April 13, 2014 (David Stockman's Contra Corner) -- Wolf Richter is one of the most astute observers of our bubble-ridden/central bank perverted financial scene around. His blog called Testosterone Pit is a daily “must read” and more than that: its posts are succinct, spritely, fact-based, conclusionary and cover the global map with special insight on those debt ridden houses of cards on the other side of the Pacific -- Japan and China.
Wolf today issued a timely warning. Next week we will be told by Wall Street stock peddlers that what are just having a healthy correction and that it will soon be time to “buy the dip”. Don’t believe them. We are perched precariously at the top of one of the greatest financial bubbles ever because it is global -- the handiwork of world-wide central bank driven credit expansion and drastic interest rate repression.
Just recall some of the numbers. At the turn of the century, the United States had about $25 trillion of credit market debt outstanding; now it is pushing $60 trillion. About 14 years ago, China had debt of $1 trillion; now its nearly $25 trillion. And similar credit explosions occurred in much of the rest of the world. It was all central bank enabled, and it caused world wide investment booms and asset inflations which defy every law of sound money and economics, and which cannot be sustained indefinitely.
The bottom line of those destructive policies is that “cap rates” are artificially low and so their reciprocal, asset values, are enormously inflated. Likewise, nearly zero money market interest rates in virtually every major economy of the world have fueled the most fantastic expansion of “carry trades” ever imagined.
READ MORE: David Stockman's Contra Corner