The Phony Boom
There's a "superabundance of capital" in the world, says Bain & Co. It's in banks, investment funds, corporate treasuries -- everywhere, except where it is needed. Households are tight. But the financial and business sectors are flush.
Bain said that the world will be "awash in capital" until 2020, when financial assets are expected to be 10 times the size of the world economy: $900 trillion, compared with a world GDP of $90 trillion.
Whom do we thank for all this money, money, money? Central banks!
The Fed has its "QE to Eternity" program. The Bank of Japan has announced it will start one of its own next year. Mario Draghi, head of the European Central Bank, said last week that he would do more to provide liquidity to the flagging euro zone. And the Bank of England -- under incoming governor Mark Carney -- is scheduled to make a policy statement this week. Odds are it'll join the crowd and announce even easier money policies.
As head of the Bank of Canada, Carney presided over a system with even more private debt to disposable incomes than the U.S. Although this measure of debt continues to fall in the U.S., it continues to rise in hockey country. Today, debt to disposable income is at 108% in the U.S. -- after peaking out at 130% in 2007. In Canada, the ratio is 166%.
Bent... Twisted... and Corrupted
So what happens to all of this new cash and credit?
Well, somebody is putting up $24 billion to take Dell private. Virgin Media got a bid for $23 billion. And the U.S. stock market is near an all-time high.
Meanwhile, big-time investors such as Blackstone are buying thousands of single-family homes -- for cash.
Apple has $137 billion in cash that David Einhorn is trying to get it to share with stockholders. And, oh yes, U.S. corporations have about $5 trillion in cash in total -- including some $2 trillion said to be overseas.
But there are many who still want the feds to do more. According to University of Michigan economics professor Justin Wolfers: "By their own framework, they're not doing enough."
But it's their own framework we're worried about. It's bent. Twisted. Corrupt, even.
Let's see... What is really going on? What kind of game are central bankers playing?
Central banks give their friends and favorites access to almost unlimited amounts of money at nearly zero rates of interest. What do these privileged few do with the money? They buy assets -- houses, office buildings, companies, gold and silver.
Look Who's Buying America
Ordinary Americans aren't getting the money; it's locked up in the hands of the 1% -- or even the 0.001%. And there aren't enough of these rich insiders to move consumer markets. Toilet paper and gasoline move up slowly. But prices for stocks, bonds, Manhattan real estate and expensive works of art go up fast.
Meanwhile, home ownership, by the people who live in their houses, is going down.
Stock ownership, by the middle class, is also on the decline.
Powerful, well-financed groups are buying. Middle America -- short of funds -- is not.
The elegance of this scam is breathtaking. Central banks print money to "stimulate the economy." But it doesn't stimulate the real economy. GDP growth is still chugging along at stall speed. Instead, the Fed's "EZ money" simulates the financial markets and financiers' profits, instead.
In a real boom, most people would become wealthier and better-off. In a phony boom, only a few become wealthier. A phony boom does not create wealth; it just transfers existing wealth.
Central bankers give new money to their friends. The friends use it to capture a larger share of the real wealth in the nation.