A weekend topic starting with the Los Angeles Times. "The high cost of housing is driving Southern California’s biggest challenges. Income is not keeping pace with housing costs. It hasn’t for at least two generations. There’s a metric called 'housing burden' that lays the situation bare. Over the last 50 years, it tracks the growing, gaping mismatch between income and shelter costs in Los Angeles County. In 1979, UCLA land experts Leo Grebler and Frank Mittelbach wrote: 'As a general, time-honored rule of thumb' house prices in a community 'should not exceed 2 to 2½ times the annual income' of its residents. Within a decade, home prices began to drastically violate this rule. If it were applied today, it would mean a four-person household with the median Los Angeles County income of $98,200 could afford to buy a house that cost $245,500. However, the median home price in the county last month, according to Redfin, was $980,000."

"Taking a longer view, economist Robert Shiller traced rising housing costs in the late 1980s and early 2000s across metro areas globally, including L.A. He pinned a good deal of the blame on 'irrational exuberance' that motivated uncontrolled buying. The psychological draw of metro areas such as Paris, London, Sydney and L.A. reinforced the belief that land prices would continue to go up and up. Media fed these perceptions. And housing bubbles blew up. Solutions must come from both the housing and the income side. Increasing the housing supply is crucial. Even more importantly, wages and salaries must climb considerably to make housing affordable again."

Yahoo Finance. "Core PCE is the inflation measurement most often mentioned by Fed Chair Jerome Powell, who noted last Wednesday that inflation remains 'well above our longer-run goal of 2%.' The comments came after the Fed maintained rates in a range of 5.25%-5.50%, the highest level since March 2001, while also forecasting holding interest rates higher for longer than anticipated in an effort to tame inflation. But Powell acknowledged during the subsequent press conference that a rise in core PCE isn't the only thing that could drive another interest rate hike this year. The Fed is also closely following any economic developments that could stifle inflation's path downward. 'The heat that we see in GDP, is it really a threat to our ability to get back to 2% inflation? That's going to be the question,' Powell said. 'It's not a question about GDP on its own.'"

The Globe and Mail. "Canada’s economy showed little momentum as it entered the second half of the year, with gross domestic product flatlining in July and appearing to rise only slightly in August. Andrew Grantham, senior economist at Canadian Imperial Bank of Commerce, wrote in a note to clients that the transitory nature of some of these economic forces 'means that weak GDP readings may not necessarily translate into lower inflationary pressures in the near-term.' 'However, with retail sales on a clear weakening track, there should be enough evidence that domestic demand is responding to higher interest rates to prevent a further interest rate hike from the Bank of Canada this year,' he added."

"'The GDP growth backdrop in Canada continues to soften, in contrast to sticky inflation prints that are still running above the Bank of Canada’s 2 per cent target,' Royal Bank of Canada economist Claire Fan wrote in a note to clients. 'With interest rates already at very restrictive levels, further increases from the BoC and other central banks will remain very data dependent. Firmer-than-expected inflation readings in Canada have increased the odds of another BoC interest rate hike this year. But inflation lags the economic cycle and there are growing signs that the impact of earlier interest rate increases are working to cool the economy,' she added."

The Conversation. "As the Bank of Canada prepared to announce its decision on interest rates in early September, Tiff Macklem, the bank's governor, received imploring letters from premiers spanning both the country and the political spectrum. In their letters, the premiers urged the bank against raising rates again and to think of the 'human impact of rate increases' on Canadians already burdened by rising mortgage payments and financial pain. The overt goal of monetary policy is to stabilize the financial system, a priority that disproportionately benefits those in the financial sector."

"This has become clear in recent decades, beginning with the 2008 global financial crisis and continuing to the COVID-19 pandemic, when central banks around the world began to use 'quantitative easing' to stimulate the economy. While monetary policy had previously centered on setting the rates at which regulated banks could borrow, central banks expanded their role by undertaking massive asset purchasing campaigns via quantitative easing. Central banks began supporting not just regulated banks but investment funds, hedge funds and other 'non-bank financial intermediaries'—also known as shadow banks—that are largely unregulated. This involved tactics like purchasing corporate bonds to stabilize the corporate debt market."

"Acknowledging this shift, Bank of Canada deputy governor Toni Gravelle said the bank has moved from its traditional role as 'lender of last resort' to 'liquidity provider of last resort,' promising to 'resolve market-wide stresses when the financial system cannot find its footing.' When the working class cannot 'find its footing,' however, the Bank of Canada doesn't extend a helping hand. In 2022, for example, Macklem told employers not to increase wages despite rampant inflation, and told unionized workers not to ask for a raise."

From CNBC. "Another morning, another move higher in bond yields. These moves are not happening in response to better economic data. They are happening globally, and even in places where the economy is tanking. Take Germany, whose 10-year yields just hit a fresh twelve-year high…even as their economy has been in recession for three quarters and the outlook is so poor that it’s causing national agita; 'The sick man of Europe is back,' and so forth. Here in the U.S., the envy of the world for our own cheap and plentiful natural gas supplies, we have echoes of the same problem. The price of U.S. benchmark crude oil hit $93 a barrel yesterday. This will keep upward pressure on gasoline prices, which has already dented consumer confidence, and will continue nudging the CPI higher."

"Traders say rising energy prices are one reason for the continued rise in global bond yields. 'One may ask if policy makers fully thought through the various implications to markets, and in turn the economy, of their domestic energy priorities and policies before implementing them,' one trading desk wrote this morning."

"And the cost of funding the energy transition is just one of several reasons why global debt issuance has been soaring. There was the massive response to Covid, of course. Plus de-globalization and domestic support initiatives like America’s 'CHIPS Act' and infrastructure bills. And all of this--plus the previous decade’s stimulus measures--done in an era of near-zero interest rates. Europe at one point had almost $10 trillion worth of negative yielding debt. Almost a quarter of government bonds globally had negative yields pre-pandemic!"

"Add it all up, and you’re left with a massive debt pile, continued budget deficits, and an enormous amount of global government debt on the market competing for fewer structural buyers as central bank demand has dried up. 'The epic sovereign bond bubble continues to unwind,' wrote Peter Boockvar of Bleakley Advisors this morning. Prices for certain poster-child debt, like Australia’s 100-year long bond, have crashed by 75% from their highs."

Fox Business. "The U.S. housing market has been over the past year walloped by high mortgage rates and a worsening inventory shortage. It may soon face another obstacle; student loan repayments. Real estate experts are bracing for a significant blow to the market when the pandemic-era freeze on federal student loan payments comes to an end at the beginning of October. About 44 million borrowers in the U.S. were affected by the payment pause, which initially began in March 2020 at the onset of the COVID-19 pandemic."

"Collectively, borrowers are to resume paying about $10 billion a month, according to an analysis from JPMorgan. The potential hit comes at an already precarious time for the housing market, thanks to the astronomic rise in mortgage rates over the past year. In fact, housing affordability is worse today than during the peak of the 2008 housing bubble. The Atlanta Fed's Housing Affordability Monitor, which compares median home prices and other housing costs with median household income, indicates the median U.S. household would have to spend about 43.2% of their income to afford the median-priced house as of June, according to the index. That is the highest share in data dating back to 2006."

"About 38.6% of the median household income is currently required to make the monthly payment on the average home purchase. 'To put today’s affordability levels in perspective, it would take some combination of up to a 28% decline in home prices, a more than 4% reduction in 30-year mortgage rates or up to a 60% growth in median household incomes to bring home affordability back to its 25-year average,' said Andy Walden, vice president of enterprise research and strategy at Black Knight."

From The Ascent. "It is a truth, universally acknowledged, that housing is expensive. A huge chunk of our budgets go to housing, and that's true whether you own or rent. But while housing prices tend to fluctuate, sometimes rising, sometimes falling, rental prices somehow manage to rise every year. And it seems to be getting much, much worse. Indeed, rents are at a record high, with Redfin data showing the median asking rent in August 2023 was $2,052. Even traditionally affordable areas are seeing record highs, with the median asking rent in the Midwest hitting $1,434. These haven't been slow changes, either. Anecdotally, I've heard dozens of stories of rents going up by hundreds of dollars between one year and the next."

"On the surface, you might think there's some kind of shortage going on. Are there that many new renters? Are they just not building enough new apartments? As it turns out, they're building a record number of new apartments -- just not the kind we need. More than 1.2 million apartments were added to the market over the last three years. There are expected to be more than 460,000 new rentals on the market this year, and another 1 million added through 2025. Currently, we're seeing the highest rate of new apartment construction in the last 20 years."

"So what's the problem? The same thing it always is: money. About 89% of new apartments built in 2020 were 'luxury' apartments aimed at mid- and high-income renters. In other words, of the more than 460,000 new apartments completed this year, only around 51,000 are affordable housing."

The Gulf Times. "Christine Lagarde’s three blunders as president of the European Central Bank did not cause the revival of right-wing populism across Europe; but they have reinforced it mightily. The first gaffe cost Italy billions, and the ECB many of the reputational gains that Mario Draghi, Lagarde’s predecessor, previously worked so hard to secure. Recall March 2020: The world was gripped by pandemic-induced anxiety and markets were panicking, especially about the solvency of Italy, a country with gigantic debts and no central bank of its own to print money the way the US Federal Reserve, the Bank of Japan, and even the Bank of England could do."

"When asked at a scheduled press conference if the ECB would stand by Italy’s debt to contain interest-rate spreads (the difference in borrowing costs between member-state governments) within the eurozone, Lagarde did not reassure markets and the public by repeating Draghi’s famous promise to do 'whatever it takes.' Instead, she did the opposite, declaring: 'We are not here to close spreads.' Within seconds, Italy’s debt-servicing costs skyrocketed."

"The second blunder was less visible but has had deeper, longer-lasting effects. Ever since the crash of 2008, the ECB has been pushing a wall of money toward Europe’s permanently fragile banks in the hope that they would lend it on to businesses and thereby revive Europe’s flagging economy. After 2014, when official interest rates were negative, the ECB was essentially paying bankers to accept hundreds of billions of euros in their ECB accounts. But instead of lending that money to businesses, the bankers simply kept it in their ECB accounts and continued collecting the bribes the ECB was paying them in the form of negative interest rates."

"Now that inflation has returned with a vengeance, the same bankers have kept billions parked in their ECB accounts to collect on the higher interest rates, while continuing to pay their depositors minuscule interest. Yet instead of using the ECB’s powers to put the fear of the divine into these bankers, Lagarde has let them run rings around the institution at the expense of small businesses and depositors. Lagarde’s third blunder was her slow reaction to rising inflation, reflecting a long sequence of spectacularly disastrous ECB forecasts. In fairness, Draghi, too, had presided over terrible forecasts while consistently failing to hit the ECB’s 2% inflation target. But the dragon that he could not slay was deflation – negative or very low inflation – which forced him to cut interest rates first to zero and then to minus 0.5%."

"That all changed under Lagarde, when inflation turned positive – and in a big way. Unlike deflation, inflation hits the entire population, especially workers and middle-class households struggling to make ends meet. Any central banker who fails to anticipate it is thus guaranteed opprobrium from all walks of life. We saw this in the 1970s, and we are seeing it again now – except that this time is even worse."

"Could Lagarde have done something different? As I argued at the time, yes: She could have increased interest rates earlier to burst the housing bubble while buying (or merely promising to buy) bonds issued by governments, the European Commission, the European Investment Bank, and even private companies, with the proceeds going exclusively to finance a green public investment drive. Instead, she wasted her energy and political capital on calibrating the ECB’s collateral policy to favour phony ESG (environmental, social, and governance) commitments, which did nothing to increase the supply of clean energy just when it was most needed."

The Washington Times. "Every major economic downturn of the last 110 years bears the mark of the Federal Reserve. In fact, as long as the Fed has been around, it has swung the economy between inflation and recession. Yet Americans, surprisingly, have tolerated it. But we shouldn’t expect that to go on forever. We had three central banks before the Fed, and confined each to the ash heap of history. The problems inherent to central banking are cause to scrap the Fed as well."

"Every five to 10 years for the last century, the Fed has created, then popped, bubble after bubble, each time taking down swatches of the American economy. Just in the past three decades, the Fed’s low interest rates caused the dot-com bubble in the 1990s, then the housing bubble and a global financial crisis in 2008. Today, there’s an 'everything bubble' from the Fed’s panic-printing to bribe voters into lockdowns, yielding the combined risks of 1970’s stagflation and a 2008-style bank collapse."

"Since its founding, the Fed has stolen 98% of the value of a dollar. It has used those profits to repetitively launch boom-bust cycles and to transfer trillions to the federal government, special interests, and wealthy borrowers. Andrew Jackson did not tolerate such thieving rampages from his central bank. And we need not either."