World will be 'awash in capital' until 2020 - The Daily Reckoning
The Daily Reckoning by Bill Bonner
On This Day - 12 February 2013
World will be 'awash in capital' until 2020 A  A  A

Baltimore, Maryland

The Wall Street Journal reports that the rally in stocks is turning into a real bull market.

Why? Because there's so much money around.

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There's a 'superabundance of capital' in the world, says Bain & Co. It's in banks, investment funds, corporate treasuries - everywhere, except where it is needed. Households are tight. But the financial and business sectors are flush.

Bain said that the world will be 'awash in capital' until 2020, when financial assets are expected to be 10 times the size of the world economy, $900 trillion compared to a world GDP of $90 trillion.


Who do we thank for all this money, money, money? Central banks!

The US has a QE Forever program. Japan has announced it will do whatever it takes to get its own markets pumped up. Mario Draghi, head of the European Central Bank, said last week that he will do more to provide liquidity to Europe; the euro sold-off on the news. And Britain's central bank has a new head - a Canadian - who is scheduled to make a policy statement this week. Odds are, he'll join the crowd - proposing easier money policies. As head of the Bank of Canada he presided over a system with even more debt than the US. While private debt to disposable incomes have come down in the US, they continue to go up in hockey country. Today, debt to disposable income is at 108% in the US, after peaking out at 130% in '07. In Canada, the ratio is 166%.

So what happens to all this new cash and credit?

Well, somebody is putting up $24 billion to take Dell private. Virgin Media got a bid for $23 billion. And the US stock market is near at all time high.

Big time investors are buying thousands of single family homes - for cash.

Apple has $137 billion of cash...the David Einhorn is trying to get it to share with stockholders. And oh yes...US corporations have about $5 trillion in cash, including some $2 trillion said to be overseas.

But there are many who still want the feds to do more. Professor Justin Wolfers:

"By their own framework, they're not doing enough."

But it's their own framework we're worried about. It's bent. Twisted. Corrupt even.

Let's see, what is really going on? What kind of game are central bankers playing?

Central banks give their friends and favorites access to almost unlimited amounts of money at nearly zero rate of interest. What do they do with the money? They buy valuable assets - houses, office buildings, companies, gold and silver.

Ordinary households aren't getting the money; it's locked up in the hands of the 1%...or even the 1/10th of 1%. And there aren't enough of these rich insiders to move consumer markets. Toilet paper and gasoline move up slowly. But prices for stocks, bonds, Manhattan real estate and expensive works of art go up fast.

Meanwhile, home ownership, by the people who live in them, is going down.

Stock ownership, by the middle class, is also on the decline.

Powerful, well-financed groups are buying. Middle America - short of funds - is not.

The elegance of this scam is breathtaking. Central banks print money to 'stimulate the economy.' It doesn't stimulate the real economy. It simulates it, making it look as though there were real growth. Asset prices go up...just as they would in a real boom.

But in a real boom, most people would become wealthier and better off. In a phony boom, only a few become wealthier. A phony boom does not create wealth, it just transfers existing wealth. Central bankers give new money to their friends. The friends use it to capture a larger share of the real wealth in the nation.

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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3 Responses to "World will be 'awash in capital' until 2020"


Feb 13, 2013




Feb 13, 2013

The situation which has been elaborated in this article, the artificial ballooning of the economy worldwide will definitely burst someday.

Is not the same mechanism starting to working in India too? If yes, the realty sector boom will also burst in future.The question is how far is that future?


R S Das

Feb 12, 2013

yes...liked it

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