The Warren Buffett Economy——Why Its Days Are Numbered (Part 1) – David Stockman’s Contra Corner 06-10-15

Salient to Investors:

David Stockman writes:

  • This central bank fueled boom will ultimately bring a prolonged deflationary contraction and day of reckoning for financial assets.
  • During the 27 years of Greenspan’s Fed Chair term from 1987-2014:
    • The Fed balance sheet grew 23 times.
    • Buffet’s net worth grew 35 times, or 19 times adjusted for inflation.
    • The value of non-financial corporate equities rose 14 times, or 8 times adjusted for inflation
    • The value of debt and equity securities rose from 2.4 times GDP to 5.4 times.
  • But:
    • Nominal GDP rose only 3.5 times
    • Wage and salary compensation grew only 3 times
    • The median nominal income of US households grew only 2 times.
    • The sum of aggregate labor hours supplied to the non-farm economy rose only 1.27 times.
    • The inflation-adjusted average weekly wage of full-time workers went from $330 per week in 1987 to $340 today, while real median family incomes were virtually unchanged.
  • Greenspan and successors have created the greatest lottery winners in history by distorting and financializing the US economy while pinning the Federal funds or money market rate at zero bound for the last 78 months.
  • The Fed is addicted to zero bound rates – over the last 25 years it has either cut or kept flat the money market rate 80% of the time.
  • The money market rate of interest is the most important price in capitalism because it prices the cost of carry in all asset markets, and thus indirectly fuels demand for all debt, equity and derivative securities globally, and fuels speculation.
  • The benchmark 10-year US Treasury rate has fallen by 80% due to massive central bank intrusion into financial markets, wholesale manipulation of prices and fraudulent monetization of public debt and other securities – since 2006, the combined balance sheets of the world’s central banks have expanded to $22 trillion from $6 trillion.
  • Worldwide central bank financial repression fueled massive over-investment in fixed productive assets on a global basis, especially in China and the Emerging Markets and a one-time acceleration of global economic activity.
  • Capitalism has a tendency toward instability, underperformance and depressionary collapse.

Read the full article at http://davidstockmanscontracorner.com/the-warren-buffet-economy-why-its-days-are-numbered-part-1/

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