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Bernanke's Triumph: Asset Bubbles Everywhere
2013 Sep 7, 3:19am 12,001 views 14 comments
by mtw follow (1)
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Here's the link to the WSJ article:
http://online.wsj.com/article/SB10001424127887323324904579042891563817588.html
This should prove that Bernanke is not tapering because the economy is getting better (like he says) but because QE has inflated bubbles in everything from junk bonds to farmland.
The Fed just wants to wipe its dirty fingerprints off the murder weapon before the cops arrive.
ttsmyf
2013 Sep 7, 5:55am
If you look at these real price histories
http://www.showrealhist.com/RHandRD.html
it is obvious, I think, that the MAIN ENABLER of sizable asset price bubbles is keeping the real price histories out of sight.
Here is more 'hide the data':
http://patrick.net/?p=1223928
Keeping these histories unseen is fully consistent with 'education' as a four letter word. Same for 'journalism'.
HydroCabron
2013 Sep 7, 11:02am
I don't get this Bernanke obsession.
What's coming was pre-ordained long before Bernanke took office, and even if he's exacerbating the eventual collapse, it was going to be a humdinger anyway.
He's a cog: Anyone eligible appointed to that position would do the same things to protect the wealthy, because they live and die by their endowed chairs, consultancies, and invitations to cocktail parties in Georgetown.
Blaming Bernanke is like blaming the last person who used the latrine for the load of shit in the basement.
dunnross
2013 Sep 7, 2:21pm
Here is the list of all bubbles in the last 400 years. Compare the number of bubbles before and after 1987, when Greenspan became chairman. Note that we are comparing a 400 year period with a 20 year period here:
Since the days of Nero, the Roman Emperor, currency debasement was always done to benefit those who are closest to the monetary spigot, and the poor who rely on fixed income suffer the most.
+1
Bellingham Bill
2013 Sep 8, 7:04am
since oil bubble was during Bernanke's reign
http://research.stlouisfed.org/fred2/graph/?g=mcU
the oil bubble was certainly the market -- global wealth -- front-running the Fed, yes.
when easing started, the hot money went into the inflationary sectors, expecting the price level to continue the rising trend established since Bush was installed.
Real estate was out because it was already bubbled out, but oil was available.
Unfortunately (for the hot money) the dislocation of 2008-2009 -- 9 million jobs lost:
http://research.stlouisfed.org/fred2/graph/?g=mcV
made that a bad play too, as people without jobs sure as hell ain't buying any more gas than they absolutely have to.
But the oil bubble was entirely due to wealth disparity -- the global saving glut looking for yield.
Production didn't fall to prompt that price shock, that was speculation.
Speculation, obviously, is not something poor people do, Fed printing or no.
HydroCabron
2013 Sep 8, 7:10am
Both Greenspan and Bernanke were Keynesian fools, or can kickers, who, just like you, believed that you can actually make something out of nothing.
Greenspan a fool? Yes.
Greenspan a Keynesian? No.
Keynes said you throttle back stimulus in times of high growth.
Bellingham Bill
2013 Sep 8, 7:14am
Greenspan was a Mr Magoo who admitted the colossal fraud of the US financial sector was a total surprise to him, since markets were pure, inerrant things to him.
He didn't understand how the housing bubble continued after he started raising rates in 2004. What happened was liar loans, interest-only, negative-am, and other "affordability" innovations allowed specuvestors to continue pushing prices up in 2004-2005.
2006-2007 was distribution, where the smart money handed their positions to the stupid.
dunnross
2013 Sep 8, 8:37am
Keynes said you throttle back stimulus in times of high growth.
No, that just means he was a Keynesian on steroids.
The last housing bubble was caused by easy credit. I have no idea how wealth disparity can be blamed for it. Correlation is not causation.
Bellingham Bill
2013 Sep 8, 2:30pm
The last housing bubble was caused by easy credit. I have no idea how wealth disparity can be blamed for it. Correlation is not causation.
The "easy credit" was simply Wall Street creating dodgy investment vehicles for the "Global Saving Glut" to fund credit issues to US consumers. There were trillions of dollars looking for yield, and our domestic finance sector saw the mortgage market as greenfield expansion to work -- not just subprime, but anyone who wanted to buy a house with any amount of borrowed money essentially could, from ~2004-2007.
What the Fed did do was allow the money supply to expand enormously, to accommodate the "new world order" of China joining the US dollar bloc:
http://research.stlouisfed.org/fred2/series/M3
one helluva inflection at 1995, yes? But not sure what the Fed could have done to prevent it -- China wanted dollars and was willing to drop its yuan rate a lot to get them flowing to them:
http://research.stlouisfed.org/fred2/series/EXCHUS
see the correlation?
The "Global Saving Glut" just meant the world was being flooded with dollars, and they were sent back to us via debt take-on:
http://research.stlouisfed.org/fred2/series/CMDEBT
Here's one example of the crimes:
http://www.nytimes.com/2007/11/28/business/worldbusiness/28iht-bank.4.8517748.html?_r=0
Free market at work, screw the other guy before he screws you, yeay!
HydroCabron
2013 Sep 8, 10:36pm
The last housing bubble was caused by easy credit. I have no idea how wealth disparity can be blamed for it. Correlation is not causation.
Think of the easy credit - the proximate cause which you rightly blame - as being a sop to the vast majority of Americans.
Having spent 20 years being told that lower tax rates for the elites would make us all wealthier, these brainwashed dupes were in no danger of discovering the truth: instead of even a nice oligarch dick to suck on, they were actually chugging on a big brown turd.
The oligarchs, worried more about a collapse of demand for their cheap China crap than an actual awakening to how St. Ronnie the Infallible had fucked us, told their receptive partners in Washington, D.C. to loosen things up a bit, in the hopes of some sort of marginal wealth acquisition for the suckers, who would then be more content and a better market.
Oops.
One thing the wealthy are right about: the non-wealthy are generally pretty stupid.
freak80
2013 Sep 9, 1:40am
Nobody knows how the economy "really works."
Economics is almost like a religion.
Patrick
2025 Oct 22, 10:07pm
they have fueled a borrowing spree that's pushed NYSE margin debt and stock prices to record highs
https://rudy.substack.com/p/a-simulacrum-of-language
The amount of margin debt in the US has soared to a new high of $1.13 trillion in September (data: FINRA). Some will say that we should look at it as a percentage of total market cap, and I agree.
However, I have a different point to make. Look at how fast margin debt has increased in just a few months: up 30% since the beginning of the year and 50% in the last 12 months. This is an indication of froth created mostly by retail speculators who are piling in to make a quick buck.
Does not look good to me…
“We see artificial pricing in virtually every asset class.” Mohamed El-Erian, Pimco's co-chief executive
There's a great article in Thursday's Wall Street Journal that details the ruinous impact of the Fed's monetary policy. While the real economy has seen no benefit from the Central Bank's zero rates and quantitative easing (QE), corporations and financial institutions have gone on a borrowing binge that has boosted their leverage to precrisis levels. Keep in mind, that it was the bursting of the gigantic credit bubble in subprime mortgage-backed securities (MBS) that imploded the global financial system triggering the deepest slump since the Great Depression, so you might think the Fed would want to avoid a similar mishap in the future. Au contraire! As the WSJ article confirms, the Fed's lamebrain monetary policy has returned us to Square 1, the same place we were 5 years ago when the roof caved in and the whole bloody financial system came crashing down in a heap. Here's an excerpt from the article titled "Financial Crisis Anniversary: For Corporations and Investors, Debt Makes a Comeback":
"Five years after excessive debt propelled a housing-market collapse into a financial crisis and recession, similar bets are being placed across the U.S.....Leverage is getting back to where it was precrisis," said Christina Padgett, head of leveraged finance research at Moody's Investors Service....
Total corporate-bond debt has grown to nearly $6 trillion, up 59% since 2007, the year before the financial crisis......Leverage by companies rated investment grade has risen 20% since 2010 ... about 6% higher than in 2008, according to J.P. Morgan Chase JPM -0.48% & Co. ....
Small investors are increasingly partners in the corporate-borrowing surge. In 2008, mutual funds held, on average, 17% of the bonds and 3% of the loans made to junk-grade companies, according to Bank of America. Today, they own about 26% of the bonds and 19% of the loans....
Assets in mutual funds and exchange-traded funds that invest in junk bonds have grown to $285 billion in July from $92 billion at the end of 2008, according to Morningstar." ("Financial Crisis Anniversary: For Corporations and Investors, Debt Makes a Comeback", Wall Street Journal)
Everyone's piling into the debt markets in response to the Fed's uber-accommodative policy, right? So while the Fed's QE and zirp (zero interest rate policy) have had zilch effect on unemployment, the output gap, wages and income, consumer spending, aggregate demand, corporate investment or even inflation (which is still bobbing below the Fed's 2 percent target); they have fueled a borrowing spree that's pushed NYSE margin debt and stock prices to record highs, while junk bond yields have dropped to all-time lows. In other words, Helicopter Ben has inflated another ginormous stock and bond bubble that will eventually explode in a spectacular fireworks display leaving the financial system and the economy in tatters.
Hoorah, for Ben Bernanke, Ponzi-charlatan extraordinaire! Maestro must be green with envy. Here's more from the article:
"Many companies are repeating some of the mistakes of the past," by taking on too much debt, said Edward Altman, a New York University business school professor and the creator of a well-known tool for measuring corporate health, called the Z-score.
Mr. Altman said his latest forecast, which measures the probability of corporate defaults, showed overall corporate health was "no better than it was in 2007 and by some measures worse." (WSJ)
Altman is obviously a party pooper. What does he know about self-balancing equilibrium of the free market? If debt is all that bad, then why are so many corporations and big banks loading up on more leverage all the time? Huh?
Could it be because zero-priced capital and $85 billion in monthly liquidity injections distort the pricing mechanism, drives down interest rates and sends investors scrambling for yield wherever they can find it? Could it be that Bernanke's dogwhistle policies force risk-adverse fixed-income investors and penny-pinching retirees into volatile equities and other unsavory bets so they can make sufficient return on their life savings to keep the wolves away from the door?
Sure, it is. You see, Bernanke takes a two-pronged approach to the Fed's "price stability" mandate. On the one hand, he keeps dumping enough Vodka into the punchbowl to keep everyone at the party permanently blottoed, and with the other, he puts a gun to the head of every cautious saver in the country who would prefer to keep his money in a deposit account, but is coerced by Bernanke's zero rates to dive back into the equities sharktank where he'll be stripped-to-the-bone by the Wall Street piranhas. Isn't that the Fed's policy in a nutshell? Here's more from the article:
"Student loans, up 71% over the past five years, are approaching $1.2 trillion; in March last year, a third of the riskiest loans were more than 90 days past due, up from 24% in 2007, according to TransUnion LLC." (WSJ)
Sure, let's feed-off our young so we can keep Bernanke's Three-Card Monte game going a bit longer. What difference does it make?
What a sick, twisted system. 12 million people can't find work, wages have been stagnant for over a decade, 47 million people are on food stamps, household income is down more than 8 percent since 2000, consumer spending is on the ropes (personal spending rose a meager 0.1 percent in July), the homeless shelters are bulging, the food banks are maxed out, and the unemployment rate just dropped to 7.3 percent because--get this---another 312,000 workers threw in the towel and gave up looking for a job altogether. Get the picture: The US economy is in the shitter!
Meanwhile--while the financial system teeters and the country goes to hell-- the geniuses at the Central Bank keep juicing the money supply and boinking rates to help their rich slacker friends get richer still. What a racket.
Mike Whitney
#housing