Good Riddance Janet, You were a Colossal Failure, Part 1

The comments above & below is an edited and abridged synopsis of an article by David Stockman

During Janet Yellen’s last week in office, the Dow dropped by 1,095 points (4.1%). There’s nothing to worry about, she said; Wall Street’s ok and Main Street is awesome.

But there’s a monumental bubble out there that formed at the hands of the Fed. Main Street is sick, and the Fed’s giant bubbles made it so.

The Fed’s foray into massive QE and ZIRP had nothing to do with the ‘recovery’ that has taken place since the June 2009 bottom, because the Fed doesn’t levitate the Main Street economy through a magical mystery monetary potion. It’s only tool is fostering household and business credit growth, which is applied to enhanced spending for consumer and capital goods beyond what is supportable from current income.

Central bank stimulus of household spending is equivalent to a one-trick pony. Once all the latent headroom on household balance sheets and income statements to raise leverage levels is used up, cheap debt loses its efficacy in the Main Street economy.

And that is exactly what happened. During the first 20 years of the Greenspan era of bubble finance, household leverage ratios exploded. Whereas wage and salary incomes rose by $4.2 trillion or 2.9X, household liabilities soared by nearly $12 trillion or 5.2X.

Stockman discusses America’s level of borrowing; the explosion of mortgage debt; household liabilities; the slowing growth of income and consumption; private fixed investment; stock buybacks and dividends; and falling labour force participation.