With every passing week that money markets rates remain pinned to the zero bound by the Fed, the magnitude of the financial catastrophe hurtling toward main street America intensifies. That’s because 80 months—– and counting—–of zero interest rates are fueling the most stupendous gambling frenzy that Wall Street has ever witnessed or even imagined. Sooner or later, therefore, this mother of all financial bubbles will splatter, bringing untold harm to millions of households which have been lured back into the casino. The truth is, zero cost in the money market is irrelevant to main street. As we have repeatedly demonstrated the household sector is stranded at “peak debt” and, consequently, there is no interest rate low enough to elicit a spree of pre- crisis style consumer borrowing and spending. Based on the clueless jawing that occurred this weekend at Jackson Hole, the following simple chart that I laid out last week bears repeating:
On the eve of the financial crisis in Q1 2008, total household debt outstanding— including mortgages, credit cards, auto loans, student loans and the rest——– was $13.957 trillion. That compare to $13.568 trillion outstanding at the end of Q1 2015.
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