The Warren Buffett Economy – Why Its Days Are Numbered (Part 2) – David Stockman’s Contra Corner 06-10-15

Salient to Investors:

David Stockman writes:

  • The financial carrying capacity of the developed market economies has deteriorated since the 1980s; due to aging demographics, declining competitiveness v. emerging market economies, declining productivity growth, and the big increase in the leverage ratio against public and private incomes.
  • The US’s ability to generate growth, incomes and profits has been significantly reduced, along with its ability to service debt and equity capital at an honest market rate of return.
  • The combined value of corporate equities and credit market debt has risen 8 times during the past 27 years, vs. a rise of only 3.5 times in nominal GDP.
  • Greenspan’s Fed generated a $50 trillion overhang of excess financialization for the US economy alone – worldwide excess financialization is multiples larger.
  • The Fed’s target of full-employment is impossible. The U-3 unemployment rate and the Fed’s industrial capacity utilization figures are meaningless. 5.2% unemployment and 2% inflation are economically impossible to achieve through interest rate manipulation, wealth effects ‘puts’ under the stock market, or using any of the Fed’s tools.
  • Greenspan’s Fed erroneously believed it was saving capitalism from its tendency toward instability, underperformance and depressionary collapse.
  • The Humphrey-Hawkins Act is one of the most dangerous laws ever enacted because it delegates power to a tiny, unelected and unaccountable group of monetary bureaucrats. There is zero evidence that wage workers are better off with any arbitrarily chosen price index over any time frames and prices cycles.
  • The predicate that capitalism has a death wish and is prone to depressionary collapse is wrong. The Great Depression did not stem from a fatal flaw of capitalism or the lack of money printing but from the massive indebtedness and inflation of the Great War and the easy money credit bubbles of the Roaring Twenties.
  • The post-WWII business recessions before Greenspan were short-lived, well-contained and self-correcting and caused by state actions and not capitalism or business cycle instability: the two deepest, in 1974-1975 and 1981-1982, were caused by the Fed.

Read the full article at http://davidstockmanscontracorner.com/the-warren-buffet-economy-why-its-days-are-numbered-part-2/

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