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The 30 Years Bubble -- Why America Ain't That Rich
Posted on: December 12, 2017 at 16:54:09 CT
ummmm MU
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By David Stockman:
Excerpt:
But that gets us to the 30-years bubble. Stock market capitalization of perpetual full employment is another way of saying that the economic and financial foundation of the US economy is rock solid; and is capable of sustained expansion like no other time in history---while also being completely immune to external shocks such as, say, a crash of the Red Ponzi or the bankruptcy of Italy and consequent break-up of the Eurozone and collapse of the euro.
That presumption is preposterous, of course, but is nonetheless embedded in the Wall Street/Washington narrative. Otherwise, they would not be celebrating the chart below and last week's news that household net worth in Q3 2017 posted at a breathtaking historic high of $97 trillion. Yes, with a "T"!
The excitement, of course, was that the number was up by $7.3 trillion or 8.1% from Q3 2016 (i.e. the eve of Trump's election), and by $42 trillion from the post-crisis low in Q1 2009.
Who would have thunk it? A whopping $42 trillion of new national riches that absolutely no one could have imagined in the dark days of a purported near-armageddon 100 months ago.
Then again, the reason that the impossible has morphed into a quarterly celebrati0n on bubblevision is that no one is paying attention to the trend, its implications for the future and the economic logic embedded therein.
As to the latter, consider this. During the 30 years of halcyon prosperity in America between Q2 1957 and Q2 1987, real GDP grew at a 3.54% compound annual rate, while real household net worth rose at a nearly identical 3.42% annualized rate.
The one tracked the other, of course, because during any sustained period of time, the real wealth of a society cannot grow any faster than the growth of production and income. Not surprisingly, therefore, household net worth weighed in at 3.70X GDP in 1957 and the very same 3.68X GDP on the eve of Alan Greenspan's arrival at the Fed.
But that's where the skunk in the woodpile comes in. In a word, the regime of Keynesian monetary central planning or Bubble Finance ushered in by the Maestro, and then aggravated by Bernanke and Yellen during and after the Fed induced Great Financial crisis, caused the iron linkage between long-term growth of production and wealth to be temporarily suspended.
Consequently, household wealth---which soared from $18 trillion to $97 trillion between Q2 1987 and Q3 2017, as shown in the orange bars below, grew far faster than GDP. Accordingly, it now stands at an off-the-charts 5.0X nominal GDP of $19.5 trillion.
Stated differently, even though the trend growth rate has fallen sharply during the last 30 years, the wealth capitalization rate of the household sector has soared into the wild blue yonder compared to all prior history.
These ratios are both expressed in nominal numbers, of course, but when the chart below is re-priced into constant dollar terms by the GDP deflator, the disconnect is made all the more dramatic. Namely, even as the thirty-year real GDP growth rate fell from 3.54% during 1957-1987 to 2.54% during the last thirty year period, the real growth rate of household net worth actually accelerated.
Since the Greenspan instigated era of Bubble Finance commenced in 1987, real household net worth has nearly tripled in today's dollars (from $33 trillion to $97 trillion), representing a 3.6% annual growth rate.
Then again, the chart below suggests why these staggering gains in purported household wealth are not what they are cracked-up to be.
To wit, real median household income during the same 30-year period has crept higher at just a 0.4% annual rate. That means, in turn, that real wealth, as reported by the Fed's flow-of-funds series, has grown nine times faster than real median household incomes in America.
To be sure, on the surface that reflects the reverse Robin Hood effect of Bubble Finance at work. The inflation of financial and real estate assets have overwhelming gone to the top 1% and 10% of households.
But at the end of the day, that giant gap cannot be explained away by the notion that there has been a permanent redistribution of the wealth to the top of the economic latter.
To the contrary, the truth of the matter is that the $97 trillion of household wealth reported last week is neither real nor sustainable; it's merely another flashing red warning sign that financial asset inflation has reached dangerous asymptotic heights.
For instance, if the household net worth-to-GDP ratio had remained at its historic 3.7X level through the present, household net worth today would be just $72 trillion, implying that the Fed has generated at least $24 trillion of bottled air since 1987.
In fact, the overstatement of household net worth is far larger than even that. The burgeoning demographic/fiscal crisis in America will actually grind economic growth toward the zero bound during the decade of the 2020s as massive public sector borrowing forces bond yields dramatically higher.
And that will reveal the ugly underside of last week's flow-of-funds report. To wit, the nation is now saddled with $68 trillion of public and private debt compared to $10.7 trillion when the era of Bubble Finance incepted back in October 1987.
In combination with 85 million retirees (by the end of the next decade), this debt albatross will smother American capitalism in high taxes, high interest rates and battered balance sheets in both the household and business sectors. As that outcome unfolds, the current absurdly inflated stock market PE multiples will get monkey-hammered by the reality of stagnant growth and struggling profits.
That is to say, America ain't nearly so rich as the Fed's fantasy figures suggest.
And that's a truth you can take to the bank by getting out of the casino now!
http://davidstockmanscontracorner.com/the-30-years-bubble-why-america-aint-that-rich/
Excerpt:
But that gets us to the 30-years bubble. Stock market capitalization of perpetual full employment is another way of saying that the economic and financial foundation of the US economy is rock solid; and is capable of sustained expansion like no other time in history---while also being completely immune to external shocks such as, say, a crash of the Red Ponzi or the bankruptcy of Italy and consequent break-up of the Eurozone and collapse of the euro.
That presumption is preposterous, of course, but is nonetheless embedded in the Wall Street/Washington narrative. Otherwise, they would not be celebrating the chart below and last week's news that household net worth in Q3 2017 posted at a breathtaking historic high of $97 trillion. Yes, with a "T"!
The excitement, of course, was that the number was up by $7.3 trillion or 8.1% from Q3 2016 (i.e. the eve of Trump's election), and by $42 trillion from the post-crisis low in Q1 2009.
Who would have thunk it? A whopping $42 trillion of new national riches that absolutely no one could have imagined in the dark days of a purported near-armageddon 100 months ago.
Then again, the reason that the impossible has morphed into a quarterly celebrati0n on bubblevision is that no one is paying attention to the trend, its implications for the future and the economic logic embedded therein.
As to the latter, consider this. During the 30 years of halcyon prosperity in America between Q2 1957 and Q2 1987, real GDP grew at a 3.54% compound annual rate, while real household net worth rose at a nearly identical 3.42% annualized rate.
The one tracked the other, of course, because during any sustained period of time, the real wealth of a society cannot grow any faster than the growth of production and income. Not surprisingly, therefore, household net worth weighed in at 3.70X GDP in 1957 and the very same 3.68X GDP on the eve of Alan Greenspan's arrival at the Fed.
But that's where the skunk in the woodpile comes in. In a word, the regime of Keynesian monetary central planning or Bubble Finance ushered in by the Maestro, and then aggravated by Bernanke and Yellen during and after the Fed induced Great Financial crisis, caused the iron linkage between long-term growth of production and wealth to be temporarily suspended.
Consequently, household wealth---which soared from $18 trillion to $97 trillion between Q2 1987 and Q3 2017, as shown in the orange bars below, grew far faster than GDP. Accordingly, it now stands at an off-the-charts 5.0X nominal GDP of $19.5 trillion.
Stated differently, even though the trend growth rate has fallen sharply during the last 30 years, the wealth capitalization rate of the household sector has soared into the wild blue yonder compared to all prior history.
These ratios are both expressed in nominal numbers, of course, but when the chart below is re-priced into constant dollar terms by the GDP deflator, the disconnect is made all the more dramatic. Namely, even as the thirty-year real GDP growth rate fell from 3.54% during 1957-1987 to 2.54% during the last thirty year period, the real growth rate of household net worth actually accelerated.
Since the Greenspan instigated era of Bubble Finance commenced in 1987, real household net worth has nearly tripled in today's dollars (from $33 trillion to $97 trillion), representing a 3.6% annual growth rate.
Then again, the chart below suggests why these staggering gains in purported household wealth are not what they are cracked-up to be.
To wit, real median household income during the same 30-year period has crept higher at just a 0.4% annual rate. That means, in turn, that real wealth, as reported by the Fed's flow-of-funds series, has grown nine times faster than real median household incomes in America.
To be sure, on the surface that reflects the reverse Robin Hood effect of Bubble Finance at work. The inflation of financial and real estate assets have overwhelming gone to the top 1% and 10% of households.
But at the end of the day, that giant gap cannot be explained away by the notion that there has been a permanent redistribution of the wealth to the top of the economic latter.
To the contrary, the truth of the matter is that the $97 trillion of household wealth reported last week is neither real nor sustainable; it's merely another flashing red warning sign that financial asset inflation has reached dangerous asymptotic heights.
For instance, if the household net worth-to-GDP ratio had remained at its historic 3.7X level through the present, household net worth today would be just $72 trillion, implying that the Fed has generated at least $24 trillion of bottled air since 1987.
In fact, the overstatement of household net worth is far larger than even that. The burgeoning demographic/fiscal crisis in America will actually grind economic growth toward the zero bound during the decade of the 2020s as massive public sector borrowing forces bond yields dramatically higher.
And that will reveal the ugly underside of last week's flow-of-funds report. To wit, the nation is now saddled with $68 trillion of public and private debt compared to $10.7 trillion when the era of Bubble Finance incepted back in October 1987.
In combination with 85 million retirees (by the end of the next decade), this debt albatross will smother American capitalism in high taxes, high interest rates and battered balance sheets in both the household and business sectors. As that outcome unfolds, the current absurdly inflated stock market PE multiples will get monkey-hammered by the reality of stagnant growth and struggling profits.
That is to say, America ain't nearly so rich as the Fed's fantasy figures suggest.
And that's a truth you can take to the bank by getting out of the casino now!
http://davidstockmanscontracorner.com/the-30-years-bubble-why-america-aint-that-rich/
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The 30 Years Bubble -- Why America Ain't That Rich - ummmm MU - 12/12 16:54:09