Bloomberg just cited some stats that validate the average American's sense
of being ripped off:
Here's
How Much QE Helped Wall Street Steamroll Main Street
Wall Street is counting its winnings from seven years of easy money.
In a report sent to clients on Sunday, Bank of America Corp. strategists
totted up the results of 606 global interest-rate cuts since the collapse
of Lehman Brothers Holdings Inc. and the $12.4 trillion of central bank asset
purchases following the rescue of Bear Stearns Cos.
The results represent a clear victory for Wall Street over Main Street,
according to the team of Michael Hartnett, BofA's chief investment strategist.
For every job created in the U.S. this decade, companies spent $296,000
buying back their stocks, according to the New York-based bank.
An investment of $100 in a portfolio of stocks and bonds since the Federal
Reserve began quantitative easing would now be worth $205. Over the same
time, a wage of $100 has risen to just $114.
For every $100 U.S. venture capital and private equity funds raised at the
start of 2010, they are now raising $275, but for every $100 of U.S. mortgage
credit extended five years ago, just $61 was extended and accepted this June,
BofA said.
'Deflationary Expansion'
Meantime, prime commercial real estates gained 168 percent, compared to
a 16 percent increase of all U.S. residential property. In the U.K., London
accounted for 26 percent of the value of all housing sales last year even
though it accounts for just 1 percent of the land.
Such experiences have Hartnett and colleagues continuing to predict "deflationary
expansion' in the world economy in the form of a slow, jerky transition to
higher growth rates led by the U.S.
"Zero rates and asset purchases of central banks have, thus far, proved
much more favorable to Wall Street, capitalists, shadow banks, 'unicorns,'
and so on than it has for Main Street, workers, savers, banks and the jobs
market,' the BofA team wrote.
The risk is that the bull markets driven by central banks swoon if further
central bank monetary easing from outside the U.S. forces the dollar up and
commodities down rather than spurs demand, they said.
"The 'Wall Street boom, Main Street bust' narrative is one central banks
would very much like to avoid in 2016,' they said. "The markets have not
priced in quantitative failure.'
The reason that companies now prefer buying back stock to hiring new workers
is, in a word, uncertainty. When a society borrows too much money it becomes
unstable. Governments don't want to make choices that lead to pain, but until
the debt is worked off, those are the only available options. So they dither,
and outsiders vie for power, and it becomes vastly harder for those charged
with allocating corporate capital to envision the state of the world during
the lifetime of a new factory. If you can't predict conditions, you can't predict
cash flow. And if you can't predict cash flow, you have no idea whether a given
piece of new capacity will generate a profit.
With share buybacks, on the other hand, you know exactly what will happen.
You'll save a definite amount on dividend payments and your stock (and year-end
bonus) will be a little stronger than would otherwise be the case. Ditto for
moving into a sparkling new office building: You get something you can enjoy
in the moment, whereas that new factory won't be fun to own and might cause
you or your successors nothing but heartache. So the bird in hand becomes the
logical choice.
The problem with this process is that it's self-reinforcing. A factory not
built generates no future profits and pays no corporate taxes. A worker not
hired spends less, pays less in taxes and requires more help. The government
goes more deeply in debt and the system becomes that much less stable.
The cycle ends only when debt falls to manageable levels. And right now all
trends point the other way.
