The grandest larceny in history - The Daily Reckoning
The Daily Reckoning by Bill Bonner
On This Day - 31 October 2014
The grandest larceny in history A  A  A

Baltimore, Maryland

Dear Diary,

If the stock market is afraid, it is putting on a brave face. The end of QE was announced on Wednesday. Thursday, the Dow rose 221 points.

This is good news to Janet Yellen et al. She must think has made a clean getaway. She has fled the scene of the biggest heist in history with no cops in sight. They're not even aware a crime has been committed!

This - the grandest larceny in history - involved $3.6 trillion. Counterfeit, every dollar of it. Not a penny of it was ever honestly earned or earnestly saved...or dug up out of the dirt and turned into coins.

No, we're talking about the crime of the century ...committed in broad daylight...with millions of witnesses...and yet, hardly a single soul understood what was going on.

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We begin by asking: how many TVs, luxury apartments, spaghetti dinners and parking places are there?

Answer: we have no idea. But not an infinite number. And every one of them has a price. Who gets them? The person with the money.

Next question: who has the money? We don't know that either, but $3.6 trillion were fabricated over the last 5 years...and every penny ended up in someone's hands. Follow the money. You will find out what happened.

On our desk are two great books. One is David Stockman's "The Great Deformation." The other is Vivek Kaul's "Easy Money." Both describe the same phenomenon, but from different points of view. Stockman was present at the creation, so to speak. He was Ronald Reagan's budget director when the Republican Party ran off the rails -- veering sharply toward deficits and activism. Stockman fought hard to stop it...battling Dick Cheney and the neo-cons...and he lost. He wrote a book about the wreck, "The Triumph of Politics." The title tells the tale. Politics won out over sound fiscal principles. "Deficits don't matter," said Cheney. Which means debt doesn't matter. And if debt doesn't matter...what kind of a world do we live in? But thenceforth, neither Republican nor Democratic administration stood in the way of the great credit bubble.

Stockman was soon out of a job on Capitol Hill. He went to Wall Street, where he witnessed, first hand, the other side of the Great Deformation. With an almost infinite amount of credit to work with, Wall Street quickly rose to the challenge. It peddled debt to everyone - governments, corporations, and households. Americans took the bait...spending, on average, about $1 trillion more per year than they earned, from Ronald Reagan's first inauguration until 2014. Their lifestyles - and Wall Street's earnings - came to depend on it. From about 10% of total corporate earnings in the '60s and '70s, Wall Street's share rose to 40% by 2007. Bonuses rose into the hedge fund managers and bankers pushed the old industrial tycoons out of their stately Greenwich, CT, homes.

Stockman knows the story intimately. He lived it. He tells it in detail in his book. About which more anon.

Let's turn to Kaul. We met him in India, where he is a writer with a deep knowledge and keen interest in political economy. In his book, he generously credits our visit with having "opened up a whole new world to me." This is a reflection more on the world he lived in than on our ability to open it up. He - a literate, intelligent, commentator for India's largest economic journals - was unaware that there was another way to understand what was going on.

We take it for granted that the financial authorities - in practically every major economy save Deutschland - are either numbskulls or knaves, and probably both. We have been observing their handiwork...poking at it...turning it over with a stick...and beating on it for 15 years. We forget that most people really have no idea of how it works. And why should they? Central bank monetary policy is as mysterious as the virgin birth or the exact chemical formula for spam, as far as they are concerned.

Kaul takes a longer and broader view of how it all came about. The feds - led by those in the US -- have created an immense bubble, with total worldwide debt now over $100 trillion. This was not done overnight. It was more than 30 years that the US federal government began running deficits year after year. It was almost 50 years that the dollar's golden anchor was given the heave-ho, leaving the whole world to float on a sea of paper money. And it was 65 years since the top of the last bond bull market.

These trends - so long, so deep, and so pervasive - have convinced most of the world that our financial world is 'normal.' Won't they be surprised when they find out how strange and transitory it really is!

"Various experts have come up with various reasons behind the financial crisis [of 2008-09]," writes Vivek. "Some feel the crisis was because Wall Street was greedy. But then the question to as is: when was Wall Street not greedy? And given this why didn't financial crises happen all the time?"

They didn't happen all the time because never before in the history of man have the entire world's finances been so distorted by debt. Debt is what Wall Street sold. Debt is what Washington wanted. And debt is how the elite transferred wealth from the public to themselves. Janet Yellen et al transferred $3.6 trillion from the public (where else could it come from?) to the very special elite. They are richer. The public is poorer. And it looks like she has gotten away with it.

But the crisis of '08-'09 was not the end of the debt bubble story. It was the beginning.

Stay tuned.

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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4 Responses to "The grandest larceny in history"


Nov 5, 2014

Graet analysis and we blame the Govt/Reagan/Obama/Feds/ everybody but never oneself. Limit your buying. Limit your spending on Junk foods. Limit your spending on Luxuries. Close your debt window by saving $10 a week by reducing even one sarbucks visit. 150m Americans can show the way. You are looking at a window of hope.



Nov 1, 2014

The Japanese liked it so much they are going in for their own QE!



Nov 1, 2014

It's spine chilling.What would be the magnitude of the financial burden our future generation has to shoulder if this kind of things go without correction ?


Harit Shah

Oct 31, 2014

Bill, you only mention Janet Yellen when you refer to the "transfer of US$ 3.6 trillion from the public to the very special elite". I think equal, if not more responsibility of this is shared by Alan Greenspan and Ben Bernanke ('Helicopter Ben'), they were responsible much more and are responsible for the lion's share of this massive US$ 3.6 trillion money printing that was done over all these years! Janet Yellen only bookends it!

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