[C]entral bank bubble finance has fostered an existential crisis in
what remains of American capitalism.... [A]s the main street economy of
work and production has been going nowhere, the financial system has
erupted skyward.... How did this massive inflation of the financial
sphere happen? Since the time of Greenspan’s abject panic in the wake
of Black Monday
in October 1987, the Fed has chronically pegged the money market rate
below market-clearing levels. In doing so, they fueled an embedded
carry
trade that has mushroomed relentlessly....
In
an honest free market, gamblers would have to pay more for their carry
funding. They’d face much greater uncertainty as to its price and
availability and dissipate far more of their winnings hedging their
portfolios than is required under the current central bank-driven regime
of bubble finance.... When debt is priced drastically below its
economic cost and receives a
deep tax subsidy to boot, a variation of the supply side theorem
manifests itself.
Namely, when the cost of servicing debt capital is made artificially
low, you get a lot more of it -- from the public and private sectors
alike....
[T]he debt was overwhelmingly used for financial
engineering.... The relentless trading, churning and synthesizing of
assets and
derivatives within the giant bloated system of finance has almost
nothing to do with raising or allocating capital for productive use.
Instead, this giant $95 trillion pool is where honest savings from the
household and business sectors go to be scalped, appropriated, and stolen
by the hedge funds, dealers, financial engineers, and gamblers which
populate the casino....
And the denizens of the Eccles Building keep their heavy foot on the
monetary accelerator as they witlessly inflate a $95 trillion financial
bubble.... This is a clear and present danger to American capitalism fostered by an
unelected monetary politburo in thrall to its own lust for power and
mesmerized by its own doctrinaire group think. The tragedy is that nothing can stop them except the thundering crash of
the gargantuan bubble they have single-handedly enabled.
-- David Stockman (The Daily Reckoning) May 14, 2015
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