Government Bond & Mortgage “Meltdown” Crushes NIRP

And the spike in mortgage rates will come in handy.

The situation in government bonds – variously labeled with “bloodbath,” “rout,” “carnage” “meltdown,” or similar propitious terms – continued on Thursday.

Already in November – so not counting the “carnage” today – the Bloomberg Barclays Global Aggregate Total Return Index lost 4% or $1.7 trillion, according to Bloomberg, “the deepest slump since the gauge’s inception in 1990.”

While global stocks rallied in November, the gains – $635 billion – were outright puny compared to the $1.7 trillion wiped out in the much larger bond markets.

On Thursday it got worse. It started in Europe where government bonds got crushed after speculation surfaced that the ECB might not keep buying bonds until hell freezes over, that in fact it might begin tapering its QE program as soon as next year. The markets were aghast.

When trading started in the US, all heck broke loose. The 10-year Treasury had already gotten beaten up all November, with the 10-year yield up 56 basis points, the biggest monthly jump since 2009, according to Bloomberg’s math. By midday Thursday, the 10-year Treasury had fallen hard, and the yield had spiked to 2.49%, the highest since June 2015, before settling at 2.45%, up 8 basis points for the day (via


The 30-year Treasury yield jumped 8 basis points on Thursday to 3.10% (via


In terms of dollars and cents, the CME CBOT 30-Year US Treasury Bond Price Index has now lost 8.5% since Election Day, and 14.8% since July. This is a bitterly ironic twist for those investors who consider them among the most conservative investments in the world (via


And the mortgage market had another bad-hair day, with the 30-year fixed rates surging to 4.25% for borrowers with high credit scores, and rates were quoted as high as 4.375%, a phenomenon last seen in September 2014.

This comes on top of a house price bubble that in many cities has long ago blown past the crazy peak during the prior housing bubble, the one that imploded with such fanfare. Even the Case-Shiller Index, which lags behind and has its own methodology, just showed that even on a national basis, house prices are now higher than they’d ever been. Higher mortgage rates, especially for the most inflated markets, are going to come in very handy.

This bond market “carnage” is accomplishing something else: It’s gutting negative yields – and all those who’ve bought these bonds when yields were at their most negative.

According to Fitch Ratings, as yields have spiked across the world, the amount of government bonds with negative yields dropped by $1.1 trillion from November 1 through 28, to $9.3 trillion. That’s down from $11.7 trillion at the end of June.

And it doesn’t include the “rout,” particularly in Europe, over the past two days. So by now, the amount of bonds with negative yields might have dropped below $9 trillion.

Japan, the country that’s in the worst fiscal shape in the world, is still the king of the NIRP hill. Even the 10-year yield has moved above zero in November, if barely, and now sits at 0.04%. This whittled down the amount of Japanese Government Bonds with negative yields to $6.1 trillion.

In Europe, negative-yielding debt has declined in every country from November 1 through 28, in total by $0.4 trillion, according to Fitch, bringing the pile down to $3.2 trillion.

It has been painful. Fitch:

Yields on long-term debt in major developed countries, the type that many insurance companies and pension funds own, rose sharply in November. Losses over the past month have been particularly severe for investors in long-maturity, low-coupon debt, which is subject to large price swings.

This episode of willfully driving bond yields into the negative will go into the annals of history as the moment “peak stupidity,” not by central banks who operate in their own world and for their own purposes, but by those who bought these damn things when they sported negative yields, rather than dumping everything in the house. For institutions that have to buy long-dated bonds no matter what, such as insurance companies, history, if it’s going to be kind, will coin a new term: “forced peak stupidity.”

This is now happening in San Francisco, New York, Boston, Chicago, Washington DC, and perhaps a city near you. Read…  The Great Unwind Unravels Hottest Rental Markets in the US

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  105 comments for “Government Bond & Mortgage “Meltdown” Crushes NIRP

  1. Tom Kauser says:

    After the meltdown of 2008 it was reported that the new bad guy billionaire George Soros had removed 500 billion dollars from the money market system prior to the 700 point stock market plunge.

    Whether you believe George pulled the plug in 2008 or not is of little concern in 2016.

    What possibly could be is the 1.7 trillion dollars that just evaporated from the bond markets in November?
    Over three times what was said to have caused the great recession has just disappeared from the money markets yet again?

  2. d says:

    Come on lets unwind this housing bubble and really give the world a taste of p45 making America great again.

    Lets have a repeat of that 18 % home mortgage rate, and really make America great again, for lenders.

    Americans voted for it, in the whit-house, now they are going to pay for it.

    p45 is going to cut taxes for his buddies, then cut spending to pay the interest due on 20 TRILLION in US state debt as he starts refinancing it at ?? 5, 7, 11 %.

    That before He adds to it.

    • OutLookingIn says:

      The incoming new (old?) Treasury Secretary Steve Mnuchin (Goldman Sachs alum) will have something to say about that! Along with Cohn (COO Goldman Sachs) who is rumored to be the front runner for the job of Secretary of Energy.
      Draining the swamp? Not so much.

      Do you not think it ironic, that Steve (Munchkin) Mnuchin is now against government intervention in business? Since he made his money from government intervention in business!
      By using tax payer money to buy mortgages that were distressed, then foreclosing on tens of thousands of families, through a failed bank he bought for pennies on the dollar during the 2008 financial crash.
      Such a nice guy. Not.

      • economicminor says:

        Life today seems like one big irony!

      • rich says:

        Goldman Sachs, the Deep State bank that has been controlling the US economy from the shadows, is now, under Trump, stepping out from those shadows in an in-your-face, overt takeover of the United States of America.

        “President-elect Donald Trump is considering GOLDMAN SACHS PRESIDENT GARY COHN for a senior administration job, possibly as director of the Office of Management and Budget, several sources close to the situation said on Wednesday.”

        Steve Bannon, Goldman Sachs

        Jared Kushner, Goldman Sachs

        Anthony Scaramucci, Goldman Sachs

        Steven Mnuchin, Goldman Sachs

        Wilbur Ross, Goldman Sachs? Nope, Rothschild, Inc.


        1. government by the wealthy.
        2. a country or society governed by the wealthy.

        3. an elite or ruling class of people whose power derives from their wealth.

        “Crony capitalism is a term describing an economy in which success in business depends on close relationships between business people and government officials. It may be exhibited by favoritism in the distribution of legal permits, government grants, special tax breaks, or other forms of state interventionism.”

        Treasury Secretary Steven Mnuchin:

        Billionaire Goldman Sachs partner Steven Mnuchin put together the U.S. taxpayer subsidized deal to buy Indymac, for himself and four billionaire hedge funders, J.C. Flowers, John Paulson, George Soros and Michael Dell. “They renamed the bank OneWest Bank and turned it into what Kevin Stein, a housing advocate in California, called “a foreclosure machine,” NPR reported, foreclosing on more than 36,000 homes. At the same time, OneWest cut a deal with the federally funded FDIC, which wound up paying the billionaires, including Mnuchin, more than $1 billion tax payer dollars for the privilege of foreclosing on these homes, NPR said.” It was a family affair. They are all cronies. Mnuchin ran the Trump Campaign finances.

        Commerce Secretary Wilbur Ross:

        Billionaire Wilbur Ross spent 24 years working at ROTHSCHILD, INC. As Rothschild senior managing director, he once bailed out one of Trump’s Atlantic City casinos. Ross, like Mnuchin and Icahn, is a “vulture capitalist”. He is also a crony of Mnuchin, J.C. Flowers, John Paulson, George Soros and Michael Dell .

        Education Secretary

        MLM AMWAY billionaire heiress Elisabeth “Betsy” DeVos is “a woman who never attended public school, never worked in a public school or school system in any capacity, never sent her children to a public school and never earned an academic degree related to education.”

        “Drain the swamp”.

        “Lock her up.”

        “Build a wall.”

        “I will end Obamacare.”

        If you believe any of that, then I will sell you high quality stock in an Atlantic City Trump casino, and sell you a Trump University PhD at very attractive price.

        Need more proof that Trump is owned lock, stock and barrel by Wall Street. Here’s what conservative Red State has posted:

      • Petunia says:

        Steve Bannon is also former Goldman Sachs alum.

        • rich says:

          I know Bannon was, and that’s why it was in my post.

        • OutLookingIn says:

          Same old. Same old.
          Once more, the American people have been led “safely” across a busy highway, only to be thrown under the nearest bus by their newly elected “dear leaders”.

          When you happily live in a swamp, its not in your interest in the least, to drain it! Chalk it up to just another “Trumpism”. Swallowed hook, line and sinker by the electorate.

        • Petunia says:


          What wasn’t in your post is that these GS guys are not that smart, they are just greedy. It wasn’t an accident that they blew up the economy and had to get rescued by the govt. The Clintons gave them the green light.

          And crony capitalism is just a polite way to say we live in a fascist state.

      • Saylor says:

        Instead of ‘draining the swamp’, it looks like Trump is just adding more alligators.

        • economicminor says:

          Piranhas maybe along with the aligators.
          Not a good place for any of us to swim, that’s for sure!

        • d says:

          “Instead of ‘draining the swamp’, it looks like Trump is just adding more alligators.”

          Thats how he intends to get the water out of it.

          No think post P45 and start making your alligator lists NOW.

          They will be protected species, until post p 45 when it may be possible for the US to have an open season on them.

          But probably not I mean to say, the average American voted for P45 and will probably replace it with something just as bad, calming it to be good.

          Electorates frequently elect the governments they deserve.

          America deserves p 45 and he is going to make them PAY for his Term/Terms.

        • Edward E says:

          Wish Trump had picked Gary Gensler instead of Steven Mnuchin, at least he wrestles with his fellow alligators.

          Make Atchafalaya Great Again

        • rich says:

          “What wasn’t in your post is that these GS guys are not that smart, they are just greedy.”

          Petunia, they are that smart, and it was not the USG that bailed them out. TARP was only window dressing. The Fed gave them access to at least $29 trillion. Yes, trillion with a “t”. So they paid the 6% TARP money back with zirp money. They were certainly smart enough to engineer that, and the TBTF banking kingpins have made more money than ever, since the crash.

        • Edward E says:

          Paul Craig Roberts gives a decent insider’s explanation for the appointments, it is worth considering this take on it.

        • nhz says:


          So they paid the 6% TARP money back with zirp money.”

          Don’t forget the 1% donation to the Clinton Foundation (or 3% in case of G$, probably because they got the jackpot)

    • unit472 says:

      You lost the goddamned election despite Obama doubling the national debt and having the media demonize Trump. Now you are going to live with it and if that means you have to get a real job so be it. Too many public sector parasites need to have a ‘shovel ready’ job outside.

      • DH says:

        What’s that supposed to mean? I’m a relatively fiscally conservative, small business owner who didn’t vote for Trump. It’s laughable to choose an egomaniac billionaire to run the country over a bookish centrist, and we just handed the economy back to Wall Street and the billionaires. Yeah, I’m sure they’re really concerned about the working man. lol

        • RD Blakeslee says:

          Madam Clinton a “bookish centrist”?


          If the records of Trump’s appointees are accurately and fully described in the posts above (I admit my ignorance), it appear to me that both candidates are “plutocrats”.

          As George Wallace used to say: “Not a dime’s worth of difference …”.

          Except, I suppose,, the Clinton’s are “poor” noveau rich – their record is one of greedy acqisition, but they started from way down and didn’t have time to get to, e.g., Soros’ accumulation.

        • DH says:

          Yes, that’s exactly my point. Both are plutocrats, lairs, etc. but Trump is a thin skinned dolt, and he’s practically shown his entire self-interest hand in only a couple of weeks of being president elect. Clinton may not be a great option, but she’s still the adult in the room.

      • economicminor says:

        I get tired of people denigrating the poor public worker. I am a small business man and I know a lot of public employees who work very hard under tremendous pressures to do their jobs. And most of the things they are trying to do have huge public benefits.

        The problems in this country have very little to do with the public sector and much to do with the Political and Financial Idiots that make the rules we all have to operate under. The public sector is limited and directed by the Political sector. At least put the blame for what is wrong on the right people.

        You are blaming some of the victims for their bosses poor job performance.

        • DH says:

          No kidding. I don’t recall every thinking my teacher, police officer, FBI, etc. friends weren’t working hard. Heck, my poor mail person looks like he’s going to have a heart attack every time I see him!

        • night-train says:

          Well said. My work also brought me into contact with public sector workers at several state and Federal agencies. I found the vast majority well qualified and doing their best to do their jobs. I also found them to be over-worked, under-paid and working for political appointees put in place by elected officials. It has to be demoralizing to keep trying when the system is designed for you to fail.

      • Jerry Bear says:

        Aha! Another troll pokes its ugly head above the mire. I think you mean more along the lines of “throw the American people to the wolves and grind the faces the poor into the dust”.

  3. night-train says:

    Higher mortgage rates. Higher housing prices. Workers with no real income growth in 20 years. I believe we have a trifecta!!

    I wonder how the house flippers will respond to the latest “new normal”?

    • nhz says:

      in Europe the response is easy to predict: demand more government support for homeowners (which often especially benefits speculators). Over here they are already demanding stuff like a government-enforced cap on mortgage rates, or compansation of higher rates; and extension of the free “government put option” for home prices to far more than the current EUR 275K.

      Homeowners are a majority of the voters in most countries, so they usually get what they want, especially now with elections coming in many EU countries. Privatize the gains, socialize the losses :-(

      • DH says:

        That’s what worries me. Not only do the majority of voters own homes, but Wall Street and the Fed have invested a lot of money in real estate in the last 8 years…and now we have a real state baron for a president.

        I’m patiently waiting on the sidelines to buy a house, and, while the recent mortgage rate rise excites me a bit, I’m worried that there will be more tricks to artificially inflate the market, because few want it to go down.

        • economicminor says:

          you mean in trying to get water from rocks… i.e. same as getting more money from the impoverished workforce.

          This Ponzi can only go so far before there just isn’t any one else to take from.

        • DH says:

          Well, Mnuchin is already talking 100 year treasury bonds, so I’m sure they’ll try to get creative.

        • night-train says:

          DH: We are remodeling the house we planned to sell after the 2008 crash when prices came back to earth after the boom. As you know, they never came back to earth in many areas. We aren’t even pretending that they will reprice to something in a historical price range this time. Hence the remodeling, pain that it is. But, I do wish you luck.

        • nhz says:

          @DH, night-train:
          in my country too some of the more sensible people are remodeling instead of frequently ‘upgrading’ as was common before 2008 buying instead of renting. After 2008 prices over here dipped 10-20% depending on location, but that was nothing compared to the prior 1000-1500% runup. Any correction back to sensible price level (without subsidies etc.) would ruin the country, there are no good future options left.

          Our bubble has already lasted one generation (30 years) and shows no sign of ending. In my country especially Gen-X has been crushed by these policies; most of them will probably never have a decent home with decent cost, while the greedy speculators (the majority) have been richly rewarded for ages and it remains to be seen if they will ever pay for it. Most of the Millennials here have chosen to play the game, be a debt slave and hope to get filthy rich along the way just like the boomers; if the bubble collapses there won’t be any money to collect from them so why worry …

  4. Albert E says:

    Panel This episode of willfully driving bond yields into the negative will go into the annals of history as the moment “peak stupidity,” not by central banks who operate in their own world and for their own purposes, but by those who bought these damn things when they sported negative yields, rather than dumping everything in the house. For institutions that have to buy long-dated bonds no matter what, such as insurance companies, history, if it’s going to be kind, will coin a new term: “forced peak stupidity.”’


    Keep Howling Wolf.

    And then there’s the euro banks as per Don’s articles…

    The masses really should read wolf street


  5. Albert E says:

    Sorry for the extra word at the start I blame my i device

  6. nhz says:

    I’m fully expecting that despite the ‘rout’ in Europe, rates on savings accounts will decline again next month and maybe even go negative :-(

    And mortgage rates aren’t going to bite here until they are up at least 100 basis points. Monthly payments for those who purchased recently are extremely low, while those who purchased longer ago should have a big buffer thanks to the price gains. Nobody has any reason to sell and I guess they all learned the lesson from 2008: the government has your back, all speculators will be richly rewarded.

    Will be interesting to see how much the EU banks lost over the last week assuming they were stuffed with government bonds (or did they pass those along to widows and orphans just before the crash, as usual?). The Italy vote this weekend might be icing on the cake, I sense another taxpayer robbery in the works.

    • d says:

      “EU banks lost over the last week assuming they were stuffed with government bonds”

      Bank’s didnt loose anything on them as they hold them till maturity (unless they are forced to cash them). If banks are forced to cash Govt stock early, the losses on it are the least of their worry’s..

      They only time they may sell them willingly before maturity, is at a large profit.

      where they will get hurt, is there is no return on them.

  7. AlbieOk says:

    I don’t believe we have reached peak stupidity. Yet. The usual response to institutional stupidity is more institutional stupidity.

  8. william says:

    Contrarian view: A large portion of US house purchases are all cash. ROI of single family homes is still significantly higher than alternatives in a large portion of the U.S. Many markets may experience price declines, but not all. This is not a repeat of 2008 when fraud, sub-prime loans, zero-down programs, and ARMs were rampant. We are not headed into an economic collapse as a result of a real estate bubble.

    • MC says:

      The situation is far more nuanced.
      On some markets cash is indeed the king: Miami-Dade (54%), Tampa (48%), Cleveland (45%), Orlando (42%) and Memphis (41%).
      But on several prime markets the percentage of cash buyers drop well below 30%: Metro LA is 23% cash, San Diego 21% and San Francisco and Seattle are tied at 20%. The crown is taken by Denver with just 16% paying cash.

      As we’ve said before, the peculiarity of housing bubbles and bursts is they don’t need to affect whole countries. At exactly the same time some markets may be doing very well while others are collapsing.

      It’s beyond doubt the whole West Coast has a serious problem. Prices are insane, and when prices are insane all sorts of “unusual” things happen.
      These include but are not limited to more financial hijinks to pay off huge mortgages, “unaffordability” even for people with more than reasonable incomes, building booms which turn out to be counterproductive etc.
      This will surely lead to very serious problems down the road.
      Personally I don’t think the whole West Coast housing market will collapse all of a sudden. It will be much more like single markets going into steady but unstoppable decline as new buildings enter the market (and there’s a reason why people talk about “forests of cranes”) or perhaps bursting, as dubious lending practices emerge or as owners stick to ridiculously high asking prices.

      If you live in Cameron NC this won’t affect you, except perhaps if you want to pick up a West Coast property at a good price to flip at a later date.

    • Wolf Richter says:

      “All cash” can be an illusion.

      A lot of the “all cash” buyers are investors, foreign and domestic. These investors pay cash and borrow at the institutional level, where they can be highly leveraged:

      – Sometimes using these properties as collateral
      – Sometimes just pledging the cash flow from these properties
      – Sometimes (as is the case with unsecured bonds) never offering any kind of security, which allows them to use these properties as collateral for other debt.

      And unlike a regular homeowner with a mortgage, they only pay interest on bonds, term loans, and other funding instruments used to fund these purchases.

    • Greatful again says:

      Yes, I’ve been selling SFRs in fly-over country all last summer and it’s been steady. Prices are up for the last two years, but nothing like coastal regions. Just closed one with all cash. The lending for this real estate cycle has been quite conservative. I doubt it will see a crash. A correction, yes, but not a crash. As the USD keeps rising, the economy will get hammered and that will probably be the cause.

      • Dan Romig says:

        In my area between MSP airport and downtown Minneapolis, there have been a fair number of smaller and mid-level priced homes that have been listed and quickly sold. Not many stay on the market long. There are a few multi million dollar homes on the St. Paul side of the Mississippi that are on River Road that haven’t moved though.

        Homes in the $100k to $300k range seem to be in demand. It will be interesting to see how rising mortgage rates affect sales. The first-tier suburbs offer the most home for the money generally speaking on the first time buyer level, and I would assume this holds true in most of middle-America.

    • Tom Kauser says:

      Real estate will never go down!
      The downturn is isolated to the coast
      The flippers walking away from their loans caused it!
      The shadow banking system made bad loans which the banking industry was naive toward who was the buyer?
      The inter- city folks never made one mortgage payment and Obama is going to save his people.
      The banking system had to repair itself by foreclosing on 10 million deadbeat homeowners?
      The real estate crash will not be televised next year!

    • John M says:


      In 1980 US debt to GDP was 30%. Its officially now 106%. We’ve a massive number of 95million not in the labor force, who must be pulling some kind of benefits. Baby boomers are retiring at the rate of 11,000/day. Unfunded retirement liabilities can’t just be eliminated by moving the retirement age from 65 to 67 because these folks don’t have jobs as it is. Interest rates are going to continue to back up to find a “Normalized” level. The whole situation is a Ponzi. As Victor Sperandeo explains . Each 1% you move interest rates up costs $200billion in service costs / $20Trillion as that debt gets rolled over. This will be an ungodly mess. We’ve done nothing but kick the can down the road for the last 16 -20 years.

      • Ed says:

        Quite a lot of those 95 million or so “not in the labor force” aren’t counted but they’re working for cash.

        • economicminor says:

          So then the Banksters will fix that by removing cash like India is trying to do…

          Problem fixed, all those geezers working for cash will have to report it oe quit so the gubbermint can add it to their stats..

        • d says:

          Wont happen like than.

          Silver is just sitting and waiting.

          The war on cash is the return of silver.

      • Tom Kauser says:

        My retirement age is 67 and 8 months.
        Our national debt has an average maturity of 5 and a half years.
        The rest of this post makes a case for loading up on more credit than not?
        The media is fake news no matter the channel or website!

    • Tom Kauser says:

      They paid off the speculator’s bad bets from the treasury at 100 cents on the dollar and made a movie about the swindle!
      Don’t count your chickens ( no pun)!

    • interesting says:

      it could be worse, at least homeowners that live in the homes have an incentive to stay in the home. Institutional investors have already started to unload house as i think they see the writing on the wall and, even though they paid cash for homes, that “valuation” might be collateral for something else on the books. Once that “value” starts to evaporate they will unload to the “buy high sell low” crowd.

      but make no mistake RE is a bubble again and all bubbles unwind at some point. We won’t really know until prices start dropping again when the tide goes out and we find the skeletons in the closet.

      but what the fuck do i know, i always thought the system was based on capitalism and i think we can put that myth to bed.

  9. Kam says:

    Or “all cash” can be a Chinese “investor” directly, but usually indirectly, paying cash borrowed but never paid back to the lender (sucker) bank in China. Hot, dirty money is the core of Vancouver, B.C. real estate.

  10. Chicken says:

    Draghi has another E80B to spend before Christmas…. He’s Germany’s investment banker!

    • MC says:

      But how to spend them without driving repo markets even further into the ground?

    • Tom Kauser says:

      Its easier for a DJ on Ibiza (Spain) to get a fed loan in the dead of winter than a farmer in Ohio could get at the beginning of spring.
      Europe is the home of our gloriously intelligent overlords who rule over the fed and Europe will get real help and America more jawboning?

      • Chicken says:

        Some intelligent corporations have issued bonds denominated in Euros. Thus, say for instance the euro goes extinct it seems those bonds won’t be worth much.

        Similar thing to COCO bonds issued by some euro-banks, which convert to common shares under certain circumstances, according to the fine print.

  11. Greatful again says:

    DXY climbing, treasuries getting slammed….where’s the safe haven play? People are getting USDs, but where are they putting them? The stock market? The wheels look to be coming off from most perspectives.

    • Albert E says:

      The wheels came off in 2008 if not 1971

    • Albert E says:

      Hint- Route 1…it glitters and it is… Route 2 a poor man’s version of route 1… Route 3 a digital equivalent, money which is finite rather than infinite, in fact this applies to all three

  12. Albert E says:

    Sad that cash purchases looked at with scepticism and even disdain. It’s the way things should be folks. Mortgages and specifically double entry bookkeeping are the biggest con…
    Ps when I say cash purchase I mean you earn and accumulate over many years and then you buy something. U know the old fashioned way

    • interesting says:

      “Sad that cash purchases looked at with skepticism and even disdain”

      That’s not the way it is at all. The issue is speculators driving up prices to sell to the greater fool where as without that speculator home prices could level off to a price where working people could buy houses.

      If it was working folks buying houses to live in there would be no issues.

      • Albert E says:

        The powers that be rely on house prices being driven up. If they weren’t their ponzi scheme would collapse. Which may happen.

    • subunit says:

      Wait, what’s wrong with double entry bookkeeping? Are you advocating pre-Medici accounting systems?

      • Albert E says:

        What? You think it’s ok that commercial banks get to create mortgage money out of thin air? Do you realise banks do not pair up savers and lenders? Do you realise they have been given the power to create money at the point of lending. This is how most money is created. And this is why we are screwed.

        • Albert E says:

          Should have said savers and borrowers. But point being how logically can these private entities be given the power to create money, then when they fail citizens or depositors bail them out/in, but if u guys with your mortgages cannot pay they take your house but they expect you to pay several times the value of the house for all their trouble. Otherwise the house is theirs. Only works if house prices but your savings too get inflated away. Hence debt is money. The way the world works. And here was me thinking I was in knowledgeable company.

    • Jerry Bear says:

      Oh? So you buy your first house when your kids have already grown up and left the nest?

      • Jerry Bear says:

        You arein knowledgeable company Albert. try expressing yourself more clearly and accurately. No more “I should have said”‘s.

        • Albert E says:

          No more areins. It’s two words I believe. Well as a doctor, writer, scientist and academic I have managed to get this far in life despite apparently not being able to express myself clearly. So doubt I’ll change.

      • Albert E says:

        Possibly. Or don’t have kids. Or embrace the debt is money paradigm. Or buy within your means with fiat you have earned and saved. The choice is yours.

  13. TCG says:

    All cash can happen, but I suspect the percentage of people really paying cash is very dependant on circumstances.

    Someone selling their 1.2 million San Francisco bungalow and moving to Ohio or someplace can afford all cash, maybe even a couple of homes if they want to do that.

    Someone with good jobs and dual incomes in a market where the median price is only $200-300k can maybe save every penny for 3-5 years and pay all cash.

    People look at incomes places like SF and think it’s a lot of money, but unless someone is a financial pirate or independently wealthy even a modest home here isn’t very attainable without a loan. If you were saving for 5 years to do all cash then that hike in price might have gone from 700k to 1.2m while you were busy saving. The people buying all cash here here are not average Joe’s unless they’ve sold a previous home here to pay for the new one.

    • Albert E says:

      Yeah and that’s the problem. Why live there then? Obviously it’s a free world. But logic would say save, start small and work your way up and don’t rush to big centres if it doesn’t make sense ,aye just visit there. Modern speed and greed does not allow I know, people want the lifestyle and that’s it, they have to have it. I have owned 4 properties in the uk. First circa 50k 1995, second circa 80k 2000 then sold 100% profit, third circa 300k 2003 then sold 50% profit, current 1.3 mil condo in London. I suspect that going forwards the big urban centres will not be nice places to live. So getting ready to get out of the big smoke. All of this done for cash. No mort gage. It can be done. I suspect in the coming financial work the engineered house price inflation would not necessarily allow a similar route as this. But I suspect that there may be some housing bargains over the next few years.

      • DH says:

        There’s certainly a delicate balance between being one of the sheep and being left behind, and my wife and I struggle with it everyday. I think part of the problem, too, is that families start so much later these days. It would be one thing if I was 23 years old and looking to buy my first home, but my wife and I are around 40 years old with a 4 year old child, so I’m not looking to buy my “dream house” when I’m dead. :)

        In our case, we’re certainly not as uber conservative as you are, but we’re trying to remain somewhat conservative as we wait on the sidelines to buy a house, and we’re only looking at houses at about half of the value of what banks will actually lend us, when the time comes.

        • Albert E says:

          I think the fact you’re thinking about it and struggle with it is the key. I had help from my family, first house was when I was in my late teens, worked pretty hard, don’t have dependents and benefited from the fakery that is the economy and the housing market. Also if I were u I’d struggle with timing knowing rates will go up but there may be a big crash and then prices will come down at least for a bit… until we get hyperinflation in which case all bets are off

      • Paid Minion says:

        “…….don’t rush to the big centres……..”

        Which is contrary to the lectures that the wretched refuse are getting from their betters: “…….move out of BFE and move to the big coastal cities, which is where all of the good, high paying jobs are.”

        Which is exactly true for a number of industries. Negative “growth”. The only way to get a better job in flyover is when someone dies or retires.

        SOP in the airline and corporate pilot business for a number of years now is keep the house in BFE, then fly to the coasts when you go on duty/have a trip or contract. To the detriment of any kind of family life, or sleep. But if you lost your job circa 2001-present, it’s pretty much what you have to do, unless you don’t mind taking a defacto 25% pay cut to get a job in BFE.

        Unfortunately, us wrench turners are pretty well fooked. Any job posting for a decent paying job on the coasts always has the “local applicants only” disclaimer.

        It’s pretty goddam frustrating, to work forty years to reach the pinnacle of your profession fixing airplane, then be told that “you cost too much” if you make more than $75K/year.

        • Jerry Bear says:

          Could you please refrain from using incomprehensible acronyms like SOP or BFE? Some of you others do it too.

      • Jerry Bear says:

        You have to live where your work is Albert. Were you born wealthy?

        • Albert E says:

          First part may or may not be true. Answer to second part no. We worked hard and saved. Try it…

    • Chicken says:

      Someone’s paying cash, guess it’s not you. Too bad we didn’t take out the bad actors when the chance existed, the DNC let us down in big ways.

  14. economicminor says:

    Somebody has to be hurting. $1.7 Trillion is a lot. This has to show up somewhere. I mean besides the obvious rate increases for mortgages and auto loans.

    I wonder how many of these crane projects get left unfinished? Continued financing while interest rates rise and demand falls doesn’t bode well for the developers. This will then cause a down turn in those companies and workers building them. Seems that this should put a wooden stake thru the heart of all this new commercial space too. And stock buy backs.

    It took 30 years to get to the bottom. I also wonder if the rise back up will take as long or go to where this started or just back to just above the mean?

    It seems easier to lower the rates by the FED buying securities than it will be for them to stop the deflationary implications of rising interest rates. Especially now that they have no room to lower the interest rates again.

    • economicminor says:

      I mean, isn’t most all financing based upon the underlying asset value. As interest rates go up, this should affect those values. Because aren’t they inverse?

      • Albert E says:

        I suspect, as per many of Wolf’s articles, that house prices are about to get hit very hard. Everywhere. I suspect within 18 months but could be longer of course. This madness cannot go on.

        • nhz says:

          If you look at the Dutch Herengracht Index you can see that home prices (as valuation-to-income ratio) tend to move within a certain band, which in the Netherlands has about a 5x difference between bottom and top. Note that this is a ratio and nominal prices can change far more than 5x because incomes also fluctuate strongly between good and bad times and more recently due to currency fluctuations and inflation.

          Around 2000 home prices in Netherlands moved above the band from the previous 400 years; they have dipped back slightly around 2008 but are still near all time highs and outside the 400 year band. If history is any guide, catastrophic valuation declines cannot be avoided but they could take many decades to play out – which means that waiting for the bottom by e.g. renting will be very expensive.

          The situation in many countries in the West is similar, although the timing maybe be different. Robert Shiller used the Herengracht Index for some of his work on the housing market. If I remember correctly there is a similar valuation-to-income band for home prices in the US, only its history is a bit more than one century instead of nearly four centuries in Netherlands.

      • Tom Kauser says:

        The fed is trying to create controlled chaos by allowing bond sales to continue as if they are passive observers?
        The fed needs higher rates from an economy running hotter than normal, as it continues to exchange treasuries for mortgages or worthless dollars?
        A likely outcome of allowing 1.7 trillion dollars of bonds to be bought back makes the time value of holding American credit more desirable to foreign buyers?
        I fear for real estate due to the fact that during the great recession congress passed five housing bailout bills which probably won’t be repeated this cycle?

        • Chicken says:

          Worthless Dollars? Where have you been during this entire “Worthless” Dollar Rally? Sheesh, where do you think this heads when the euro finally collapses as these countries surely realize the ECB is unworkable, unelected Davos elites club sucking the life out of Europe and if it doesn’t it will once Germany gets stuck with a huge bill then it blows apart.

          Worthless dollars, lol….

        • d says:

          Worthless dollars,

          Most defiantly Worthless US dollars quit soon probably. And worthless euro’s as well.

          Realistically not muck looks good.

          CHF, AUD, Silver, Nickel, Copper, Aluminum, Tin brought at the wright prices. Zinc and lead have gone nuts lately but that is Chinese speculators buying something cheap IMHO. They will bubble over, as most other chines hot money bubbles have

  15. Chicken says:

    Someone please explain how banks got out of their 2008 housing pickle? I don’t see how unless they were allowed to socialize their losses.

    • Albert E says:

      Mortgage ‘money’ is created by the ‘process’ of double entry book keeping. That money did not come from anywhere and hence even if the bank never gets it back there is no loser other than the homeowner who loses the home they didn’t actually own. Banks have to be able to pay each other back which is where things start to unravel with all these bad loans. But really I don’t myself see what is a good loan in the modern world. Private enterprise should not be able to create money. You can argue whether central banks should be able to do most of what they do. But what often gets neglected is that the retail banks have a licence to print money. Fractional reserve is a smoke screen for this. Wolf and others may have a more technical and specific argument but basic modern money mechanics means there are no actual losses on loaned money since the bank merely creates that money (debt) rather than loaning that money from deposits. What a wonderful world that the bank charges us for holding our money with NIRP and then is free to create money/debt pretty much at will and charge for that too. Wonderful. But to answers your question tritely: there were no losses. Only the threat of the collapse of the global Ponzi scheme. Which was remedied with money printing.

    • Albert E says:

      Btw they may not be worthless quite yet but don’t hold on to ’em too long. Sure it’s the best fiat bunch. For now. The bad news is nothing lasts forever. The good news is nothing lasts forever. It’s pretty amazing the dollar’s lasted this long with what they’ve done to it. My guess is it won’t make it past 2020. Either you’ll have to have a domestic one and an international one but more likely it’s all about the IMF SDR SOLUTION.

      • d says:


        The SDR has CNY in it, no self respecting currency trader will “Invest” in it now.

        Now real bank will hold it.

        • Edward E says:

          Herbert Hoover 2.0? Rickards and Middelkoop seem to think so. JC Collins not so much.

          The IMF will print the equivalent of $10 trillion in world money called special drawing rights.

        • d says:

          Print as much toilet paper as you like.

          People will use it.

          They will not HOLD IT.

          One of the reasons why we have this housing insanity in the west.

          The chinese, with CNY, don’t want to HOLD it. And china has printed MANY times what they say they have, as usual.

          Proof of this is that they can seize TRUCK LOADS of CNY from a corrupt generals house, and it didnt even raise a blip in the circulation numbers. The average truck load of $ is over a billion, so how many BILLION was he sitting on?? How many Extra TRILLION have they printed and lost under mattress and in Generals Houses??

          And the CB’S have made the price of Gold Untenable. In their games of force the slaves to hold their wealth, in our Toilet Paper.

          Global SDR without Global control wont work.

          This globe is long way from Global control.

          It can even get Global trade laws operating.

          So your SDR will only effect a few of the Global players.

          Drug dealers aren’t interested in you SDR digits, you can turn of in a machine.

          And Drug Dealers/Warlords ferment revolutions, every time. As they already have the soldiers, and the weapons.

          SDR is not the answer, fixing the financial system’s faults is. There is still time.

          The big banks now don’t want it to happen, as it will wipe several of them out. Particularly in the US and CHINA.

        • Columbian says:

          SDR”s wI’ll not be used in every day commerce. This is the “big boy” money. Soros and Roth child’s and international banks will use this money for trade and commerce settlement between countries.

        • d says:

          Do you really expect George to HOLD CNY???????????.

          Come on.

          He is a tribe member, not a very nice one, but still a member.

          There is more chance of him Holding, Rub than Cny or anything with Cny in it.

          SDR is a stability payments, system thanks to POTUS Elect 45 the only 2 left in it worth touching. Are Yen and Sterling. Neither of them are that great.

          A lot of thing have to happen, before you can have a “world money” based in something other than a tangible asset.

          I have converted my trading accounts base from USD to CHF.

        • Columbian says:

          I totally agree. With central bank balance sheets across the globe maxing out on debt, SDR are the only source of liquidity left in the system. We’ve hit a point in history where all the currencies in the SDR are becoming worthless. 1.7 trillion dollars of bonds imploded. Who wants these fiat currencies? Trump winning the Whitehouse should have cratered the stockmarket, gold should have received a good bump, but world finances are inside out. The falsification of the price of money truly has made a mess of everything. A .25% rate hike will ADD 50 billion dollars to the US interest on national debt. And yet the stock market hits new highs on the belief The Donald is going to get the debt ceiling raised when as things stand without a single one of his programs the US debt will be 35 trillion dollars in 8 years. It’s total madness!

          Is there really a solution that isn’t going to hurt like he’ll?

  16. Anon says:

    The Franklin California Tax Free Income Fund reached a high net asset value for 2016 on 7/11 at $7.86 per share. On 12/1 (yesterday), it reported an NAV of $7.20 per share, for a peak to trough decline of 8.4% (not counting income). Welcome to the bond market meltdown.

    • Bob says:

      It’s not much of a meltdown if it only erased recent gains. There’s not much to be concerned about at this point. If it goes down another 30% and erases a few years of gains, some actual damage could be done.

  17. Julian the Apostate says:

    Be wary of this “all news is fake news” meme. It is an attempt to cover bad or downright intentional mendacious reporting by projecting the motives behind collectivists onto all reporters. The truth is their enemy. It is a liar proclaiming that everybody lies. There is no need for this warning…both the liars and the truth tellers will show it by their actions.

    • Edward E says:

      ‘Ol PCR sure has been busy about it. Even calling for a boycott of Amazon/Jeff Bezos

    • Jerry Bear says:

      The majority of the lying I see is coming from the far right. And much of this is not intential but delusional. As for a su[[posed “collectivist conspiracy”, it doesn’t exist anywhere but in the crazed minds of mad men like Glenn Beck.

    • Columbian says:

      Obama is already talking about a “ministry of truth” to combat “disinformation” from “fake news sites”!

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