Debt Curse

NEW YORK – “Not a bad view. That’s the mayor’s house right beneath us.”

We were on the 16th floor of a new apartment building, looking out over the East River. With us was President Reagan’s former budget advisor and Wall Street veteran David Stockman – a man who has been closer to the Bubble Epoch than almost anyone.

The Dow rose 183 points on Wednesday – or just over 1% – after starting the day in the red.

 

SALOMON_3142495bWilliam Salomon in Salomon Bros. & Hutzler’s trading room in 1965. Salomon Bros. sold the first ever mortgage-backed bond on Wall Street in the 1980s

Photo credit: Arthur Brower / The New York Times

 

“I was there at the creation,” said David.

“After leaving government, I went to Salomon Brothers in the late 1980s. We were just starting to put together packages of mortgage-backed debt.”

Bubble finance has taken many shapes and sizes. Mortgage-backed derivatives. Private equity. Junk bonds. Student debt. Subprime auto loans. Stock buybacks. This debt was a curse to most Americans. But it blessed Manhattan.

The weekend’s Financial Times included real estate listings from New York City. There was a penthouse apartment for sale on the Upper East Side for $60 million. Luxury digs on the West Side were going for $30 million… another for $16 million.

You don’t make that kind of money parking cars… or making them. So, if you want to buy one of these places, you almost have to work in finance. Most people have no idea how the financial world works. They think investments go up or down and you make money depending on your luck or your skill – just like any other game. They don’t know the game is rigged.

Central banks make credit available to the big banks at preferential rates. The banks then earn a fat “spread” by making loans to government, industry, and households. They make money lending… and then, they make money again by packaging and selling the debt to investors, pension funds, and insurance companies.

Everything is fine until the credit cycle turns down. Then marginal debtors can’t pay and marginal (sub-prime or junk) debt loses value. Stocks and real estate go down, too. Everybody loses money. And everyone wants the Fed to “do something.” What can it do? Make credit even cheaper!

 

JNKYo Fedheads! It’s that time again! Cheaper credit needed! Liquidity junkies are out there dying of thirst! – click to enlarge.

 

Bubble Finance

Stockman was present at the creation of the whole Bubble Epoch. In 1981, President Reagan appointed him to be his first budget director. Four years later, he quit in disgust.

“Funny, isn’t it? I was alarmed by a national debt of $900 billion. Yesterday, it went over $19 trillion. And nobody cared.”

President Nixon made the Bubble Epoch possible by going off the gold standard in 1971. No “golden anchor”: no limit on how much money and credit you could create. But the Bubble Epoch didn’t really begin until 10 years later under “The Gipper.”

 

Regan, Reagan and StockmanThen budget director David Stockman (right) skeptically eyes treasury secretary Don Regan and the Gipper

Photo credit: Dennis Cook / AP

 

Stockman battled the big spenders in the Republican Party – and lost. After he was out of the way, Reagan ran some of the biggest deficits ever. Soon, debt was out of control everywhere – in government, industry, and private consumption.

“We must be nearing the end of this,” said Stockman. “I expect the whole world economy to plunge into deflation and recession.”

 

Federal DebtTotal federal debt – when you can print unlimited amounts of money, anything is possible, right? It will never end! Just ask John Law… – click to enlarge.

 

Charts by: StockCharts, St. Louis Federal Reserve Research

 

Chart and image captions by PT

 

The above article originally appeared as “Boomers Are Being Led Like Lambs to the Slaughter” at the Diary of a Rogue Economist, written for Bonner & Partners. Bill Bonner founded Agora, Inc in 1978. It has since grown into one of the largest independent newsletter publishing companies in the world. He has also written three New York Times bestselling books, Financial Reckoning Day, Empire of Debt and Mobs, Messiahs and Markets.

 

 
 

Emigrate While You Can... Learn More

 
 

 

Dear Readers! We are happy to report that we have reached our turn-of-the-year funding goal and want to extend a special thank you to all of you who have chipped in. We are very grateful for your support! As a general remark, according to usually well informed circles, exercising the donation button in between funding drives is definitely legal and highly appreciated as well.

   

Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke

   
 

3 Responses to “The Era of Bubble Finance”

  • Russ Pichlik:

    John! Since my curiosity abounds, how about if you describe some of the holes?

  • John Galt III:

    Bonner,

    There are so many holes in this drivel above it is pointless to even begin to correct you. You are now the proud recipient of the Josef Goebbels Annual Award for Propaganda and Obfuscation.

    Stockman went off the deep end years ago. One can be appalled by our national debt as many of us are without wearing tin-foil hats like Stockman and making stuff up or coming to ridiculous conclusions about the cause of events as Stockman has done for 30 years.

    Stop the lying, Bill.

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • French labour union workers and students attend a demonstration against the French labour law proposal in Marseille, France, as part of a nationwide labor reform protests and strikes, March 31, 2016. REUTERS/Jean-Paul Pelissier/File PhotoHow the Welfare State Dies
      Hollande Threatens to Ban Protests Brexit has diverted attention from another little drama playing out in Europe. As of the time of writing, if you Google “Hollande threatens to ban protests” or variations thereof, you will find Russian, South African and even Iranian press reports on the topic. Otherwise, it's basically crickets (sole exception: Politico).  Gee, we wonder why?   They don't like him anymore: 120.000 protesters recently turned Paris into a war zone. All...
  • The-answer-is-yesToward Freedom: Will The UK Write History?
      Mutating Promises We are less than one week away from the EU referendum, the moment when the British people will be called upon to make a historic decision – will they vote to “Brexit” or to “Bremain”? Both camps have been going at each other with fierce campaigns to tilt the vote in their direction, but according to the latest polls, with the “Leave” camp’s latest surge still within the margin of error, the outcome is too close to call.   The battle lines are...
  • nails-in-a-bed-of-nails-new-yorker-cartoonGoing... Going... Gone! The EU Begins to Splinter
      Dark Social Mood Tsunami Washes Ashore Early this morning one might have been forgiven for thinking that Japan had probably just been hit by another tsunami. The Nikkei was down 1,300 points, the yen briefly soared above par. Gold had intermittently gained 100 smackers – if memory serves, the biggest nominal intra-day gain ever recorded (with the possible exception of one or two days in early 1980). Here is a picture of Haruhiko Kuroda in front of his Bloomberg monitor this...
  • water houseA Market Ready to Blow and the Flag of the Conquerors
      Bold Prediction MICHAELS, Maryland – The flag in front of our hotel flies at half-mast. The little town of St. Michaels is a tourist and conference destination on the Chesapeake Bay. It is far from Orlando, and even farther from Daesh (a.k.a. ISIL) and the Mideast.   St. Michaels, Maryland – the town that fooled the British (they say, today). Photo credit: Fletcher6   Out on the river, a sleek sailboat, with lacquered wood trim, glides by, making hardly a...
  • queen_gold-840x501Rule Britannia
      A Glorious Day What a glorious day for Britain and anyone among you who continues to believe in the ideas of liberty, freedom, and sovereign democratic rule. The British people have cast their vote and I have never ever felt so relieved about having been wrong. Against all expectations, the leave camp somehow managed to push the referendum across the center line, with 51.9% of voters counted electing to leave the European Union.   Waving good-bye to...
  • junkThe Problem with Corporate Debt
      Taking Off Like a Rocket There are actually two problems with corporate debt. One is that there is too much of it... the other is that a lot of it appears to be going sour.   Harvey had a good time in recent years...well, not so much between mid 2014 and early 2016, but happy days are here again! Cartoon by Frank Modell   As a brief report at Marketwatch last week (widely ignored as far as we are aware) informs us:   “Businesses racked up debt in the...
  • deflated-souffleThe Fed’s  Doomsday Device
      Bezzle BALTIMORE –  Barron’s, in a lather, says the market is facing the “Two Horsemen of the Apocalypse.” Huh?   Only two? There were four last time!   Supposedly, the so-called Brexit – the vote in Britain this Thursday on whether to leave or remain in the European Union (EU) – and uncertainty over where the Fed will take U.S. interest rates are cutting down stocks faster than a Z-turn mower. But Brexit is a side show. As our contacts in London...
  • Incrementum signalIn Gold We Trust, 2016
      The 10th Anniversary Edition of the “In Gold We Trust” Report As every year at the end of June, our good friends Ronald Stoeferle and Mark Valek, the managers of the Incrementum funds, have released the In Gold We Trust report, one of the most comprehensive and most widely read gold reports in the world. The report can be downloaded further below.   Gold, daily, over the past year - click to enlarge.   The report celebrates its 10th anniversary this year. As...
  • rate_hike_cartoon_10.15.2015_largeJanet Yellen’s $200-Trillion Debt Problem
      Blame “Brexit” BALTIMORE – The U.S. stock market broke its losing streak on Thursday [and even more so on Monday, ed.]. After five straight losing sessions, the Dow eked out a 92-point gain. The financial media didn’t know what to say about it. So, we ended up with the typical inanities, myths, and claptrap.   “Investors” are pushing the DJIA back up again..apparently any excuse will do at the moment. The idea may backfire though, as exactly the same thing happened...
  • Brexit supporterGold and Brexit
      Going Up for the Wrong Reason Gold is soaring. It should—and a lot—but in my view not for the reason it is. Indeed gold is insurance for uncertain times, a time that Brexit seems to represent. But insurance is an administrative cost — one must minimize its use.   August gold contract, daily – gold has been strong of late, but this seems to be driven by “Brexit” fears - click to enlarge.   Moreover, insuring against Brexit might ironically be equivalent...
  • cameron at the EUBrexit Paranoia Creeps Into the Markets
      European Stocks Look Really Bad... Late last week stock markets around the world weakened and it seemed as though recent “Brexit” polls showing that the “leave” campaign has obtained a slight lead provided the trigger. The idea was supported by a notable surge in the British pound's volatility.   Battening down the hatches...   On the other hand, if one looks at European stocks, one could just as well argue that their bearish trend is simply continuing – and...
  • times are changingVive la Revolution! Brexit and a Dying Order
      A Dying Order Last Thursday, the Brits said auf Wiedersehen and au revoir to the European Union. On Friday, the Dow sold off 611 points – a roughly 3.5% slump. What’s going on?   Surprise winners of the “Britain has political talent” contest...   In Europe and the U.S., the masses are getting restless. Mr. Guy Wroble of Denver, Colorado, explained why in a short letter to the Financial Times:   The old liberal world order is dying because the...

Austrian Theory and Investment

Support Acting Man

Own physical gold and silver outside a bank

Archive

j9TJzzN

350x200

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com