"One risk to the U.S. economy is that rising entitlement spending will require the government to borrow from the finite amount of capital held by private savers, thus squeezing out private firms that need the capital to expand businesses and increase productivity."
"Velocity of money is the frequency with which a unit of money is spent on new goods and services. It is a far better indicator of economic activity than GDP, consumer prices, the stock market, or sales of men’s underwear (which Greenspan was fond of ogling). In a healthy economy, the same dollar is collected as payment and subsequently spent many times over. In a depression, the velocity of money goes catatonic. Velocity of money is calculated by simply dividing GDP by a given money supply. This VoM chart using monetary base should end any discussion of what 'this' is and whether or not anybody should be using the word 'recovery' with a straight face:
"In just four short years, our 'enlightened' policy-makers have slowed money velocity to depths never seen in the Great Depression...The path we’re on ends with mountains of corpses when the great experiment fails."
And what experiment is that? According to Jim Grant, we have met the lab rats, and They 'R Us:
The Wall Street Journal is reporting today that Bank of America will terminate 16,000 employees between now Happy New Year's. This continues a trend that I highlighted five months ago here. [If you type "Brian Moynihan" into the Search bar above, then hit the spy glass, you will find a list of postings explaining why BofA's CEO has the world's worst job.]
Gentle reminder: if you work for the State of Maine (or any of its public schools) or pay taxes in Maine, you own this company.
ZeroHedge has a must-read on "The Case of the Missing Steel." Citing a Reuters article on the slowdown in China's steel industry, ZeroHedge makes the broader claim that the entire global economy is an inverted pyramid balanced precariously on a shrinking base of worthless collateral:
[W]e have been warning for years that i) the inventory of the world's credible assets is literally evaporating in absence of technological efficiency and CapEx spending (which is also the reason for the ECB's endless lowering of collateral requirements) and ii) illegal rehypothecation of assets, which infinitely dilutes claims on real assets, can and will lead to total losses even for investors who thought they had strong collateral backing.
We now know that this has been happening in China with the most critical component of its economic growth miracle: steel. We will soon discover that all other assets: stocks, bonds, commodities (including gold and silver) and finally cash (think deposits) have been comparably rehypothecated and criminally commingled. The end result will be the most epic bank run in world history....
...and is sticking it to both the Democrats and the Republicans, whom he describes as the "two Free Lunch parties." His biggest voodoo pins, though, are saved for the "lunatics" at the Federal Reserve. A former OMB Director in the Reagan White House, David Stockman is looking for any presidential candidate who promises to "clean house at the Fed," starting with a pink slip for Fed Chair Ben Bernanke. By artificially suppressing interest rates, the Fed is "crushing savers" merely to "placate the little boys and girls [on Wall Street] who want a little more."
Stockman also has some good ideas about where to start on the federal deficit. A scintillating interview:
This month's Investment Outlook from PIMCO's managing director and co-CIO includes a sobering view of the prospects for America's banking industry in the years ahead:
"When yields are too low, and acceptable risk spreads so narrow that top line interest revenue is increasingly marginalized, then lending is at risk. Excessive historical overhead represented by rents, salaries, pension and health benefits, to name just a few, force financial and lending institutions to do one of two things: They lever up to cover those costs or they slow or shut lending down to preserve equity and the ultimate franchise...
"Our entire finance-based monetary system – led by banks but typified by insurance companies, investment management firms and hedge funds as well – is based on an acceptable level of carry and the expectation of earning it. When credit is priced such that carry is no longer as profitable at a customary amount of leverage/risk, then the system will stall, list, or perhaps even tip over."
And a final caveat for pension-fund managers (including those at MainePERS):
"The age of credit expansion which led to double-digit portfolio returns is over."