Once upon a time businesses borrowed long term money - if they borrowed at all - in order to fund plant, equipment and other long-lived productive assets. Today American businesses are borrowing like never before - to fund financial engineering maneuvers such as stock buybacks, M&A and LBOs, not the acquisition of productive assets that can actually fuel future output and productivity.
Let’s see. The Eccles Building has grown its balance sheet by 9X since the turn of the century, but real net investment in the business sector has plunged by 33%!
We’ve tried medication. We’ve tried prayer. We’ve tried heavy drinking – all in an effort to understand how our crazy money system works. And where it leads. You’d think it would be easy. It’s just Central Banking 101, no? Well, no. It is squirrelly... and diabolically subtle. We doubt anyone understands it – especially those who are supposed to control it.
Cashing out of the “Bet on America” might get messy.
Nothing says limited government and separation of powers like a bureaucracy unaccountable to the voice of the people! Then again, Yellen doesn’t care much for democratic oversight. She’s a caricature of Randian libertarianism: someone who wants to do whatever, whenever, without rulers. The problem is Yellen isn’t operating a private railroad company. She’s the figurehead for a government institution created by Congress. If democracy means anything, it’s that voters have some measure of control over political bureaucracies.
As many of you know the FCC approved what is now considered the greatest change in the fundamental underpinnings of how the internet will be both used as well as “allowed” to be used. The regulation now known as Net Neutrality will supposedly make the internet more “fair” or “equal” to everyone. All I’ll ask you to ponder is this: How’s your cable bill working out for you? There’s a lot of known and unknowns still to be had as we sit here today. Why? Regardless of what you’ve heard or seen written in the press about this regulation; no one, and I do mean, no one knows the details to this new and sweeping regulation.
The last thing Janet Yellen needs to be doing right now is cheer-leading more risk taking on behalf of financial market participants!
The trouble with the money printing madness in the Eccles Building is that it generates huge deformations, misallocations and speculative excesses in the financial markets. Eventually these bubbles splatter, as they have twice this century. The resulting carnage, needless to say, is not small. Combined financial and real estate asset markdowns totaled about $7 trillion after the dotcom bust and $15 trillion during the 2008-2009 financial crisis. The Wall Street casino is now festooned with giant deadweight losses waiting to happen. But perhaps none is more egregious than Tesla - a crony capitalist con job that has long been insolvent, and has survived only by dint of prodigious taxpayer subsidies and billions of free money from the Fed’s Wall Street casino.
A regular reader recently raised a subject (on our Forum) which should be a frequent topic of discussion in our ultra-corrupt societies, but isn’t: usury. Everyone knows the meaning of the word: lending money at “excessive” or “exorbitant” rates of interest. Yet few of us ever contemplate its significance.
- Greece to submit loan request to euro zone, Germany resists (Reuters)
- Ukrainian forces start to quit besieged town (Reuters)
- Bank of Japan maintains policy, no surprises (FT)
- China Considering Mergers Among Its Big State Oil Companies (WSJ)
- Soros Shifts to Europe, Asia as Investors Cut U.S. Equities (BBG)
- Putin tells Kiev to let troops surrender as Ukraine ceasefire unravels (Reuters)
- Venezuela Squanders Its Oil Wealth (BBG)
- Swiss prosecutor raids HSBC office, opens criminal inquiry (Reuters)
When it comes to trading the possibility of a Grexit, Bloomberg strategist Vassilis Karamanis writes,that there are three possible outcomes.
Scenario 1: Greece exits the euro
Scenario 2: Capital controls are imposed on Greek banks
Scenario 3: Agreement is reached within the next days
The week just ended laid bare any pretensions that there is not something wrong (seriously wrong) within the natural world of both the macro underpinnings of business as well as finance. Unimaginable just a short 6 years ago, the U.S. equity markets closed at a height once again never before seen in human history highs, (it has more than tripled from the 2008 bottom!) but has done so solely on Keynesian fairy tales. The issue now is: does the fairytale end in a nightmare?
With the global economy sinking, and worries about it beginning to resound beyond just inconvenient bears, Paul Krugman has been leading the critique against what he sees is a disastrous and ignorant deformation against debt. Krugman is trying to argue that because government debt did not hinder private wealth creation we should use government debt to create private wealth. The cart is not even before the horse using this “logic”, as the cart and horse aren’t even on the same road. Paper wealth isn’t wealth, and government debt isn’t “free money.” There are consequences to both which their proponents never include in the “prospectus.”
The monetary politburo has every reason to fear Rand Paul’s demand for a “policy audit” of the Fed. An honest one would show that its so-called “independence” has been monumentally abused in a manner which is deeply threatening to both political democracy and capitalist prosperity. Needless to say, we can’t have that audit soon enough. In short, what the nation really needs is not an “independent” Fed, but one that is shackled to a narrow and market-driven liquidity function. The rest of its current remit is nothing more than the self-serving aggrandizement of the apparatchiks who run it; and who have now managed to turn the nation’s vital money and capital markets into dangerous, unstable casinos, and the nations savers into indentured servants of a bloated and wasteful banking system.