The Once-Dismissed Possibility Of Rising Rates Is Now A Reality
A weekend topic starting with the Boston Globe in Massachusetts. “Steve McKenna, a real estate broker at Gibson Sotheby’s, said he is dealing with an elderly couple contemplating whether to sell their $1.1 million home in Arlington and whether they can live off the proceeds. They bought their home in the early 1970s for $80,000, but refinanced a few times to put their three children through college and pay for health care expenses. The couple still owes $410,000 on the mortgage. ‘People selling their houses for a million dollars, they’re not rich,’ said McKenna.”
The Washington Post. “The U.S. government spent $659 billion this year paying off the interest on its debt, according to a Treasury report released Friday, as the nation’s widening fiscal imbalance and the Federal Reserve’s rate hikes dramatically raised the federal cost of borrowing. Because the federal government spends more than it collects in tax revenue, the Treasury Department issues new debt to cover the rest of its payment obligations. That debt must be repaid with interest — costs that grow as the debt grows. The United States spent more on interest than on all federal programs for children, including child care, education and tax credits for families, according to the Committee for a Responsible Federal Budget, which advocates for a lower deficit.”
“This year’s sum was almost twice as much as two years ago. The government spent $476 billion paying off the interest on its debt last year and $352 billion doing so in 2021. ‘The federal government is sitting on a ticking time bomb. Payments on the debt already doubled over the last two years, and are expected to double again over the next decade,’ said Brian Riedl, senior fellow at the Manhattan Institute, a conservative-leaning think tank. ‘Congress remains completely asleep at the wheel, and unwilling to make even minor gestures toward reining in the toxic combination of rising debt and higher interest rates.'”
From Bloomberg. “The Federal Reserve faces potential policy pitfalls ahead as it wrestles with how to respond to investor angst about the US government’s $33.5 trillion mountain of debt. Concerns about America’s fiscal future have already contributed to a run-up in US bond yields that has surprised policymakers and prompted them to consider postponing for now plans for another interest-rate increase. Worries on Wall Street about the US budgetary morass pose risks to both sides of the central bank’s dual mandate.”
“The disquiet over deficits and debt puts upward pressure on long-term interest rates, threatening to slow growth and push up unemployment. At the same time, it can also act as kindling for higher inflation, especially if the Fed is perceived as downplaying its goal of price stability in order to limit the federal government’s borrowing costs. ‘We are witnessing the beginning of a regime change in how investors perceive America’s fiscal sustainability,’ said former Fed Governor Kevin Warsh, who was an adviser to President George W. Bush from 2002 to 2006.”
“In August, Fitch Ratings Inc. stripped the US of its top-tier AAA credit rating while the Treasury announced a bigger-than-expected quarterly borrowing requirement. An estimate last week from the Congressional Budget Office that the deficit jumped by more than 20% in the just-ended fiscal year, to $1.7 trillion, added to the unease. ‘It’s just hard to believe that this is a sustainable policy going forward,’ Fed Governor Christopher Waller said on Oct. 11 at the E2 Summit in Park City, Utah.”
“The rise in yields is threatening to make the untenable fiscal outlook even worse, said former CBO Director Douglas Holtz-Eakin, who advised George W. Bush while he was in office. ‘We have a super-interest-sensitive budget,’ said Holtz-Eakin, president of the American Action Forum. ‘If the bond market is starting to decipher more accurately the effective fiscal position of the US, then we’re in trouble.’ Warsh agreed. ‘It’s exceedingly difficult to have sound monetary policy without sound fiscal policy,’ the Hoover Institution visiting fellow said. ‘And US fiscal policy is decidedly unsound.'”
From Reuters. “Buying into one of the biggest bubble bursts in history is brave and maybe even smart – but, like all market shocks, fraught in timing the turn. Three years of plunging global bond prices and the resulting spike in yields shows few signs of abating – and it’s all happening in some of the ‘safest’ sovereign debt on the planet. The reasons are all well documented – high inflation, tight labor markets, rising policy interest rates, unwinding central bank bond stashes and historically high and rising government deficits and debts. The 40-year bond bull market – a slow-inflating bubble like any other to some people – has crashed.”
“The scale of the drop in many long-term U.S. Treasury bond funds over the past three years is eye-watering – a price loss of more than 50% and counting from pandemic peaks of 2020. That’s now on par with the gigantic S&P500 equity drawdowns of the dot.com bust and banking crash 15 years ago. Benchmark U.S. Treasury yields across the maturity spectrum are climbing to 5% and beyond for the first time in more than 16 years and show few signs of cresting so far.”
“It’s worth bearing in mind that global funds reported being net underweight bonds for more than 10 years prior to last December. Perhaps significantly, the last time funds held such an overweight position on bonds for so long was during the banking crash and recession of 2008-2009 – when yields were near current levels and the Federal Reserve kicked off a quantitative easing policy that stacked its balance sheet full with Treasuries.”
“And even if you get the maths of all that right, there now enters the relative unknown of what happens with unprecedented sovereign debt piles, new bond supply and likely tortuous attempts to rein in bloated post-pandemic government deficits. That’s why so much attention has lately fallen back on the nebulous ‘term premium’ – a re-emerging risk premium demanded by investors to hold long-term bonds to maturity as opposed to rolling short-dated debt over the same time horizon.”
“While experts differ on both the measurement and direct causes of the term premium, the New York Fed’s favoured model puts it back positive again to the tune of about 30 bps having spent most of the past eight years in negative territory. Others estimate it’s far higher. Olivier Davanne at Paris-based advisory Risk Premium Invest says his model of this ‘buy and hold risk premium’ suggests some 90bps of the 106bp rise in 10-year Treasury yields since midyear was down to this factor – with only 16 bps related to more aggressive pricing of long-term policy rates.”
“By his calculation this premium in 10-year bonds is higher than at any time since the 1990s at more than 100 bps – due variously to unpredictable debt supply dynamics, geopolitics, uncertainty on where inflation will be allowed to settle and a residual fear of many years of equity and bond correlation. ‘As such, funds may simply be seeing a natural top – the final deflation of a 15-year bubble and the prospect that swinging central bank tightening will eventually see economic slowdown, if not recession, as corporate and household debt stress surely follows the credit squeeze. ‘In the ‘higher for longer’ context, it is therefore difficult to have a firm view on the behavior of this key market in the months to come,’ Davanne said, adding he ‘certainly cannot rule out a further significant rise in long-term rates.'”
From Mises.org. “Money supply growth fell again in August, remaining deep in negative territory after turning negative in November 2022 for the first time in twenty-eight years. August’s drop continues a steep downward trend from the unprecedented highs experienced during much of the past two years. Since April 2021, money supply growth has slowed quickly, and since November, we’ve been seeing the money supply repeatedly contract year over year. The last time the year-over-year (YOY) change in the money supply slipped into negative territory was in November 1994. At that time, negative growth continued for fifteen months, finally turning positive again in January 1996.”
“Money-supply growth has now been negative for ten months in a row. During August 2023, the downturn continued as YOY growth in the money supply was at –10.8 percent. That’s unchanged from July’s rate of –10.8 percent, and was far below August 2022’s rate of 4.4 percent. With negative growth now falling near or below –10 percent for the sixth month in a row, money-supply contraction is the largest we’ve seen since the Great Depression. Prior to this year, at no other point for at least sixty years has the money supply fallen by more than 6 percent (YoY) in any month.”
“The money supply metric used here—the ‘true,’ or Rothbard-Salerno, money supply measure (TMS)—is the metric developed by Murray Rothbard and Joseph Salerno, and is designed to provide a better measure of money supply fluctuations than M2. The Mises Institute now offers regular updates on this metric and its growth. This measure of the money supply differs from M2 in that it includes Treasury deposits at the Fed (and excludes short-time deposits and retail money funds).”
“The fact that the money supply is shrinking at all is remarkable because the money supply in modern times almost never gets smaller. The money supply has now fallen by $2.9 trillion (or 13.4 percent) since the peak in April 2022. Proportionally, the drop in money supply since 2022 is the largest fall we’ve seen since the Depression. (Rothbard estimates that in the lead-up to the Great Depression, the money supply fell by 12 percent from its peak of $73 billion in mid-1929 to $64 billion at the end of 1932.)”
“In spite of this recent drop in total money supply, the trend in money-supply remains well above what existed during the twenty-year period from 1989 to 2009. To return to this trend, the money supply would have to drop at least another $3 trillion or so—or 15 percent—down to a total below $15 trillion. Since 2009, the TMS money supply is now up by nearly 185 percent. (M2 has grown by 142 percent in that period.) Out of the current money supply of $18.8 trillion, $4.6 trillion—or 24 percent—of that has been created since January 2020. Since 2009, $12.2 trillion of the current money supply has been created. In other words, nearly two-thirds of the total existing money supply have been created just in the past thirteen years.”
“With these kinds of totals, a ten-percent drop only puts a small dent in the huge edifice of newly created money. The US economy still faces a very large monetary overhang from the past several years, and this is partly why after eighteen months of slowing money-supply growth, we are not yet seeing a sizable slowdown in the labor market. The inflationary boom has not yet ended.”
“An inflationary boom begins to turn to bust once new injections of money subside, and we are seeing this now. Not surprisingly, the current signs of malaise come after the Federal Reserve finally pulled its foot slightly off the money-creation accelerator after more than a decade of quantitative easing, financial repression, and a general devotion to easy money. As of September, the Fed has allowed the federal funds rate to rise to 5.50 percent, the highest since 2001. This has meant short-term interest rates overall have risen as well. In September, for example, the yield on 3-month Treasurys reached the highest level measured in more than 20 years.”
“Without ongoing access to easy money at near-zero rates, however, banks are less enthusiastic about making loans, and many marginal companies will no longer be able to stave off financial trouble by refinancing or taking out new loans. The banking sector itself has warned investors to prepare for new rounds of layoffs. Meanwhile, large corporate bankruptcy filings surged in the first half of the year. Lending for private consumption is getting more expensive also. This week, the average 30-year mortgage rate rose to the highest point reached since the year 2000.”
“These factors all point toward a bubble that is in the process of popping. The situation is unsustainable, yet the Fed cannot change course without reigniting a new surge in price inflation. Although some professional economists insist that price inflation has all but disappeared, the sentiment on the ground is clearly one in which most workers believe their wages are not keeping up with rising prices. Any surge in prices would be especially problematic given the rising cost of living. Ordinary Americans face a similar problem with home prices. According to the Atlanta Fed, the housing affordability index is now the worst it’s been since 2006, in the midst of the Housing Bubble.”
“If the Fed reverses course now, and embraces a new flood of new money, prices will only spiral upward. It didn’t have to be this way, but ordinary people are now paying the price for a decade of easy money cheered by Wall Street and the profligates in Washington. The only way to put the economy on a more stable long-term path is for the Fed to stop pumping new money into the economy. That means a falling money supply and popping economic bubbles. But it also lays the groundwork for a real economy—i.e., an economy not built on endless bubbles—built by saving and investment rather than spending made possible by artificially low interest rates and easy money.”
From Reason. “Countless financial soothsayers and Wall Street wizards were once members of a curious cult. Their doctrine? The unshakable belief that interest rates had managed to find something resembling the fabled Fountain of Youth, leaving their numbers eternally low and never rising. The ‘Forever Low’ brigade dismissed those of us who argued that high government debt was unsustainable and, partly because low repayment rates would not last forever, we should control spending.”
“Now, let’s be clear. Predicting the economic future isn’t like reading the morning weather forecast. Nevertheless, the certainty of the Forever Low cult felt a bit like confidently asserting that winter would never come to Alaska because June was particularly warm. Interest rates have historically fluctuated due to various economic factors. Somehow, many believed that the unprecedented period of declining and low rates over the past few decades had become the new normal, never to change much.”
“In a way, the curious cult’s certainty was impressive. It’s not every day we witness such unwavering confidence in the face of rising red ink. It was even more stunning during the pandemic, when we saw the national debt rise by $5 trillion over a mere two years. That included $2 trillion in March 2021 with no call for future austerity, a time when the economy was already recovering and inflation was thus significant.”
“When inflation warnings became hard to ignore, the Forever Low gang retorted that it was silly to worry because, in the worst-case scenario, ‘the Fed has the tool to bring inflation down.’ That tool amounts to hiking interest rates to slow down the economy—which seems in direct contradiction to the belief that debt accumulation was OK because, you know, interest rates would remain forever low.”
“But then, as fate (and economics) arranged matters, the winds shifted. Whispers started circulating about tangible changes on the horizon. The first signs were subtle, but soon the murmurs became louder. The once-dismissed possibility of rising rates is now a reality. With the yield on a 10-year Treasury yield above 4.5 percent, the new refrain is that we could ignore deficits in the past, but we can’t anymore. Of course, this too is wrong. We should have never ignored deficits, which, along with spending and debt projections, were on an uphill trajectory that made us susceptible to a crisis if interest rates rose suddenly—especially since half of our debt has a maturing time of three years or less.”
“In the end, the Forever Low believers were correct in their own transitory way. After all, interest rates did remain low for an extended period, catching many by surprise. Their main mistake, though, was tragic: concluding that there was no cost to trillions of dollars in additional debt.”
State House News Service. “Massachusetts continued to record more births than deaths from July 2021 to July 2022 even though the state’s total population shrunk in that span, suggesting that residents decamping to other locales is the primary driver of a trend that has steadily ramped up pressure on policymakers, analysts said Wednesday. Luc Schuster, the executive director of the Boston Indicators research center, said the data ‘just jumps off the page how much housing has to be a central driver of the domestic outmigration we’re seeing.'”
“‘It’s a weird dynamic because we’re starting to see an acceleration of people moving out of Greater Boston, so in a sense, that’s demand going down, but it’s as housing costs continue to rise dramatically,’ he said. ‘To me, there’s just a lot going on here, but I can’t help but think about how much more prosperous we could be if we fixed our housing problem.'”
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‘dealing with an elderly couple contemplating whether to sell their $1.1 million home in Arlington and whether they can live off the proceeds. They bought their home in the early 1970s for $80,000, but refinanced a few times to put their three children through college and pay for health care expenses. The couple still owes $410,000 on the mortgage. ‘People selling their houses for a million dollars, they’re not rich’
Steve said this in the context of a new shack sales tax and that this couple shouldn’t have to pay it. But loaning 400k pesos to an old couple: that’s sound lending! It worked out great fer them some would say. OK, so what about the poor bashtards to buy a shack in Arlington today? Is it going to go up 2000% too in their lifetimes?
That’s where these manias break down. Trees can’t and won’t grow to the sky.
whether they can live off the proceeds
They already did.
“…They already did….”
They had their chance and blew it big time.
Multiple that by 10’s of millions of other geniuses.
They spent 40% of it. Don’t they have any retirement funds? Maybe head to El Salvador to retire
The buyer is paying for their kids’ college education?
That’s the through line.
I found this humorous:
‘When inflation warnings became hard to ignore, the Forever Low gang retorted that it was silly to worry because, in the worst-case scenario, ‘the Fed has the tool to bring inflation down.’ That tool amounts to hiking interest rates to slow down the economy—which seems in direct contradiction to the belief that debt accumulation was OK because, you know, interest rates would remain forever low’
the tool to…slow down the economy
Astronomical housing prices, gas prices, car prices, food; wasn’t that enough to slow down this economy? I suspect the Fed is being dragged by its heels.
‘Out of the current money supply of $18.8 trillion, $4.6 trillion—or 24 percent—of that has been created since January 2020. Since 2009, $12.2 trillion of the current money supply has been created. In other words, nearly two-thirds of the total existing money supply have been created just in the past thirteen years’
via GIPHY
“This sucker could go down” — George W. Bush
Notice that the 2023 Federal interest paid ($659B) is 38.7% of the 2023 deficit!
In essence the fed is borrowing the money to pay the interest.
Crash followed by hyperinflation and disintegration of the USA
Die, speculator scum.
https://twitter.com/DonMiami3/status/1715493146274988058
Worries on Wall Street about the US budgetary morass pose risks to both sides of the central bank’s dual mandate.”
The Fed since its furtive 1913 establishment by a cabal of NYC robber barons has had only one true “mandate”: to serve as the financier oligarchy’s chief instrument of plunder against the 99 percent.
Why some hang on their every word is beyond me.
The Washington Post is the enemy of the American people.
Washington Post Editorial Board — Investing in Ukraine and Israel is in our cold, hard national interest (10/20/2023):
“Delivered at what he appropriately called an inflection point in history, the president’s comments reflect the risk that the United States might abandon its friends, as wars rage in Ukraine and Israel. There is broad support for both countries among the U.S. electorate.”
That last sentence is a LIE.
“Increasingly isolationist Republicans argue that U.S. resources might be better spent on this continent — 117 House Republicans voted against the most recent Ukraine aid package.”
America FIRST.
“Against Mr. Trump and the isolationist wing of the GOP — as well as a smaller group of critics in the president’s own party — Mr. Biden has better arguments to make, both morally and practically. He will have to state them forcefully again and again as this dangerous year ends and the even more momentous election year of 2024 begins.”
https://archive.ph/sKJrH
Note that U.S. border security is a footnote, an afterthought, of this piece.
The Washington Post are GLOBALIST SCUM.
Washington Post Editorial Board — Investing in Ukraine and Israel is in our cold, hard national interest (10/20/2023):
Translation: it benefits only a rapacious and parasitic elite that uses its ill-gotten gains to fund the termites in the foundation.
“a rapacious and parasitic elite”
Emphasis on the word: parasite.
There is nothing elite about them, they are the Parasite Class.
Mosquitos, ticks, tapeworms, blood sucking parasites that produce nothing, they only devour and destroy their host, in this case the U.S. taxpayer.
Investing 🙄
It’s the Washington Post, what kind of language would you expect?
If you detect a level of hatred toward the Post from me, that’s a serious understatement.
This publication is literally EVIL. Enemy of the American people is just scratching the surface.
May their Charlie Hebdo day come soon, not soon enough ☠️
On today’s thread topic about money printing and inflation, a related smear piece about Argentina, a wealthy nation destroyed by money printing, inflation, and socialist corruption.
Washington Post — Argentina’s tear-it-all-down frontrunner connects with angry young men (10/20/2023):
“Most of the thousands who packed the Movistar Arena for Milei’s campaign-closing rally on Wednesday were men, many of them young, and all of them seemingly angry.
Angry with a leftist establishment that has failed to control spiraling inflation and economic stagnation. Angry with a government that has allowed their currency to plummet and their earnings to vanish.
With his viral TikTok videos raging against the “political caste” and evangelizing his free-market ideas, the 52-year-old congressman has touched a nerve among a generation of young people struggling to enter the workforce.
An admirer of Trump and former Brazilian president Jair Bolsonaro, Milei is campaigning on an Argentine version of “Drain the Swamp.” His aggressive style, outlandish comments and unusual presentation — he claims he hasn’t brushed that hair in years — have drawn millions of viewers to his videos and disrupted traditional politics.
He has branded Pope Francis — the Argentine former Archbishop of Buenos Aires Jorge Bergoglio, the first South American pontiff — an “evil” leftist. Climate change, he says, is a “socialist lie.”
But he has also offered frustrated Argentines a break from the status quo: He has proposed shutting down the central bank, dollarizing the economy and taking a “chain saw” to government spending.
Polls here show Milei leading the field of five candidates in Sunday’s presidential election. If he wins, it will likely be on the strength of the country’s young. Voters aged 18 to 29 account for a quarter of the electorate, and polls show they’re overwhelmingly inclined to vote for the iconoclast. That’s especially true for young men.”
https://archive.ph/18ALS
The Washington Post is GLOBALIST SCUM.
They would rather see Argentina mired in poverty and corruption (i.e. socialism) and destroy the future of the young.
“They said we were dangerous and that we needed to be quiet,” Milei shouted.
“But we’re here, we fought the battle, and we’re going to win!
“Long live freedom, damn it!” Milei roared.”
The Washington Post is anti freedom, they are GLOBALIST SCUM.
Zimbabwe R Us
https://twitter.com/NorthmanTrader/status/1715465814311113187
“’The fact that the money supply is shrinking at all is remarkable because the money supply in modern times almost never gets smaller. The money supply has now fallen by $2.9 trillion (or 13.4 percent) since the peak in April 2022. Proportionally, the drop in money supply since 2022 is the largest fall we’ve seen since the Depression.'”
Here is a chart:
https://fred.stlouisfed.org/series/M1SL
The previous rise is now being nibbled at – NIBBLED AT! – as you can clearly see.
Chickens -> Roost.
But…but…the MSM assures me Jerome Powell & the Fed are really, really serious about “fighting inflation.”
Has Mr. Banker returned without the schtick?!
Oh dear…AirBnB hosts don’t appreciate “guests” taking advantage of the fact demand is rapidly drying up & forcing price reductions.
https://twitter.com/NipseyHoussle/status/1715417377435762987
🤣🤣…..that’s awesome.
Good and entertaining Twitter account.
(I ran across this non-housing related article and decided it was an appropriate People_Are_Stupid post.)
The War Prayer
BEN BARTEE
OCT 20, 2023
My curmudgeonly grandpappy, who reveres Mark Twain and George Carlin and H.L. Mencken and people of that lovable cynic variety – or however you would characterize their philosophical disposition – put me onto The War Prayer back in the day.
This was in the days of innocence before 9/11 and the subsequent War of Terror, and so whatever lack of an impression it made on me at the time was remedied shortly thereafter by apropos events in the real world.
Twain, in his later years when his family had died and the cynicism became more malignant, would often write fiction in which a cynical protagonist would serve as a proxy for himself.
This is one such story; the “aged stranger” is Twain.
Via Virginia Commonwealth University:
“The country was up in arms, the war was on, in every breast burned the holy fire of patriotism; the drums were beating, the bands playing, the toy pistols popping, the bunched firecrackers hissing and spluttering; on every hand and far down the receding and fading spread of roofs and balconies a fluttering wilderness of flags flashed in the sun; daily the young volunteers marched down the wide avenue gay and fine in their new uniforms, the proud fathers and mothers and sisters and sweethearts cheering them with voices choked with happy emotion as they swung by.
An aged stranger entered and moved with slow and noiseless step up the main aisle, his eyes fixed upon the minister, his long body clothed in a robe that reached to his feet, his head bare, his white hair descending in a frothy cataract to his shoulders, his seamy face unnaturally pale, pale even to ghastliness. With all eyes following him and wondering, he made his silent way; without pausing, he ascended to the preacher’s side and stood there waiting. With shut lids the preacher, unconscious of his presence, continued with his moving prayer, and at last finished it with the words, uttered in fervent appeal, “Bless our arms, grant us the victory, O Lord our God, Father and Protector of our land and flag!”
O Lord our God, help us to tear their soldiers to bloody shreds with our shells; help us to cover their smiling fields with the pale forms of their patriot dead; help us to drown the thunder of the guns with the shrieks of their wounded, writhing in pain; help us to lay waste their humble homes with a hurricane of fire; help us to wring the hearts of their unoffending widows with unavailing grief; help us to turn them out roofless with little children to wander unfriended the wastes of their desolated land in rags and hunger and thirst…
It was believed afterward that the man was a lunatic, because there was no sense in what he said.”
― Mark Twain, The War Prayer
Twain reportedly caved to pressure not to publish the short story, as it was regarded by his family and publisher as too inflammatory for public consumption. Asked if he had plans to publish it, Twain answered: “No, I have told the whole truth in that, and only dead men can tell the truth in this world. It can be published after I am dead.” At any rate, for whatever reason, it remained unpublished until after his death.
War is an ugly business, fraught with moral pitfalls – not to mention existential implications in the nuclear age. It might be necessary at times, but so are limb amputations. Both should be undertaken with all due discretion.
https://armageddonprose.substack.com/p/the-war-prayer
I’ll choose my own wars, not the ones the government or MSNBC or the ADL tells me to.
There’s a reason why Aleksandr Solzhenitsyn’s final book, “Two Hundred Years Together,” has never appeared as an authorized English-language edition.
+1 and the #Noticing will continue.
(A fun article …)
Woman returns from vacation, finds Atlanta home demolished
https://www.yahoo.com/news/woman-returns-vacation-finds-atlanta-221326797.html
(Here is a snip or two …)
“Did you hire somebody to tear your house down next door to me?’ It’s been boarded up for about 15 years and I said ‘no’ and she said ‘well there’s someone over here who just demolished the whole house and tore the entire house down,” Hodgson said.
Hodgson says the workers got nasty when confronted.
“He told her to shut up and mind her own business,” Hodgson said.
So she sent a family member over.
“He said ‘well I want to see a permit or something’ and the guy pulled it out and said ‘Oh I’m at the wrong address’ and he just packs everything up and leaves and the house is just (destroyed) down and gone,” Hodgson said.
Realtors are liars.
https://twitter.com/WallStreetSilv/status/1715743753594446093
I don’t think that realtors have to even tell this lie. We have an entire generation who believe that nothing can collapse and that the government and central banks will always bail them out if things get bad. Very soon the realty is gonna set in that they’re totally schlonged this time around.
“We have an entire generation who believe that nothing can collapse and that the government and central banks will always bail them out if things get bad.”
(You rang?)
Modern Monetary Theory (MMT): Definition, History, and Principles
https://www.investopedia.com/modern-monetary-theory-mmt-4588060
What Is Modern Monetary Theory?
Modern monetary theory (MMT) is a heterodox macroeconomic supposition that asserts that monetarily sovereign countries (such as the U.S., U.K., Japan, and Canada) which spend, tax, and borrow in a fiat currency that they fully control, are not operationally constrained by revenues when it comes to federal government spending.
Put simply, modern monetary theory decrees that such governments do not rely on taxes or borrowing for spending since they can print as much money as they need and are the monopoly issuers of the currency. Since their budgets aren’t like a regular household’s, their policies should not be shaped by fears of a rising national debt.
(Blah, blah, blah … go to the link to read the rest of the article.)
“Modern Monetary Theory”
One upside of our current tenuous existence on the brink of financial panic is a thorough tepudiation of MMT.
repudiation (must trim thumb nail)
As though history isn’t already littered with the financial carcasses of central banks and government treasuries that tried to print their way to prosperity. And some, like Argentina, are serial currency debasers, which shows how quickly the schlongings are forgotten.
budgets aren’t like a regular household’s
Only if you can’t, or refuse to do math.
An ostrich with its head in the sand would be more appropriate.
I’ll keep posting this link once a day as long as our blog host graciously permits:
https://www.antiwar.com/
Anti war. It’s that simple.
“The scale of the drop in many long-term U.S. Treasury bond funds over the past three years is eye-watering – a price loss of more than 50% and counting from pandemic peaks of 2020. That’s now on par with the gigantic S&P500 equity drawdowns of the dot.com bust and banking crash 15 years ago. Benchmark U.S. Treasury yields across the maturity spectrum are climbing to 5% and beyond for the first time in more than 16 years and show few signs of cresting so far.”
Now that the historic CR8R event in the bond market is receding from view in the rear view mirror, the MSM is reporting on it as though it is current news. You know for sure that if the stock market experienced a similar protracted period of price decline, the MSM would have constantly reported financial Armageddon since the onset.
With the long-term Treasury yield becoming sticky around 5% and bond prices off peak by 50% or so, has price adjustment in the asset markets shifted from bonds to stocks?
That’s what I am seeing from the comfort of my couch, anyway…
U.S. Markets
Falling stocks, climbing mortgage rates: how 5% Treasury yields could roil markets
By Saqib Iqbal Ahmed
October 20, 20232:59 AM PDT
Updated a day ago
Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., August 29, 2023. REUTERS/Brendan McDermid Acquire Licensing Rights
NEW YORK, Oct 19 (Reuters) – Relentless selling of U.S. government bonds has brought Treasury yields to their highest level in more than a decade and a half, roiling everything from stocks to the real estate market.
The yield on the benchmark 10 year Treasury – which moves inversely to prices – briefly hit 5% late Thursday, a level last seen in 2007. Expectations that the Federal Reserve will keep interest rates elevated and mounting U.S. fiscal concerns are among the factors driving the move.
Because the $25-trillion Treasury market is considered the bedrock of the global financial system, soaring yields on U.S. government bonds have had wide-ranging effects. The S&P 500 is down about 7% from its highs of the year, as the promise of guaranteed yields on U.S. government debt draws investors away from equities. Mortgage rates, meanwhile, stand at more than 20-year highs, weighing on real estate prices.
…
https://www.reuters.com/markets/us/how-5-us-benchmark-treasury-yield-could-further-roil-markets-2023-10-19/
Bonds that pay zero shouldn’t be worth much.
Companies that do not make a profit shouldn’t be worth much either.
“These factors all point toward a bubble that is in the process of popping. The situation is unsustainable, yet the Fed cannot change course without reigniting a new surge in price inflation.”
Check mate.
“Although some professional economists insist that price inflation has all but disappeared, the sentiment on the ground is clearly one in which most workers believe their wages are not keeping up with rising prices.”
Read the mumbers and weep, dudes!
Yahoo Finance
Jay Powell will keep saying inflation is too high until consumers believe him
Hamza Shaban
Fri, October 20, 2023 at 3:00 AM PDT·3 min read
…
https://finance.yahoo.com/news/jay-powell-will-keep-saying-inflation-is-too-high-until-consumers-believe-him-100020733.html
Finance ·Consumer Spending
Bank of America warned consumers they would be pushed to the ‘point of pain’—and CEO Brian Moynihan says we’ve now reached that point
BY Eleanor Pringle
October 18, 2023 at 3:56 AM PDT
…
https://fortune.com/2023/10/18/bank-of-america-brian-moynihan-consumers-beginning-slow-spending/
Macro Matters
UK consumer confidence tumbles in October as inflation still weighs: GfK
Reuters
October 19, 20234:06 PM PDTUpdated 2 days ago
…
https://www.reuters.com/world/uk/uk-consumer-confidence-tumbles-october-inflation-still-weighs-gfk-2023-10-19/
Yahoo Finance Video
Inflation swaying Gen Z, Millennial consumer habits
Yahoo Finance and Rachelle Akuffo
Thu, October 19, 2023 at 10:42 AM PDT
Millennials and Gen Z consumers present a multi-billion dollar market that increasingly more brands are trying to appeal to through social media, where a TD Cowen report found most of them are finding value in their purchasing power.
John Kernan, TD Cowen Managing Director of Retail and Consumer Brands, joins Yahoo Finance to discuss these generations’ spending habits, how they’ve changed over time, and how certain companies have utilized their digital presence to capture their attention.
“Inflation and interest rates have skyrocketed. It’s changed the economy fundamentally and it’s changed consumer budgets. It has changed comfort levels, it’s changed animal spirits in terms of how much and where people want to spend,” Kernan explains. “Value really resonated in the survey this year and consumers looking to cut spending also showed big increases at very high levels.”
…
https://finance.yahoo.com/video/inflation-swaying-gen-z-millennial-174203911.html
“professional economists insist that price inflation has all but disappeared”
^ The Parasite Class.
“wages are not keeping up with rising prices”
^ Reality.
Although some professional economists insist that price inflation has all but disappeared
On what planet?
On Planet Disinflation.
Christian Nationalist Homeland.
There will be a Christian Nationalist Homeland established on the North American continent, probably within the present borders of the soon to be former United States.
No atheists or adherents of any religion other than Christianity will be citizens, or for that matter, allowed to even reside in the country.
No more foreign wars. No NATO, no UN, no WHO, and certainly no WEF.
There will be no usury. Gold and silver will be the only legal tender currency.
We have the power to make this a reality, do not succumb to defeatism.
Bring the Lord into your heart, and God wills us into victory ✝️
Does it seem like relitters always say it’s a good time to buy?
DOW 30 -0.86%
S&P 500 -1.26%
NASDAQ 100 -1.50%
Why now is actually a good time to buy a house
Jennifer Sor Oct 21, 2023, 5:15 AM PDT
Home for sale
There’s an argument to be made that buyers shouldn’t wait for rates or prices to drop, and to stay in the market even as affordability looks strained. AP
– Contrary to what many are saying, it might not be a bad time to buy a house.
– That’s because buyers waiting for rates to drop may be waiting a long time.
– When mortgage rates do go down, competition and demand will come roaring back.
…
https://markets.businessinsider.com/news/commodities/housing-market-outlook-best-time-to-buy-home-mortgage-rates-2023-10
‘When mortgage rates do go down, competition and demand will come roaring back.”
It will be a fun time in the pumpkin patch when the Great Pumpkin rides down from the sky.
buyers waiting for rates to drop
should rather wait for rates and credit standards to tighten until the Buffalo cries.
It’s as if price drops aren’t even a consideration!
God forbid, realtors’ commissions decrease along with lower prices.
The Ascent
Knowledge
Mortgages
Could Mortgage Rates Come Down in 2024?
Published on Oct. 15, 2023
By: Matt Frankel, CFP®
Many or all of the products here are from our partners that compensate us. It’s how we make money. But our editorial integrity ensures our experts’ opinions aren’t influenced by compensation. Terms may apply to offers listed on this page.
KEY POINTS
– There are several factors that influence mortgage rates, including the Federal Reserve, and inflation levels.
– Most experts think mortgage rates will be significantly lower at the end of 2024 than they are today.
– However, it’s impossible to predict where rates will end up and they could be higher or lower than they are today.
Mortgage rates have risen sharply from about 3% at the start of 2022 to nearly 8% today. And while the ultra-low mortgage rates we saw for much of 2020-2021 aren’t likely to return anytime soon, many would-be home buyers are wondering when the cost of getting a mortgage loan will come down and make homeownership more affordable.
With that in mind, here’s what makes mortgage rates rise and fall, where some of the top mortgage organizations and experts see rates heading, and why mortgage rates are so hard to predict.
…
https://www.fool.com/the-ascent/mortgages/articles/could-mortgage-rates-come-down-in-2024/
“Most experts think mortgage rates will be significantly lower at the end of 2024 than they are today.”
I predict lotsa housing market CR8R plus denial in case these MSM-favored experts’ wishful thinking proves wrong.
Of course rates would most likely go down if there were a recession, but then housing demand would be even more dead in the water.
Mortgage rates have risen sharply from about 3% at the start of 2022 to nearly 8% today.
How about -50% prices to compensate for +5% interest rates?
That sounds about right. And if it seems like I am just talking smack, I suggest having a look at long-term Treasury bond prices…or just trust the many articles recently posted that document a roughly 50% price collapse off the pandemic peak.
Mortgages support owner-occupied housing demand for the masses of non-trust-fund babies, wealthy Baby Boomers, or corporate officers who lack a spare $1 million to apply to a home purchase. And when interest rates increase, the asset value of mortgages goes down by even more than long-term Treasury bonds for several reasons:
1) Weakening credit quality
2) Larger interest rate increase
3) Refinance risk
So in short, if Treasurys dropped in value by 50%, then mortgages which support debt-financed home purchase demand fell by well over 50%. This leads me to suspect most home purchases these days are by the already wealthy who are not heavily dependent on low-downpayment mortgages to fund a purchase.
-50%
Three nearby sales that closed 10/3-10/6:
$2.2M with $1.65M mortgage
$2.075M with $1.245M mortgage
$2.55M with $2.295M mortgage
-50%
Not sure why that’s in my previous post.
One further thought:
Whoever lent the money for pandemic era purchase and refinance loans @2.5% is now HODLing CR8R sized losses, with rates currently headed up from 8%.
Sadly, the folks who took out those loans will never refinance or move. Those losses are locked in forever.
Not sure why that’s in my previous post.
The JT extension auto-quotes (italicizes) the text selected at the time you hit ‘reply’. So you probably just had double-clicked on the word and it was selected
-50% prices to compensate for +5% interest rates?
There is something missing from that math. How much of the current price is the hope that prices always go up? Factor that out first. Then factor in prices always go down. Then take off the quite practical 50%.
These rate cut cheerleaders remind me of a favorite expression my HS coach often repeated:
“You can wish in this hand and shit in the other, and see which one fills up the fastest.”
ABC News
Surging mortgage rates hit 23-year high
The milestone arrives after months of increases.
By Max Zahn
October 19, 2023, 11:00 AM
1:25
– Mortgage rates hit highest level in 23 years
– The average 30-year fixed-rate mortgage is now at 8%, the highest since 2000.
The 30-year fixed mortgage rate this week climbed to 8%, reaching that level for the first time since 2000, according to Mortgage News Daily.
The milestone arrives after months of rate increases. As recently as last April, the 30-year fixed mortgage rate stood below 5%, Mortgage News Daily data shows.
An aggressive series of interest rate hikes by the Federal Reserve since last year has pushed up the 10-year Treasury bond yield, which loosely tracks with long-term mortgage rates.
The Fed has increased interest rates to fight elevated inflation, attempting to slash price hikes by slowing the economy and choking off demand.
MORE: Real estate groups urged the Fed to stop rate hikes. Here’s why.
While inflation has fallen significantly from a peak of about 9% last summer, price increases remain more than a percentage point higher than the Fed’s inflation target.
…
https://abcnews.go.com/US/mortgage-rates-climb-8-time-2000/story?id=104136136
“The average 30-year fixed-rate mortgage is now at 8%, the highest since 2000.”
I note that mortgage rates just crossed the Rubicon to levels not experienced since the Housing Bubble went into hyperdrive in the early 2000s. The condo we owned at the time at went up in value by at least a factor of two over the next five years as rates continued marching down towards the historic low reached in early 2022.
And then they blew off the lid…
Crashing Prices In Dallas New Construction | Who Made The List?
Home in Dallas Texas
Oct 16, 2023
Looking for NEW CONSTRUCTION in Dallas? We found the suburbs with the BIGGEST price crashes AND we found the top neighborhoods within each of those suburbs with even BIGGER price crashes! We went to each of those suburbs and did VLOG TOURS so you could see exactly where these amazing deals are! Which ones made our list? Where are the best new construction deals in all of Dallas?
https://www.youtube.com/watch?v=ZlQ4k1xadgQ
17 minutes.
From MSN:
What could have possibly caused that?
Why, climate chance, of course.
Silly me! It’s obvious!
The productive & successful who find themselves living under Communism always vote with their feet.
https://twitter.com/zerohedge/status/1715816505168769171?
And yet home prices are more insane than ever!
Insane housing prices make perfect sense if investors don’t find the Fed’s commitment to contain inflation to be credible. In that case, grabbing anything of real value in exchange for falling knife dollars is a perfectly rational human reaction.
The wild card is whether the Fed will, in fact, keep at it, or at some point will they step back and let inflation take firm hold as it did in the 1970s.
DOW 33,127.28 -0.86%
S&P 500 4,224.16 -1.26%
NASDAQ 12,983.81 -1.53%
Fear & Greed Index
Nightcap
Jay Powell just went full Volcker
Analysis by Allison Morrow, CNN Business
5 minute read
Published 6:51 PM EDT, Wed September 21, 2022
What the Fed Chair’s warning about economic ‘pain’ means for Americans
This story is part of CNN Business’ Nightcap newsletter. To get it in your inbox, sign up for free, here.
New York CNN Business —
Earlier this year, the idea of the Fed raising rates by three-quarters of percentage point wasn’t on the menu. But in just a few months, that sizable jump has become the norm, and it’s almost certainly sealed Jay Powell’s status as the Paul Volcker of the 2020s.
Here’s the deal: The Federal Reserve made history today, approving its third consecutive 75-basis-point interest rate hike. Once again, the Fed is trying to wring inflation out of the economy by using the most powerful and broad lever it has — controlling how much it costs for businesses and people to borrow money.
The benchmark lending rate is now the highest it has been since the global financial crisis of 2008, my colleague Nicole Goodkind reports.
So, here’s what you need to know:
– The 75-basis-point move was widely expected.
– But markets slumped anyway because of a shift in the so-called dot plot, which indicated that the next two Fed meetings will include yet another 75-point hike and then a 50-point hike. That’s 25 basis points more than Wall Street was counting on, and investors are a delicate bunch who tend to have a conniption when caught off guard.
– All three major US equities indexes slipped right after the Fed announcement. Then attempted a rally. Then fell again. It was a wild afternoon.
– What’s it all mean for us regular people? Sorry to say, but the “pain” the Fed chief keeps warning about is mostly pain for lower and middle class people, who are more likely to be laid off, see their hours or wages cut, and have trouble paying credit card debt as rates go up. Mortgage rates, which are already more than double where they were a year ago, will also keep rising.
One of Powell’s biggest critics, Senator Elizabeth Warren, was quick to fire off a tweet decrying the “extreme” hike, which the Fed itself expects will push unemployment up to 4.4% from 3.7% currently — amounting to more than 1 million jobs.
“Chair Powell just announced another extreme interest rate hike while forecasting higher unemployment,” Warren tweeted. “I’ve been warning that Chair Powell’s Fed would throw millions of Americans out of work — and I fear he’s already on the path to doing so.”
Powell doesn’t like to say words like “layoff” or “job cuts.” But he’s not unsympathetic to what he euphemistically calls “softening of labor market conditions.” He just thinks that the short-term pain of a recession would be preferable to the longer-term pain of entrenched inflation.
To set the labor market up for sustained strength, he said, we have got to get inflation behind us. “I wish there were a painless way to do that. There isn’t.”
To understand the Fed, it helps to understand Powell.
In his role as the central bank chief, he’s made no secret of his admiration for Paul Volcker, whose name is practically synonymous with fighting inflation at all costs, even if it crashes the economy into a recession. That’s exactly what Volcker’s Fed did — twice — in the early 1980s.
During congressional testimony in the spring, Powell described Volcker as a hero, calling him “the greatest economic public servant of the era.”
(Fun fact: The 6-foot-7 Volcker was also known in DC by his nickname, “Tall Paul”)
At least twice in the past month, Powell has publicly invoked the title of Volcker’s 2018 biography “Keeping At It.” In his now notoriously blunt Jackson Hole speech last month, Powell declared that “we must keep at it until the job is done.” And again Wednesday: “We want to act aggressively now and … keep at it until it’s done.”
Part of the reason Volcker is remembered so favorably by Powell and others is that it required a savvy mind and an iron stomach to a) understand the problem of rampant inflation, and b) implement the painful shock therapy of interest rate hikes that cost millions of people their jobs. Volcker’s plan worked, but it really sucked for a while. There was indeed some pain, to borrow Powell’s euphemistic phrasing.
Inflation is now the highest it’s been since Volcker ran the Fed, and the central bank itself is facing a crisis of credibility after not moving fast enough to keep rising prices in check.
Credibility was a big concern for Volcker as well.
“Volcker’s mantra, one he told me again and again through 2008-9, was that in a crisis the only asset you have is your credibility,” Austan Goolsbee, an economist who advised the Obama administration, wrote in 2019 just after Volcker died at age 92.
Bottom line: Powell continues to draw from the Volcker playbook, which means he’s unlikely to waver on the Fed’s target rate of 2% inflation, lest the central bank’s credibility take another blow. Only time will tell whether that 40-plus-year-old playbook still applies in an economy that’s fundamentally different from the one Volcker confronted.
…
https://www.cnn.com/2022/09/21/business/nightcap-fed-powell-volcker-inflation/index.html
Welp, I guess if I had to pick between AirBnB bringing hoes or vibrancy into my ‘hood, I’d have to go with the pop-up brothels.
https://www.dailymail.co.uk/news/article-12656403/Our-city-flooded-pop-brothels-stag-parties-thanks-surge-Airbnb-short-term-lets-people-Cambridge-say.html
So hoity toity Cambridge is being overrun with the world’s oldest profession? Can Oxford be far behind?
As the Brits would say: Brilliant!
a Treasury report released Friday
Two weeks late with financial shenanigans. Someone with access to X/Twitter should check out E.J. Antoni’s account over the next few days.
Antoni said this morning with Bannon that the 10YR will get to 8% fairly rapidly.
‘We have a super-interest-sensitive budget…If the bond market is starting to decipher more accurately the effective fiscal position of the US, then we’re in trouble’
The effective fiscal position of the US paper just changed – a lot! What you have now are bag-holders.
‘And even if you get the maths of all that right, there now enters the relative unknown of what happens with unprecedented sovereign debt piles, new bond supply and likely tortuous attempts to rein in bloated post-pandemic government deficits’
Well you can’t fight city hall!
‘The money supply has now fallen by $2.9 trillion (or 13.4 percent) since the peak in April 2022. Proportionally, the drop in money supply since 2022 is the largest fall we’ve seen since the Depression. (Rothbard estimates that in the lead-up to the Great Depression, the money supply fell by 12 percent from its peak of $73 billion in mid-1929 to $64 billion at the end of 1932’
It is different this time.
‘In the end, the Forever Low believers were correct in their own transitory way. After all, interest rates did remain low for an extended period, catching many by surprise. Their main mistake, though, was tragic: concluding that there was no cost to trillions of dollars in additional debt’
So two big f ups. The low rates were actually transitory in historic terms. In financial cycles what bernanke and the boys did was a snapshot of time.
‘Their main mistake, though, was tragic: concluding that there was no cost to trillions of dollars in additional debt’
Well gosh, I hope those good people have plenty of money and we can just tell them we don’t have it. They have to be reasonable, right?
Question: what percentage of the interest paid on Treasuries is paid to the FedRes?
“Cardboard Box Recession” An Ominous Sign Of Faltering Consumer, Schwab Warns
https://www.zerohedge.com/markets/charles-schwab-analyst-warns-cardboard-box-recession-ominous-sign-faltering-consumer
Earlier this year, Charles Schwab analyst Jeffrey Kleintop said the US was sliding into a “cardboard box” recession as consumers and small businesses were pressured by soaring interest rates and elevated inflation.
On Tuesday, Kleintop joined Morningstar’s The Long View podcast to warn, yet again, that slowing demand for cardboard boxes is an ominous sign of a coming recession. The reason behind this view is that cardboard boxes are used to transport nearly every good in modern society. So when box demand falls, it’s reflective of slowing purchases by consumers and businesses.
“Often, I find, in maybe nontraditional measures, I find more comfort in things that just make sense to me. Like the downturn that’s currently indicated in official manufacturing and trade data. Some of that’s kind of abstract. I find comfort looking at the plunging demand for cardboard boxes,” Kleintop told the podcast hosts.
The analyst said, “I’ve been referring to this as a cardboard box recession because things that are manufactured and shipped tend to go in a box and because demand for corrugated fiberboard, which is what most cardboard boxes are made from, has fallen just like it did in past recession. So, literally, cardboard boxes are in a recession.”
Last week, former Walmart CEO Bill Simon, who now serves on the Board of Directors for Darden Restaurants and Hanesbrands Inc., told CNBC that headwinds are mounting for consumers as inflation, high interest rates, and global tensions make consumers wary. He said, “For the first time in a long time, there’s a reason for the consumer to pause.”
If Simon is correct, this could spell disaster for Biden’s economy. Consumers are a significant driver in the US economy, accounting for about two-thirds of US GDP.
It appears the music has already stopped, and the party for consumers is grinding to a halt.
Last month, we laid out the various reasons why – according to JPMorgan and Goldman – sentiment on US consumer stocks had cratered and would continue to worsen in the months ahead.
A recent Citi note (full report available to pro subs) revealed consumer card spending is downright recessionary.
Also, a recent Barclay’s Global Rates Weekly note showed card spending has taken another leg lower as consumers falter.
And back to the cardboard boxes, FreightWaves has been warning all year about this alarming development:
Cardboard Box Demand Plunging At Rates Unseen Since The Great Recession
Big Drop In Cardboard Box Sales Scream Recession
Ending it with Kleintop, he told The Long View podcast: “So, I think all these signs are indicating that we’re seeing a bit of a slowdown in the services sector. And that’s important because there are 10 times as many services jobs as manufacturing jobs in the US So, if we start to see the service sector reflect more signs of this slowdown in demand, well, we might see a weakening labor market and then that could feed into the retail space and construction and so many other areas.”
… and then there is this: “Trucking Recession Deepens As Bezos, Gates-Backed Convoy Cancels All Shipments, Load Board Is Empty.”