IKN - he's one of the smartest and most insightful commentators out there.
Well, let's see what Trey Reik, with a BA in Economics from Pomona College ooh fucking aah, has to say:
Figure 5, plots the Fed’s ratio of HHNW-to-GDP since 1952. We find this ratio important because it lends excellent perspective to the epic distortions Fed monetary policy has imparted on financial assets since the turn of the millennium. In short, GDP growth and savings rates have been declining in the U.S. for decades.
Must be some scary graph, eh?
Huh....
Says there that household net worth has been climbing, as % of GDP, since 1979. HNW%GDP can well and truly be over 500%, by the way: all that means is that (given GDP in production = GDP in income, more or less) the yearly yield on total household assets is a maximum of 20%. In reality, it's more like 8%, with saved employment income adding another 12%.
So, what? Trey Reik is worried that households are wealthy?
A central component of our gold investment thesis is the simple math that GDP measuring $20.660 trillion can no longer drive healthy capital formation while simultaneously servicing $71.423 trillion in outstanding credit.
Huh? Why not? If that $71T in credit costs even 3%/y to service, then that's only $2.1T/y in debt servicing costs, which is about 10% of production.
And, by the way, credit drives capital formation. You'd know that if you ever started a business. And, lucky enough, that credit is also income to the lender.
Zooming in on how the ratio got to this level, between Q1 2009 and Q3 2018, nominal GDP increased a respectable $6.570 trillion (from $14.090T to $20.660T), while HHNW exploded an astonishing $54.248 trillion (from $54.790T to $109.038T). This means that for the past 9 ½ years HHNW has grown over eight times faster than GDP. We are unsure of many things, but we are quite certain no country, economy or society can increase wealth eight times faster than output forever.
Huh... so in other words, the stock market, 401Ks, and housing have appreciated in value. People are saving more than they did before - that's what a rise in household net worth means - probably because they're older, and because they've been earning (in the aggregate, anyway) much higher than their consumption needs.
Sounds horrible!
Trey Reik is a fucking clown, and if that chinfaced Ayn Rand twit Rick Rule still works at Sprott, he doesn't care that what Reik is spouting is utter fucking nonsense as long as you buy into their central thesis: buy some shitty Sprott fund or something.
