The unfolding tragic comedy (maybe melo-drama tragedy might be better) that is being written for our economic future does not appear to have a very happy final act – and there will be no curtain call. The cast of characters seem to have forgotten their exit cues and are adlibbing (winging it might best describe it)this latest act of the play. With each new improvised line we head further toward chaos and no one wants this act to end – especially the main characters! For I believe they know that the next act will surely bring the house down.

The Spins Of The Fathers

Submitted by Tyler Durden on 04/25/2013

Submitted by Mark Grant, author of Out of the Box

A Dali Landscape

Imagine that you are walking through a Salvador Dali painting. Everything is disjointed, tilted and mangled. The clocks are dripping, the colors are ravishing and the trek is difficult as disorientation precedes each step.

In the financial world at present the markets are fueled by the liquidity of the central banks. Not only is nothing else of importance but good news becomes the joyful noise of some divinity, bad news is elevated to good news and horrible news brings ecstasy as it will enlarge the contributions of Mr. Bernanke and Mr. Draghi. 

The various economies are irrelevant. Growth is insignificant. Debt levels are made up and then ignored. The growing stockpile of small bits of pulp mixed with water is all that matters as we stumble along in our Paper Mache world.

Now I do not argue with reality. Equities up, bond compression unrelenting, yields down and we play the Great Game to win and not to be right. Yet I am aware, I am always aware, that reality is lurking in the swirling mists. There is nothing that separates us from chaos except the unrelenting supply of money because the underlying economies in America and especially in Europe cannot support these kinds of markets. Even in Germany, who reports a debt to GDP ratio of 81% while the real number exceeds 200%; the storm clouds are gathering.

The next barrage will be fired soon by Mr. Draghi. It will be a cut in interest rates that will cause the next heretical dance but it will be short lived I fear. Markets up, the Euro down and right at Kelvin’s Absolute Zero will be the temperature reading. There is not a normal in sight. Not the old normal or the new normal or any sort of normal; just the Fed and the ECB with their fingers in the dike.
It is the land of easy money. Heaps of it more than just before the 2008/2009 debacle! That last go round was money provided by the private banks. This go round is provided by the central banks. The last time leverage was in play. This time the capital is minted by creation. Easy money though, always leads to serious mistakes as it gets shoved into inappropriate places.

Yields may be down for sovereign debt in Europe but debt levels are up as every country on the Continent has entered the sinkhole. Mandated debt levels are now being ignored as exemplified by Spain with a 10.6% ratio as ever more debt is added which must be serviced as the total amount of debt cannot be paid regardless of the interest rate.

We live in a world where everything is ignored but the time will come when this ignorance will be shattered. We will pay the price for our stupidity because there is always a price to be paid. Mr. Bernanke and Mr. Draghi have been the Saviors but the church has been built on thin air and the weight of the building is increasing and increasing at an alarming rate. This kind of normal is unsustainable.

The lessons of the past are being ignored once again but I caution you to not forget what you have learned.

Fed's medicine.....

What a tangled web we weave in our financial house of the dual mandate.

“What the Fed needs to do in order to achieve its macroeconomic objectives will create instability in financial markets…..”

Is the Fed's Medicine Really Poison?

By Caroline Baum - Apr 22, 2013

It's not every day that a central banker admits that his medicine for curing the last crisis may be laying the groundwork for the next. But that's exactly what Narayana Kocherlakota, President of the Federal Reserve Bank of Minneapolis, said last week at the annual Hyman P. Minsky Conference at the Levy Economics Institute of Bard College.

Kocherlakota said low real interest rates are necessary to achieve the Fed's dual mandate of maximum employment and stable prices. He also said that low real rates lead to inflated asset prices, volatile returns and increased merger activity, all of which are signs of financial market instability. Listen to what he calls his "key conclusion" -- and what I'd call a true conundrum:

"I've suggested that it is likely that, for a number of years to come, the FOMC will only achieve its dual mandate of maximum employment and price stability if it keeps real interest rates unusually low. I’ve also argued that when real interest rates are low, we are likely to see financial market outcomes that signify instability. It follows that, for a considerable period of time, the FOMC may only be to achieve its macroeconomic objectives in association with signs of instability in financial markets."

Just think about that for a minute: What the Fed needs to do in order to achieve its macroeconomic objectives will create instability in financial markets. There's more:

"On the one hand, raising the real interest rate will definitely lead to lower employment and prices. On the other hand, raising the real interest rate may reduce the risk of a financial crisis —- a crisis which could give rise to a much larger fall in employment and prices. Thus, the Committee has to weigh the certainty of a costly deviation from its dual mandate objectives against the benefit of reducing the probability of an even larger deviation from those objectives."

Damned if we do, damned if we don't. Other Fed officials have warned about froth in asset markets, but none to my knowledge has been as forthright in describing the Fed's life-saving medicine as systemic poison.

Like his colleagues, Kocherlakota believes effective supervision and regulation of the financial sector are the best ways to address threats to macroeconomic stability. Yeah, and the tooth fairy leaves money under your pillow if you're good.

For central bankers to believe regulation is the answer, they have to ignore history and disregard the tendency for regulators to be co-opted by those they are assigned to regulate, a phenomenon known as "regulatory capture."

The Minsky Conference was the ideal place for Kocherlakota to deliver his remarks. Minsky observed that, during periods of prosperity and financial stability (the Great Moderation), investors are lulled into taking on more risk with borrowed money.

At some point, investors are forced to sell assets to repay loans, sending asset prices into a downward spiral as cash becomes king. This is what's known as a "Minsky moment."

Kocherlakota seems to be saying such an outcome is inevitable. If only he could tell us when.

(Caroline Baum is a Bloomberg View columnist. Follow her on Twitter.)

word for the week

The word for the week: dysfunctionality  

The inability to think beyond today while making decisions that will have unintended negative consequences tomorrow yet believing that all is well and we are on the right path.

Dsyfunctionality reaches into all facets of today’s life and it’s effects are felt throughout our country….

yields

Are we going to repeat last year’s spring fall off?

Ten Year Treasury Yield 

Fed's peak at the National Economic Conditions

Latest Fed speak buzz words to watch for –

fiscal drag, fiscal restraint, moderate growth

…mild restraint in 2012 to much greater restraint in 2013,

…will continue purchasing assets until it sees substantial improvement,

…a self-sustaining economic expansion,

…situation has changed in a meaningful way

The Outlook for the National and Local Economy

April 16, 2013

William C. Dudley, President and Chief Executive Officer

National Economic Conditions

Turning to the national outlook, the U.S. economy remains on the slow growth track that has persisted since the recession ended in mid-2009. In fact, real gross domestic product (GDP) grew just 1.7 percent in 2012, below the 2.2 percent rate of the preceding two years. This lackluster and disappointing performance masks the fact that the underlying conditions that support growth have been gradually improving. However, in the near-term, this improvement in fundamentals is being offset by federal tax increases and spending cuts, which economists call “fiscal drag.”  The most obvious example of this is the end of the partial payroll tax holiday at the beginning of this year.  This reduced the take-home pay for all those that pay into the Social Security system. 

In a recent speech to the Economic Club of New York, I discussed a number of areas where economic fundamentals have improved.  Here, let me concentrate instead on some areas of the economy where the impact of this improvement in fundamentals has been most evident: consumer spending, the housing market, and investment in equipment and software.

Despite the increase in payroll taxes and in high-income tax rates, real—that is, inflation-adjusted—personal consumption expenditures rose solidly in January and February.  As has been the case for some time, the growth of consumer spending has been led by purchases of durable goods.  Car and light truck sales in the first quarter were at the highest pace since the fourth quarter of 2007.  This growth in consumer spending probably is due, in part, to improvements in labor market conditions, household balance sheets and household access to credit.  However, retail sales were quite weak in March, suggesting that the tax increases that occurred at the start of the year may be beginning to have a material effect.  

After a long period of being a drag on the economy, the housing market is now providing lift to economic activity, with upward trends evident in housing starts, home sales, and home prices.  To see why this is so important, in 2009 residential investment exerted a 0.4 percentage point drag on GDP growth, while in 2013 it is likely to provide a boost to growth on the order of 0.5 percentage point—a swing of nearly a full percentage point.  In addition, rising home prices can create positive spillovers to the rest of the economy as higher home prices lift household wealth and reduce the number of homeowners with negative equity.

Business investment in equipment and software, another component of private final demand, strengthened in the fourth quarter, and shipments and orders for nondefense capital goods suggest further growth in the first quarter.  Moreover, indicators of the U.S. manufacturing sector, including the ISM manufacturing index and most Federal Reserve regional manufacturing indexes, point to continued moderate growth in the sector.  

So why isn't the U.S. economy growing more quickly? The most important reason is the sharp shift in federal fiscal policy from mild restraint in 2012 to much greater restraint in 2013. The increase in payroll tax rates, the rise in high income tax rates, the increase in taxes associated with the Affordable Care Act, and the sequester will result in fiscal drag of about 1¾ percentage points of GDP in 2013, an unusually large amount of fiscal restraint when the economy doesn’t have strong forward momentum and unemployment is still elevated.

In terms of the labor market, we have seen only a moderate improvement in labor market conditions over the past six months or so. After an encouraging pick up in the pace of job creation around the turn of the year, the employment report for March showed a gain of only 88,000 jobs. While I don’t want to read too much into a single month’s data, this underscores the need to wait and see how the economy develops before declaring victory prematurely.  I’d note that we saw similar slowdowns in job creation in 2011 and 2012 after pickups in the job creation rate and this, along with the large amount of fiscal restraint hitting the economy now, makes me more cautious.  

Since September, payroll employment has increased an average of 188,000 per month, compared with an average of 172,000 per month over the previous two years.  The unemployment rate has declined from a peak of 10 percent in October 2009 to 7.6 percent in March; however, much of the decrease is due to a fall in the number of people actively looking for a job.  Furthermore, as of March there were still almost 3 million fewer jobs than at the end of 2007, and the ratio of employed Americans to the working age population was actually lower than it was at the end of the recession.  Also, in an indication that employment is far from healthy, job finding rates have changed little since the recession. New York Fed staff research agrees with the broad consensus that cyclical factors are the major reason for the continued weakness in labor market conditions. 

In sum, these developments lead me to expect sluggish real GDP growth over the course of 2013 of about 2 to 2½ percent.  As such, I anticipate that the unemployment rate will decline only modestly through the rest of the year.

In the near term, there is considerable uncertainty about the outlook, particularly because the multiplier effects from fiscal drag and sequestration are still unclear. This uncertainty should gradually decline—for better or for worse—over the coming months, as the sequester’s impact takes hold and more economic data come in, giving us a clearer picture of the forward momentum of the economy.

Inflation, as measured by the personal consumption expenditure deflator, is currently well below the Federal Reserve's objective of 2 percent. There is substantial slack in the labor market and in the markets for goods and services, and underlying measures of inflation are subdued.  Moreover, peoples’ expectations of inflation remain well anchored at levels consistent with our 2 percent longer-run objective. Thus, I conclude that the risk that inflation could significantly exceed our 2 percent objective is quite low over the next few years, even if the economy were to strengthen considerably.

With inflation well below its longer-run goal and high unemployment, the FOMC decided at its March meeting to maintain a “highly accommodative” policy stance: a federal funds rate in a range of 0 to 25 basis points with forward guidance based on economic thresholds.   Moreover, to support a stronger economic recovery, the FOMC is purchasing long-term Treasury securities at a rate of $45 billion per month and agency mortgage-backed securities (MBS) at a rate of $40 billion per month, and will continue purchasing assets until it sees substantial improvement in the outlook for the labor market, conditional on ongoing assessment of benefits and costs.  Combined, these actions are intended to ease financial conditions and thereby help to establish a self-sustaining economic expansion.

As I stated in my recent Economic Club speech, the benefits of our asset purchases—as reflected in improving financial conditions and the quickening pace of interest-sensitive spending such as that on consumer durable goods, housing, and capital goods—exceeds the costs.  Furthermore, the labor market outlook has yet to show substantial improvement.  Consequently, I see the current pace of asset purchases as appropriate.

At some point, I expect that I will see sufficient evidence of improved economic momentum to lead me to favor gradually dialing back the pace of asset purchases.  Of course, any subsequent bad news could lead me to favor dialing them back up again. As Chairman Bernanke said in his press conference following the March FOMC meeting "when we see that the…situation has changed in a meaningful way, then we may well adjust the pace of purchases in order to keep the level of accommodation consistent with the outlook."

What does this fore tend for the housing markets in the new normal?

What does this fore tend for the housing markets in the new normal?

Housing Starts Surge Due To Rental Housing Construction, Permits Miss Even With Seasonal Distortion

Submitted by Tyler Durden on 04/16/2013

On the surface, today's Housing Data was good. Yes, there was a miss in the housing permits number, which declined from a downward revised 939K to 902K, on expectations of a strong 942K print, but let's ignore that: after all bad news is good news (although as the chart below shows even this number was highly skewed due to seasonal adjustments and the NSA number hasn't really budged in the past year). But look at the housing starts: what a whopper: at 1036K, this was the highest print since June 2008 - great news, right? Not really, because the one key indicator here, single-family units, actually posted a sizable drop from 650K in February to 619K in March. The offset: construction starts of multi-family, aka rental units, which in March was a whopping 392K, a 83K seasonally adjusted surge from February, which brings the total multifamily starts to the highest since January 2006 at 423K. Of course, in January 2006, single-family units hit a record 1823K, or about three times as much as the March 2013 number.

Thank you Fed and QE for making yet another capital allocation mockery as America is increasingly shifting into a nation of renters. At this pace expect multi-family starts to surpass single unit starts in 4-6 months for the first time ever.

Housing Permits seasonal vs non-seasonally adjusted number:

And Housing Starts: note the single vs multi-family divergence:

Source: Census Dept

Interesting correlation data

Interesting correlation data for consideration……

Ten-Year Treasury yields have followed the same pattern each year since the crisis started - a modest correction full of hope that the recovery and growth is here followed by a collapse in yields...

And 2012-13's US Macro data has traced a very similar pattern to 2011-12's with the latest little hope spur seeming to fade very rapidly now...

housing and the banking world

Very mixed messages and signals being given regarding the state of the banking world. Current results versus future expectations seem to reflect some disparate trends. How will the new normal play out!

For housing - on the plus side is the Fed's continuing intervention thus keeping rates low, the government's decision to continue HARP through 2015 as well as an apparently shrinking inventory. 

On the minus side - there is still a lot of volatility in the housing market, anecdotal evidence that the recent increase in purchase transactions have been based in investors not owners, and the lingering concern of a shadow inventory of foreclosures that are working their way through the system. 

Wells Fargo CEO Sees Housing Shortage Helping Mortgage Results

By Dakin Campbell - Apr 12, 2013

Wells Fargo & Co. (WFC) Chief Executive Officer John Stumpf said there aren’t enough homes for sale in some markets and that a rebound in sales, prices and construction will bolster future earnings.

“If anything today there’s probably a shortage of housing on the market,” Stumpf, 59, said on a conference call today. “It’s not true in every market and in every price range but when I’m out talking with Realtors and customers, the amount of supply, especially in the lower end or starter houses, there’s not a lot of supply out there.”

An improving housing market will boost home building and prices and limit costs tied to faulty or soured mortgages as more borrowers regain equity, Stumpf said. Wells Fargo is the biggest U.S. home lender and has set its sights on originating loans for purchases as refinancings slow.

Stumpf and Chief Financial Officer Timothy Sloan sought to assuage the concerns of analysts including Morgan Stanley’s Betsy Graseck and Paul Miller of FBR Capital Markets Corp. about whether the bank can withstand a slowdown in the refinancing market. San Francisco-based Wells Fargo got 23 percent of its first-quarter fee income from writing mortgages for purchases and refinancings.

“We’re seeing the housing market start to pick up, we’re seeing home builders building homes but there’s still not a lot of loan growth being created,” Miller said on the call. “Do you see that changing over the next couple quarters?”

Mortgage Outlook

Without predicting it will happen, Stumpf responded that mortgage production could get a boost if rates stay low, the economy improves and more households are created. To stimulate economic growth, the Federal Reserve has kept its benchmark interest rate near zero since December 2008, and is buying bonds to push down long-term rates.

Home prices in 20 U.S. cities climbed 9 percent from last March through January, according to a S&P/Case-Shiller index.

Wells Fargo reported a record $5.17 billion profit for the first quarter. Mortgage originations fell 13 percent from the fourth quarter to $109 billion and applications -- a gauge of future results -- fell 7.9 percent to $140 billion. Wells Fargo ended the quarter with $74 billion of pending mortgages, which Sloan called “very strong.”

The bank has added employees in certain markets to benefit from a housing rebound, and the bolstered capacity has helped the lender cut the time to close a loan from 90 days to 60 days, Sloan said on the call. Wells Fargo employed 274,300 people at the end of March, a 2 percent increase from the end of 2012.

Lenders will extend $1.43 trillion in mortgages this year, an 18 percent decline from last year, according to the Mortgage Bankers Association. Originations totaled $482 billion in the first quarter, the Washington-based group estimated in a March 22 report.

To contact the reporter on this story: Dakin Campbell in San Francisco at dcampbell27@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net

Fed Creating New Housing Bubble???

Expert: Fed Creating New Housing Bubble

Wednesday, April 10, 2013 06:20 PM

By: Doug Hulette

The rebound in the housing market is "eerily familiar to the previous government policy-induced boom that went bust in 2006, and from which the country is still struggling to recover," says Edward Pinto, who was the chief credit officer at Fannie Mae from 1987 to 1989.

In an opinion article in The Wall Street Journal, Pinto notes that the Federal Reserve's aggressive policy of quantitative easing has lifted the stock market to record highs and supported strong bond prices. Moreover, he says, housing prices have jumped 8%, the biggest annual gain since 2006.

Pinto, now a resident fellow at the American Enterprise Institute, says that the market value of single-family homes has risen by more than $1 trillion. That "wealth effect" should empower homeowners to spend more, thus boosting the economy.

But data from the Federal Housing Finance Agency suggest that the increase in house prices reflects that the Fed's lower rates are simply being capitalized into higher home prices, he says.

"While a housing recovery of sorts has developed, it is by no means a normal one," Pinto says. "The government continues to go to extraordinary lengths to prop up sales by guaranteeing nearly 90% of new mortgage debt, financing half of all home purchase mortgages to buyers with zero equity at closing, driving mortgage interest rates to the lowest level in 100 years, and turning the Fed into the world's largest buyer of new mortgage debt."

"Will history repeat? When it comes to interest rates, whatever goes down must go up," he says.

Talk of a housing bubble has been gathering steam. In an article Tuesday, the Washington Times reported that some analysts are questioning whether the market’s recovery is built to last. "Much of the pickup in sales and prices has been powered by investors who, convinced that the market is bottoming, are scooping up bountiful supplies of distressed and foreclosed properties at bargain prices and often paying with cash," the publication said.

Small Businesses Planning To Hire: 0%

Another indicator of the ‘choppiness’ of our current economic environment…

Not sure what it will take to get us ‘back on a sustainable track’…..especially when DC and the Fed are not providing the necessary economic leadership to enable sustainability – crisis to crisis is not exactly a growth strategy!

 

In a shocking state of affairs, it would appear the stock market's wealth effect is not rubbing off on the real economy. The National Federation of Independent Businesses (NFIB) shows 0% of their members planning to hire. One can only presume we need moar QE, moar deficits, and moar wealth effect.

Recovery? 0%!!

So much for the wealth effect...

Goldman's take on the NFIB data:

Small business optimism declined to 89.5 in March (vs consensus 89.8), from 90.8 in February. Components of the survey were consistent with the decline in headline optimism, as the net percent of respondents planning to hire fell to 0% (from +4%), those expecting higher sales fell to -4% (from +1%), and those reporting that it is a good time to expand ticked down to +4% (from +5%). The net percent of respondents expecting the economy to improve was unchanged at -28%, a very depressed level. However, on the positive side, +25% of respondents plan increased capital spending [ZH: With Alcoa CapEx spending at a 2 year low]. Small business owners continue to place poor sales, taxes, and red tape at the top of their list of business problems, as they have for the past several years.

stuff for ponderment

Demographics and U.S. Economic Recovery
Revisiting the Conventional Wisdom

As we know all too well, the pace of economic recovery in the U.S. has been agonizingly slow. Economists and pundits offer a range of reasons and explanations. Recently, however, several reports and studies, summarized in a recent article in The Economist, suggest that two factors explain the slower recovery rate – a major shift in demographics and a slowdown in the rate of technological innovation and productivity.

Presumably, some combination of labor, capital, and technology explain a country’s economic growth. More people in the work force, more capital invested in productive enterprises, and better technology driving productivity add up to economic growth. Yet today, the share of the U.S. population in the work force is 63.5%, the lowest in more than 30 years.

The obvious explanation for this is the absence of jobs in the on-going aftermath of the Great Recession. But the demographics have changed, too. Since the end of 2007, 11.6 million people have reached 16 years of age and, in theory, are eligible to enter the work force. At the other end of the spectrum, the baby boomers are retiring from the workforce at accelerating rates. As the share of population under 25 and over 54 increases, the participation rate in the work force decreases.

To the extent this decrease in the work force does reflect a shift in demographics and not the direct impact of bad economic times, the potential for economic growth diminishes. This negative factor could be offset by a burst of technological innovations and renewed productivity, but as a study by John Fernald at the Federal Reserve Bank in San Francisco recently concluded, productivity powered by technological innovations began to slow as long ago as 2003 and has not changed much since then.

So even if Washington, D.C. were to get the economic policies right, the underlying dynamics of the U.S. economy suggest slower growth in the longer run and certainly slower growth in a period of economic recovery.

Investment Returns and the Credit Cycle
The Credit Cycle versus the Business Cycle

The Economist recently reviewed a new publication that suggests the greatest investment returns follow the credit cycle rather than the business cycle. Under conventional wisdom, the time to invest is during the upswing in the business cycle when the economy is booming. The time to disinvest, it follows, is at the onset of the downturn in the business cycle. But there are several problems with this approach:

        First, many publicly listed companies are multinationals that are impacted by business cycles in numerous countries, not all of which move in unison.

        Second, in periods of economic growth many companies issue additional equity, which dilutes investment returns.

        Third, in periods of sluggish growth corporate profits and stock prices frequently rise as fast as they do in better times. Or faster. Witness recent experience in the U.S. market during a period of marginal economic growth.

The better approach, according to Thomas Aubrey drawing on the work of a 19th century Swedish economist, Knut Wicksell, is to focus on the credit cycle rather than on the business cycle. If the return on invested capital exceeds the cost of capital, invest. If not, disinvest.

Aubrey uses return on assets as the measure of the return on invested capital. For cost of capital, he uses an average for five-year government bonds. Buy a company’s stock when the return on assets exceeds the cost of capital, and switch out of equities into bonds when the cost of capital exceeds the return on assets. With the exception of three years between 1986 and 2011, such an approach to investing outperformed the U.S. equity markets.

(from Shockproof! Training)

a great quote to ponder

Without courage, compassion falters. Without compassion, courage has no direction….

Eric Greitens, “The Heart and the Fist”

stockman warns...

Stockman has been saying this for quite a while now…but worth pondering upon…..

Interesting quote: ‘the Fed is domiciled in a monetary prison of its own making’

Stockman Warns of Crash of Fed-Fueled Bubble Economy

By Richard Rubin - Apr 1, 2013

The U.S. economy is in a bubble inflated by “phony money” from the Federal Reserve and will burst within a few years, warned David Stockman, who was budget director for President Ronald Reagan.

In an essay published yesterday in the New York Times (NYT), Stockman wrote that the Fed’s quantitative easing policies following the credit crisis have flooded stock markets with cash even while the “Main Street economy” remains weak. The combination, he wrote, is “unsustainable.”

“When it bursts, there will be no new round of bailouts like the ones the banks got in 2008,” wrote Stockman, a former senior managing director at Blackstone Group LP (BX) and a former Republican congressman from Michigan. “Instead, America will descend into an era of zero-sum austerity and virulent political conflict, extinguishing even today’s feeble remnants of economic growth.”

Stockman, 66, is the author of “The Great Deformation: The Corruption of Capitalism in America,” which will be published tomorrow.

He rose to prominence during the early 1980s in the Reagan administration while pushing supply-side economics, which held that income tax cuts would boost economic growth and raise more revenue for the government.

‘Trojan Horse’

Stockman quickly turned on supply-side economics. He said the benefits would only “trickle down” to the non-wealthy and that the tax plan “was always a Trojan horse” for accomplishing the primary goal. That objective was bringing down the top income-tax rate to 50 percent from 70 percent.

He resigned as budget director in 1985 and published a book criticizing the Reagan administration.

In an interview today on Bloomberg Television, Stockman said, “We’re borrowing money and burying the future generations in debt.”

The Fed, led by Ben S. Bernanke, is purchasing $85 billion in assets every month. The Fed is leaving its key interest rate near zero while it tries to reduce unemployment below 6.5 percent and hold inflation below 2.5 percent.

Those policies, Stockman said today, benefit speculators and bond traders and have created the “greatest bond bubble in history.”

‘State Wreck’

Among the culprits Stockman blamed for what he termed a “state-wreck” are President Franklin Delano Roosevelt for weakening the gold standard in 1933, President Richard Nixon for removing the convertibility of dollars to gold and “lapsed hero” Alan Greenspan, the former Fed chairman, for keeping interest rates too low for too long.

Investors will sell, Stockman wrote, at any hint that the Fed is starting to remove assets from its balance sheet.

“Notwithstanding Bernanke’s assurances about eventually, gradually making a smooth exit, the Fed is domiciled in a monetary prison of its own making,” he wrote, warning of unsustainable fiscal policies as well. “These policies have brought America to an end-stage metastasis. The way out would be so radical it can’t happen.”

To contact the reporter on this story: Richard Rubin in Washington at rrubin12@bloomberg.net

To contact the editor responsible for this story: Jodi Schneider at jschneider50@bloomberg.net

real disposable income

For those claiming there is something called a "recovery" underway, perhaps they can point out just where on this chart of Real Disposable Income per capita one can find said recovery. Because we are confused: with the average Real Disposable Income of $32,663 per person, or lower than where it was in December 2006 ($32,729), one may be excused for scratching their head.

US Savings Rate Near Record Low, Per Capita Disposable Income Almost Back To December 2006 Level

Submitted by Tyler Durden on 03/29/2013