Debt Rattle Jun 10 2014: The Better It Looks, The Worse It Gets

Source: The Automatic Earth

Arthur Rothstein Drought refugees from Glendive, MT, leaving for WA July 1936
It’s common knowledge at this point, even if there’s never a shortage of voices who will insist on denying it, that many of the numbers we see allegedly describing our economic realities, are not real at all. Unemployment, GDP, the issue is familiar. And if the US government, or any government for that matter, thinks it’s such a great idea to “massage” their numbers, then to quite an extent those of us who pay attention can shrug them off as largely irrelevant, even if they greatly distort many people’s views of where we find ourselves. The nonsense comes in so fast and furious we need to realize we can’t win ‘em all. But we should never be tempted into thinking much of what we read are anything else than fake, virtual zombie numbers. Still, it’s when fake numbers get real life consequences that we need to raise our voices, even if that’s for the umpteenth time. A report issued yesterday by the Boston Consulting Group (BCG) makes for such a moment. Here’s what the BBC had to say:

Global Private Wealth Rises To $152 Trillion

The amount of private wealth held by households globally surged more than 14% to $152 trillion last year, boosted mainly by rising stock markets. Asia-Pacific, excluding Japan, led the surge with a 31% jump to $37 trillion, a report by Boston Consulting Group says. [..] The report takes into account cash, deposits, shares and other assets held by households. But businesses, real estate and luxury goods are excluded. [..]

The amount of wealth held in equities globally grew by 28% during the year [..] Economies in Asia have been key drivers of global growth in the recent years. China has been the biggest driver – with private wealth in the country surging more than 49% in 2013. The wealth held in the region is expected to rise further, to nearly $61 trillion by the end of 2018.

And since the BBC missed some numbers that Bloomberg caught, and vice versa, here’s the latter as well:

China Riches Fuel Asia as World Wealth Tops $150 Trillion

China leapfrogged Germany and Japan in the past five years to trail only the U.S. in a ranking of countries by private financial wealth. China’s $22 trillion is expected to increase more than 80% to $40 trillion by 2018, while the U.S. may grow to $54 trillion from $46 trillion over the same period, BCG said. Globally, stock-market gains averaged 21% in 2013, providing the primary driver of growth in private wealth, especially in North America, Europe and Japan [..] North America wealth gained 16% to $50.3 trillion.

India, which may more than double private wealth assets to $5 trillion by 2018, and Russia, where wealth may advance more than 80% to $4 trillion. BCG expects rich households to have almost $200 trillion worldwide by 2018, with the Asia-Pacific region contributing about half of global growth.

I guess the crucial question here is: how is this wealth? What is wealth to begin with? And how did these huge surges come about in the first place? We know that central banks and governments, who typically these days are as independent from each other as your run of the mill Siamese twin can be, have a role. The Chinese communist party – what’s in a name? – has pumped an estimated $25 trillion into its economy since 2008, and let the shadow banks add another, let’s take a wild guess, $5-$10 trillion or so?! The Qingdao copper, aluminum, timber, peanut oil and what have we scheme seems to indicate a widespread and accepted practice of rehypothecating assets, whether they actually exist or not. The scheme is far too profitable to have remained some small scale thingy. I saw John Mauldin today put the total damage (or is that profit?) at $1.3 billion, but we might as well add a few zeroes.

The US added many more trillions in stimulus. I’d say $15 trillion, easily. The ECB has been a bit more cautious – which is why everyone wants them to do more -, but when you add it all up, 28 separate countries, governments and central banks and all that, put them at $10 trillion minimum. And Japan is, well, Japan, they were at it much sooner, early 1990s, and Abenomics is the everything-on-red move; I can’t see that being less than $15 trillion. And that’s just the 4 biggest economies; you think the rest didn’t chime in? This is where you’re inclined to say that before you know it you’re talking real money. But it’s not. That’s exactly what it’s not. The entire thing has been made up out of thin air, and to make matters much worse, it’s been borrowed too.

Creating credit out of thin air equals borrowing from the future. Even though we – prefer to – see that as hardly relevant. Which is a deception all by itself, insult and injury. Everything about our so called recoveries appears to be true only because of stimulus measures. We buy ourselves a feel-good time today at the expense of those who come after us. Well, unless we achieve this magical ‘escape velocity’, but how can we expect to do that when all gains since 2008, dollar for dollar when you look at the ‘stimulating’ numbers, appear to be originating in central bank inputs? Without them, we’re standing still, at best.

But the Chinese, who have issues in their housing industry, and their growth numbers, and their exports, yada yada, saw their private wealth rise by close to 50% in just one year, 2013. Now, I didn’t read the full Boston Consulting Group report, but I know for a fact that neither the BBC nor Bloomberg even hinted at a possible connection between that number and the $25+ trillion Beijing poured into China’s economy. But here’s the clincher: The Chinese can make up as much ‘money’ out of nothing as they want, and the rest of the world will accept it as currency, because they all do the same, albeit on a somewhat smaller scale. So all the zombie Middle Kingdom money gets to buy up half of Africa, the best beaches in Greece, entire streets in London and New York, and no-one in charge is batting an eye because if they doth protest, they’d have to reveal their own out of thin air deception that props up the FTSE and the S&P.

Yeah, sure, but the (not so) funny zombie yuan displaces Greeks and Londoners and New Yorkers and Africans, who if they had access to similar fake funny cash could have just stayed where they are and outbid the Chinese for their tribes’ and parents’ own properties. Now they have to leave because there’s a game or contest going on of who can out-nothing the other.

The world’s private wealth didn’t increase one bit. The entire world borrowing from their children’s future did. And that’s a recipe for zombie disaster. Only not today. Which is what is keeping us fooled, but we do we like it that way? Are we not smart enough, or don’t we want to be? That increase in wealth the BCG ‘study’ reports is a big loud bad red-flashing warning sign, but our once reliable media talk about it as if somehow it’s a good thing. And we gobble that up as gospel because we can’t face the truth about our own lives.

We’d rather have the most audacious zombie printers – both domestic and abroad – take our land and our homes and the chairs we sit in away from under our behinds than fess up that we ourselves screwed up royally. If we observe our place in the world from that angle, how can we possibly claim we do not get what we deserve? Mind you, though, that’s the only thing we’re going to get. But it gets both better and worse: the payload isn’t going to hit us most, but our kids. And I’m wondering: do you find that comforting?

What a report on zombie wealth like this tells us is not that things are getting better, it’s telling us they’re getting worse at a fast clip. The more fake numbers, the further we slip and slide away from having functioning societies. It’s not our wealth that increases, but our debt.

TLB recommends you visit The Automatic Earth for more great articles and pertinent information.

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