passed SOMETHING. Not even scheduling a debate is an avoidance of responsibility that should haunt Dirty Harry to his pit in Hell).

3) Ben can't make Congress be responsible, and he can't let it fail, so he prints - the "least evil" in a Pit full of evils.

4) Barack can't let them cut entitlements, or the Free Shit Army won't vote for him - no help there, no vetoes of spending bills on the horizon.

All parties involved have painted themselves into corners they can't get out of - the Banksters made bad bets and should have gone bust, but they bought the politicians. The politicians only care about the next election - until that becomes moot. The military can't see beyond the next conflict, or aren't allowed to; the clergy is powerless, and muted. No one is leading, all are lying and stealing as fast as possible, and neither Mitt nor Barack can change a thing that makes any difference.

Buckle down, vote for whoever you want to; keep some powder, food and PMs dry, and wait for morning - it's going to be one rough night, possibly for years.

Mon, 10/08/2012 - 19:08 | 2869373 q99x2
q99x2's picture

I need to know when; the exact day and time or is this another of those: no one will know the exact day and time repent the end is nigh whoop de doo church fundraiser things.

Mon, 10/08/2012 - 19:11 | 2869383 The Gooch
The Gooch's picture

Love that track!

QOTSA "First It Giveth" - http://www.youtube.com/watch?v=g5GrSPUAj4E

Mon, 10/08/2012 - 20:19 | 2869509 khakuda
khakuda's picture

This is why ZIRP is a disaster and has not worked in Japan. Why we followed them, I will never understand. It's goal is to transfer wealth from savers to borrowers, but wealth is created from working, saving and investing not borrowing to buy an unproductive asset like a home or a depreciating asset like a car.

All the Japanese and now US Central Banks have done is encourage and enable more debt in the system which just borrows from future growth.

Bernanke could learn from a trading job in the real world or from working in any store. If a trade is not working or a certain item is not selling, don't continue to double down. Realize the mistake and move on.

Mon, 10/08/2012 - 22:36 | 2869748 A Nanny Moose
A Nanny Moose's picture

Money passing from left hand to right hand has velocity, right?

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