Wednesday, January 20, 2016



Businesses are struggling with stagnant earnings because we already hit the peak of debt capacity and demographic spending growth in the great boom that finally peaked in late 2007.

Debt was running at 2.54 times GDP for 26 years. It doesn't take a rocket scientist or nuclear physicist to tell you that pretty much guarantees a massive period of deleveraging and depression – not continued expansion.

So since growth is all but impossible, corporations have resorted to financial engineering to keep the wagon rolling – all courtesy of the Fed, with near-zero short- and long-term interest rates.

They've had two options: either increase stock buybacks to leverage their stagnant earnings with rising earnings-per-share on fewer shares, or increase dividends to compete with lower and lower yielding bonds (also courtesy of the Fed). And they've been milking both options for all they're worth!

But financial engineering does not result in real growth.

And speculation does not expand the money supply.

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