Get Used to Lousy Growth AND Rising Rates: Fed Dove Dudley

The bond market is already doing the math.

For the year 2016, economic growth is expected to be a miserably slow 1.6%, according to a survey of “professional forecasters,” released today by the National Association for Business Economics (NABE).

For next year, the forecasters are more optimistic, but it’s the same lousy optimism that would have been considered rampant pessimism before the Financial Crisis. They lowered their forecasts to 2.2% growth for next year. And as they nearly always do as they get closer to reality, they’ll likely lower that forecast again and again.

So forget “escape velocity.” That concept was officially defenestrated a while ago. The report explained:

[T]he slow pace of growth in recent years may be the “new normal,” as more than 80% of survey panelists estimate that the potential rate of economic growth will be 2.5% or lower over the next five years.

They expect inflation to rise to 2.3% in 2017, despite the lousy economic growth.

And they expect the Fed to hike rates in December – by now, everyone is taking that one for granted – plus two more times next year to bring the midpoint of the target range to 1.125%. That’s the expectation.

But this expectation may be too slow, according to musings by New York Fed President William Dudley. The Fed dove, and one of the most influential policy makers at the Fed, told CNBC this morning, couched in numerous caveats and things “we don’t know,” that more government spending could mean the Federal Reserve would raise interest rates faster.

“But if fiscal policy were to turn more expansive, and that would lend support to economic activity, then the Federal Reserve would probably remove accommodation a little bit more quickly over time.”

Also today, his breakfast speech at The Roosevelt Hotel in New York took a similar course. The economy was in “reasonably good shape” from a cyclical perspective, he said. Consumers were hanging in there, but over “the longer term,” the economy faced “significant challenges.” He named some of the structural issues, including the effects of income inequality:

In particular, productivity growth has been anemic over the past few years, while income inequality has increased and income mobility remains low. As a consequence, the gains in living standards generated by the current business expansion have been modest compared to previous expansions, and these gains have not been widely shared.

He was somber about economic growth. He figured it “averaged about 1.8%” in 2016, and it “seems likely to continue at or slightly above this pace in 2017.”

That 1.8% growth for next year isn’t exactly hot. But inflation is rising, or as he put it, “we are making progress in pushing toward our 2% objective.” And rates will be going up.

“Assuming the economy stays on this trajectory, I would favor making monetary policy somewhat less accommodative over time by gradually pushing up the level of short-term interest rates.

In the markets, this tightening is already happening. He pointed out that bond yields have risen and that the dollar has appreciated: “On balance, it appears that financial market conditions have tightened modestly.”

My personal interpretation of these developments is that market participants now anticipate that fiscal policy will turn more expansionary and that the FOMC will likely respond by tightening monetary policy a bit more quickly than previously anticipated. Assuming this expectation is realized, the recent modest tightening in financial market conditions seems broadly appropriate.

And this “recent shift in financial market conditions” – this tightening in the markets – wasn’t anything “that should prompt great concern,” he said.

It is important to distinguish between a tightening of financial conditions that is driven by an increase in risk aversion from one that is driven by a greater likelihood of stronger near-term aggregate demand and less downside risk to the growth outlook. We experienced the former at the beginning of 2016, while the latter reflects current expectations of greater fiscal policy stimulus.

The jump in bond yields and in mortgage rates and in other interest rates is just a reflection of where the markets think the Fed is going, which he finds “broadly appropriate.” So the Fed isn’t going to refrain from hiking rates just because bonds are cratering, yields are jumping, and mortgage rates are rising.

Thus, the Fed dove laid out a principle: Economic growth has been lousy despite super-low interest rates due to all kinds of structural issues that these super-low rates and even QE could not cure. And so economic growth will likely stay lousy. It’s the “new normal,” as NABE had put it in its survey. So get used to it. But if the economy continues on this track, and given the policies proffered by Trump, interest rates will likely rise “a bit more quickly than previously anticipated.”

Numerous other Fed governors have recently spoken out on the concept of higher rates, including Chicago Fed President Charles Evans who said today, “We are on the cusp of a period of rising interest rates.” That would be a new era for a whole generation on Wall Street, and for homebuyers, commercial real estate investors, and all kinds of other investors and speculators operating on leverage: The math is going to change.

And the spike in mortgage rates will certainly come in handy. Read…  Government Bond & Mortgage “Meltdown” Crushes NIRP

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  93 comments for “Get Used to Lousy Growth AND Rising Rates: Fed Dove Dudley

  1. Albert E says:

    I fear some of us born after the original stagflation are going to get a chance to wallow in it…

    • Sam Grant says:

      Sorry to change the subject guys, but is no one but me alarmed at the fact that the House just quietly passed H.R. 6393 targeting ‘Russian Propaganda’ Websites” ???

      While it’s not gone through the Senate yet, it will and then it’s OVER for all those sites. THEY WILL BE TAKEN DOWN. I feel immediate action must be taken by those site to set up one or more mirror sites as an alternative to their main one, and then organize a Go Fund Me campaign to raise a coupla million$ to hire a top, pit bull of a humanrights/First Amendment law firm and take the OFFENSIVE on this horrible attempt to limit free speech. Complacency now is death for the alternative media. I cannot believe there isn’t more or a clamor being made over this!! Where IS everybody??? Your very existence is at stake!!

      • Ishkabibble says:

        This most recent election has scared the Elite. They must somehow get more control over the herd and now that means limiting competing information from non-MSM sources — especially because the MSM is broadcasting fake news (propaganda) and much, but not all, of the competition is describing reality (AKA “truth”).

        Joseph Goebbels — the Nazi master of propaganda — explained propaganda best:

        To put the situation as briefly and bluntly as possible, the MSM will not broadcast anything that results in the herd questioning or resisting the will of their Elite masters. That’s why momentous events like this bill are purposefully not mentioned in the MSM.

        • Petunia says:

          I try to watch as much as I can stand of the msm in the mornings. These people think the viewers believe them. I just like to see what they’re up to.

      • Albert E says:

        And in the UK the snoopers charter or whatever it is. And in India the cashless experiment. The end game is in sight whatever that is. Sadly I think zerohedge will be one of the first to go. Wolf is not political so hopefully we have more time here. I’m afraid there is little we can do but at least most of us here see it coming.

        • Albert E says:

          Also agreed, I spend most days keeping an eye on what the msm are up to. Then evenings catching up with reality. But yeah I guess to most of us here, whilst it would probably drive us crazy not being able to have our suspicions and fears confirmed and expanded upon: without the truth on such corners of the Internet as this, I think we would still continue to see what they are up to. And by then the crisis will have hit so I guess by then there wouldn’t be too much for us all to talk about ;-)

  2. walter map says:

    ‘Lousy’ growth my ass. Try negative ‘growth’.

    Detailed fact-checking suggests the opinion of is quite correct: the U.S. economy has been in recession for 15 years and shows every sign that it will continue to deteriorate.

    It gets even worse if you discount the contribution of the FIC to GDP, since that is unproductive money-shuffling merely and is entirely extraction. This leaves only the contribution of the real economy to U.S. GDP – which is declining because the U.S. economy is in fact getting liquidated in favor of low-wage, no-regulation markets. The U.S. is useful only as a corpse to be bled of the accumulated wealth of its middle class, and that wealth is getting redistributed upward as fast as the billionaire class can get away with it.

    Europe is largely in the same situation.

    The world is owned and operated by Ferengi wannabes. What did you expect them to do?

  3. anonymouse says:

    What prevents all of these governments collaborating to suppress real economics? In the past it was self interest and not trusting others. But now with central banks conspiraring together… Its like governments all agree to keep the status quo when they’re sinking. The system will only break when trust is broken or self preservation becomes a higher priority. This means alignments aka war or resource availability changes the status quo. Waiting…

    • Tom Kauser says:

      They hoard assets!
      The central banks steal the production by issuing chits instead of sharing the fresh portion of the capital with the workers?
      The real production is converted into productive assets while the holder profess ignorance toward the bait and switch?

      The fed needs lower rates to emerge from the debt pile and must now force a recession to get there before the new president takes overl

  4. michael engel says:

    Prof. Michael Hudson :
    If Debt/GDP is 1:1, GDP growth is 1% and we pay % rate of 5-6%,
    debt payment, to the financial sector, eat more and more of our
    income and leave less for products we produce. That is

    DEBT DEFLATION , a vortex.

    • Kent says:

      One of the core reasons that growth is a requirement of the system.

      • Gerald Stehura says:

        How can we keep our economy growing without destroying our ecosystem and thus our very survival? We can disregard reality and science and live it up in our happy motoring illusions.

    • OutLookingIn says:

      To expand the fiat unit supply, the banking sector must loan it into existence with attendant interest charge.
      Only the fiat units to repay the interest do not exist!
      Until there is economic growth from the initial loan.

      This is why the fractional reserve banking system must always have growth or it will slowly wither and die.
      It has been on it’s death bed for years. How much longer the central banks of the world with their economic wizards, can keep it going with their hocus pokus incantations, is anyone’s guess.

      How they have kept this financial cadaver sitting up this long has amazed many and astounded the remainder. It could come as a quick explosion as it blows up worldwide, or it could come as a slow dragged out asphyxiation, which seems to be what we have.

      • Albert E says:

        Great comment. I read Ellen Brown’s book Webt Of Debt circa ’07 and life has never been the same again. She makes that point about the interest money not being loaned into existence unlike the principal amount. As I always bang on about it makes no sense to me that private enterprise can create money out of thin air under he veil of fractional reserve banking.

      • Meme Imfurst says:

        “They” have kept it up because they know YOU have ‘faith’, and when that is diminished you have Brazil, 1930’s Germany, Venezuela, etc.

        Faith in fiat is all that holds any economy together. ‘IN GOD WE TRUST’ is all you have in your hand.

        Getting harder to have that faith don’t you think? The banks and governments know that AND that is one reason they are pushing for a cashless payment system. After all it is just numbers.

        • OutLookingIn says:

          Very true.

          With a “cashless system” everyone becomes a highly controlled government pawn, via the use of their RFD chipped plastic card.
          Also the banking sector can then take the interest rates deep into negative territory with no fear of cash bank runs.
          Gold and silver in their physical form, will be outlawed when used as a unit of account. Governments hate competition!

    • Brett says:

      Welcome to the new Feudal system.

  5. cheryl says:

    Gee why be subtle,when you can be honest. Id very much like to know what happens when the powers that be run out of little fish to eat and then start eating each other. After all its what they do, they can’t help themselves. Now that they have access to the speed of light to accelerate their feeding frenzy, one can only shutter at the consequences.

    • Winston says:

      “Id very much like to know what happens when the powers that be run out of little fish to eat and then start eating each other.”

      Probably wars.

  6. NotSoSure says:

    All growth will be healthcare and bartender jobs.

    Dow 30K is still a certainty though. Since everyone’s growth will be negative, at least the USA is still pulling a positive growth.

    Poor David Stockman.

    • Are you kidding me! says:

      It’s an increase in money supply (inflation), not growth!

      • NotSoSure says:

        What’s a couple of billion among friends?

        And nobody cares, certainly the stock market does not care.

        • Frederick says:

          If you own stocks you had better be fast on the trigger to bail out when it turns south as it WILL That window will be very small when TSHTF

    • DOW 30K ? Maybe DOW 100K, perhaps only maybe.

      Google a bit on the topic of Zimbabwe Rhodesia’s INCREDIBLE STOCK MARKET GAINS at the height of their hyper-inflation a decade or more ago. ( I forget exact date as of this moment )

      Best performing stock market in the entire world ! And the people were buying dinner with 100 trillion banknotes – – how rich they must have been !

      Might be our future, not 100% certain though. The precipitating factors exist in a complex relationship with the real world.


      • Petunia says:

        “The Big Short” is on Netflix and I have watched it a few times, even made my millennial watch it twice. I would encourage anyone with access, to watch it over and over again, until you get it.

        • Thanks, I’ll watch it this weekend


        • Mark says:

          May I also highly recommend the audiobook. The narration is excellent, and of course, Mr. Lewis book can’t be praised highly enough. Probably reason #1 why years later I’m reading blogs like Wolf’s rather than asleep at the wheel like my NYT/MSNBC consuming friends.

  7. Edward E says:

    Gun and ammo manufacturing is really on fire. They cannot keep up with demand for much of the time. Black Friday set a world record for gun purchase FBI background check. You would think since the election results that sales would plummet. Quite the opposite is happening.

    • number1gi says:

      Sorry I can’t remember the source, but I recently read a financial advice article that ammunition is a better investment than precious metals. Something about civil unrest and self defense.

      • Petunia says:

        Any material associated with armaments is a better investment than gold or silver, just like WWI and WWII.

        • d says:

          YOIU silly girl.

          You should have learnt by now, Gold and Silver are not investments.

          They are stores. Or trade/traded items/comoditys.

          For them to be efficient and effective stores, you. Must buy them at the unmanipulated low points.

          The last gold low was brown’s bottom, when I borrowed and brought some more.

          Even today, much over 280 is untenable ,1180 is insanity.

      • Edward E says:

        Well it was fear that SpaghettiO was going to do gun restrictions. I think it’s fear of civil war now, because minorities are now loading up.

      • Arctic Melt says:

        Guns and violence and wars…. America’s new manufacturing base.

        • d says:

          “Guns and violence and wars…. America’s new manufacturing base.”

          Should read

          Guns and violence and wars…. In direct competition with Russia. America’s new manufacturing base.

          Face fact since Lenin took over the exports have been nothing but raw commodity’s and armaments.

  8. George McDuffee says:

    “Capitalism” implies the reinvestment of “investor” profits/capital to generate more capital/profits.

    What financial activities we see are almost totally capital extractive efforts such as stock buy-backs, pointless merger and acquisition activity, and dividend payments using borrowed money, with any actual capital reinvestment being made in other countries, amplified with institutionalized tax evasion.

    When we operate a 3rd world socio-economy/culture, why is anyone surprised when we get 3rd world results?

    • walter map says:

      “Capitalism is the extraordinary belief that the nastiest of men, for the nastiest of reasons, will somehow work for the benefit of us all.”

      – John Maynard Keynes


    • Meme Imfurst says:

      As long as you have a government that is open to increasing monopolies and indifferent to the people’s best interests, you will have just what we have this moment.

      Nothing exists in isolation….

  9. Justme says:

    STRUCTURAL. There’s that word again. I think everyone needs a reminder what “structural” means in WallSt parlance.

    It means: “…. that is your own damn fault”. For example:

    Structural unemployment: Unemployement… that is the fault of the workers.

    Structural inequality: Inquality…. that is the fault of the poor.

    I’m sure there are other examples. Structural war? Structural regime change? Structural health care costs?

  10. Kent says:

    Dr. Robert Gordon, an economist at Northwestern, recently published a book that basically states that growth is ending because of a lack of new inventions that are both must have and increase productivity. His arguments are very persuasive.

    That doesn’t mean that there aren’t new inventions, or new things that increase productivity, just that they aren’t on the scale the world saw in the 19th and early 20th centuries.

    If this is the case, then growth is not what we would expect. But we might expect corporations to begin to cannibalize themselves and feed what wealth they have back to their shareholders instead of attempting to invest in the real economy.

    And with little growth there is little competition for investment dollars. So one would expect interest rates to be low. So suppose all of this is just the end of a very special era in human history, as opposed to a conspiracy by the government, 1%, liberals, Chinese or whomever else we’d like to blame?

    • polecat says:

      Well … OK then ……. as long as we’re talking about reverse trends, lets bring back the Greek Trireme …and ’employ’ a few slimy Banksters, Bureaucrats and CEOs … to add some value to society …. by using their own ‘labor’ rowing exports via shipping lane around the globe ….

      Now THAT would be a sight to behold !!

      • polecat says:

        I can just envision Jamie Dimon, hands bloodied and raw from the oars…. wearing those nice n shiny presidential cuff links, attached to some rusty, cold manacles he’s chained to, while contemplating his new found station in life ….

        Hey, a guy can dream can’t he ?

    • d says:

      “Dr. Robert Gordon, an economist at Northwestern, recently published a book that basically states that growth is ending because of a lack of new inventions that are both must have and increase productivity. His arguments are very persuasive.”

      A certain Democratic president, killed NASA and other military space program funding.

      So your new big dollar industry, died.

      The Internet and GPS just two if the things given to the world by that great evil. The US military.

      china is catching up, soon it will overtake the US in space, then it will control the asteroid belt and the moon not he US.

      The US has a choice.

      Pay up, or lose out.

      The US under P44 would rater pay for phones, for P44s homies, than a space program, that produces job’s.

      And could possibly produce a whole bunch of them.

      • Ricardo says:

        Thanks for the heads up on Dr Robert Gordon. I did a search and came up with a PDF file of his written in 2012 and called Policy Insight No.63 and is titled “Is US economic growth over? Faltering Innovation confronts the six headwinds”.
        His argument is very similiar to Lyndon LaRouche

        • d says:

          I only replied to the poster who put up the original link, but thanks any way.

        • Meme Imfurst says:

          The elephant in the room is A.I.

          Artificial Intelligence will make the tech revolution to decrease the numbers of workers, look like an experiment.

          When is the last time you spoke to a person when you had a problem? Look around you, it is creeping into your home, car, school, place of ‘work’…..listening, adapting, anticipating.

          Soon, they will be little need for little more than a few million people in the entire world. Get the picture?

    • walter map says:

      Pleonexia and chrematistike are progressive social diseases and are always terminal if untreated.

      Capitalism rather absolutely requires economic ‘growth’, but this is naturally impossible in a finite system. The cure, which is to establish a system which does not require growth, is generally rejected because that’s simply part of the syndrome.

      To be sure, your descendants will revile you, but eventually they won’t be around to complain, and in any case you won’t be around to hear much of it from them anyway.

      • Ishkabibble says:

        Exactly right, walter. To generate profit, capitalism absolutely requires economic growth and, unfortunately, economic growth has, historically anyway, required (or forced) population growth.

        ” The cure, which is to establish a system which does not require growth, is generally rejected because that’s simply part of the syndrome. ”

        I agree 110%! Unfortunately, the Elite will do everything in their power to make sure that the system remains exactly as it is, and that includes limiting the information that the herd is allowed to observe — ie growing them like mushrooms, in the dark and feeding them sh.t.

    • Petunia says:

      In the last century most innovation led to better lives for the average person. It wasn’t repressive in nature. Now what passes for innovation in tech are all manner of anti democratic and repressive technologies. I’m not surprised real innovators are sitting on their hands.

      • walter map says:

        “In the last century most innovation led to better lives for the average person. It wasn’t repressive in nature.”

        Only if you conveniently forget the massacres of workers. The “better lives” thing didn’t happen until FDR’s reforms. Now that those reforms are being reversed you can kiss your “better lives” goodbye.

        You get what you vote for, after all, and Amerika has voted itself to the plantations.

        • d says:

          If you look into it, the bigger worry is that the “Caring Society” created by LBJ, is about to be rolled back.

          LBJ, followed on From FDR’s work.

          LBJ, Like FDR, was a VERY BAD man, who did some VERY good things, for his country.

          “You Just get me reelected, and you can have your god damn war” LBJ 1964

          He also had a peace plan the Vietnamese were willing to sign, on the table, before the election in 1968.

          Nixon’s people Torpedoed it, as Nixon was running on a “Peace plan”, so needed the war, live and noisy.

          Its History, though not the stuff taught in American, or most western fairy story book’s.

          Go look it up.

  11. Mike R. says:

    The rise of interest rates upon Trump’s election had more to do with foreign concerns unloading Treasuries primarily out of fear. The Fed decided NOT to counter that move….yet; as it essentially did their ‘dirty work’ for them.

    However, the rise in rates won’t hold, I predict. The economy cannot handle even these modest increases in rates.

    Regarding inflation; there are inflationary pressures all around BUT they can’t take hold. Too much debt, no savings and an abundance of cheap labor. Price rises in one sector are counteracted with drop in demand in others. Basically, a huge stagflation scenerio for most except those lucky enough to be employed in the crony industries and goverenment.

    • d says:

      “However, the rise in rates won’t hold, I predict. The economy cannot handle even these modest increases in rates. ”

      The economy will have to, as the people buying treasuries set the rate, in their tenders, if the rate is 1% and the market wants 5% it will simply only tender the required sum under a $ to get the return it wants.

      You seem to think Treasury can hold a gun to peoples heads, and keep rates down.

      NOT if the market decides otherwise.

      In the Current ZIRP, NIRP environment, we haven’t seen it yet, as everybody has been chasing “Safe Haven”.

      After P45 gets inaugurated, that US safe haven status, could evaporate, then the US would have to pay, like Argentina, Etc.

      If the treasury only pays 1% and I want 5%.

      I simply tender 60c in the dollar, to buy a ten year bond. If I dont get any. I dont care.

      • Kent says:

        The Fed can be the buyer of last or first resort. Mr. market may tender 60 cents on the dollar but Ms. Yellen can always pay 100, or 110.

        • d says:

          Yes but the fed can only do that for so long.

          As it creates problem’s.

          See, Zimbabwe, Wiemar, Venezuela.

          Further when the fed doe sthat is is only lending to teh state at a loos not teh rest of teh market.

          The Banks will still charge borrowers 18 – 25 % to refi their mortgages which will no longer be based in $ US.

          Let Alone the credit card rates.

          If the state regulates lending rates, lending will stop.

          The 1 second later, America will stop, as America runs on credit.

  12. Andrew kelly says:

    I would like to say I enjoy the comments as much as the excellent articles on Wolf Street. They’re a refreshing alternative to the standard economic narrative.

  13. Unitron says:

    As the world, especially China, starts liquidating its treasuries, rates can only go higher. China desperately needs the dollars to support its financial system, and the sell off is only going to get bigger as time goes on. They’ve already burned through a quarter of their reserves, and the fireworks haven’t even started yet.

    • walter map says:

      “China desperately needs the dollars”

      Oh, puh-leeze. Almost everybody always desperately needs the dollars. So much desperation out there, everywhere you look.

      And nobody needs them more desperately than those who already have most of them. And when they have all of them they’ll desperately need more.

      I seem to be one of the rare exceptions. I’m just fine, thanks.

      I used to feel very badly for those who have to run around like rats in a maze, but really, you do these things to yourselves, and let others do them to you, so I don’t even have to take a pill to feel better about it.

      Eventually the planet will be quite unable you support the lot of you and you’ll die off, and the rest will wipe themselves out fighting over the scraps.

      And that, as they say, will be that.

      • Unitron says:

        China’s banks need dollar denominated assets to finance their internal dollar based loans. Your personal financial situation is irrelevant to that.

    • r cohn says:

      China has two near term weapons in its arsenal.

      The first is selling its large Treasury holdings.As Unitron has stated ,this has already begun and will probably continue.

      The second option is cancellation of its Boeing contract in favor of Airbus.This is much more of a nuclear option because severe retaliation is guaranteed.

  14. Greatful again says:

    There’s been no growth. The bond market is still the safe haven and rates can’t stay up with out cratering the whole mess. Private and public.

    • d says:

      Then you better get your wheel barrow and shovel out as there are some big craters coming your way.

      Markets hate uncertainty.

      POTUS Elect 45 is the biggest injection of global uncertainty, since the Versailles Diktat.

      The Versailles Diktat, was always a, when.

  15. jim says:

    Lets all build up our cash reserves and choke off these parasitic bast**ds. Be as BARRON ROTHSCHILD and as he said ” I never buy at the bottom and I always sell too soon”. Let the Parasites feast on themselves to the bone marrow in self-annihilation as their are less hosts. Time to sell and liquidate your stocks, bonds, and real estate. Don’t be their parasitic waste as they eat your wallet and lay waste. Instead watch their folly and desperation as they frantically seek out the weak in a shrinking economic pie and they turn on each other for survival. Laugh at their foul and degenerative behaviors an shake the parasites off your back with self-sufficiency . Read “THE AMERIPLAN VS. THE DEATH OF THE AMERICAN DREAM” as told by Uncle Jim, (not uncle sam), for the solutions to beat these vultures, blood suckers, and Parasitc worms! SAVE YOUR LIFE NOW AND WALLET NOW!!!!

  16. Steve C. says:

    Things are escalating at an unnerving pace for sure. The move to cashless in India seems to be the opening salvo in a country which has the MOST distrust for government. If they can pull it off there, US is not far behind IMO.

    As a side note, I work for a Fortune 100 company, and just the other day went down to the company store to purchase a replacement pair of earbuds – under $5. They do not accept cash now. Had to break out the old CC.

    • d says:

      Complaining about your company store could get you fired.

      America being the land of litigation. Store wouldn’t want to try that on main street.

    • Albert E says:

      Oh yeah the multipolar war on cash is a sign the game is almost up.

    • Petunia says:

      The local book fair also had vendors that don’t accept cash, mostly the big publishers. Luckily, my millennial whipped out his phone and saved the day.

    • Kent says:

      Use gift cards

  17. economicminor says:

    Since around 1995 we have had bubble after bubble and the answer to covering the losses has been for the CBs to lower interest rates and buy bonds. Increased debt. The FED’s balance sheet has gone to what somewhere near $5 Trillion. We don’t really know because it has never been audited. Much of this new debt didn’t go into productive enterprise. Most of it went to cover losses from mal investments or outright consumption.

    So now we are at a point when interest rates are organically climbing back up. Ever so slowly but moving higher. Can the FED stop them? Maybe by buying a lot more bonds BUT the eventual consequences are that they can not buy all the bonds in the world. That would take maybe $50 Trillion or more. And the interest rates are rising because people and corporations need to move the debt to the asset side of their balance sheets due to their own mal investments and over extended budgets.

    The interest rates have not moved up because of the CB’s but in spite of them due to bad investment decision here there and everywhere. The FED and other CBs have real problems here with this movement of higher interest. That leaves many of the bonds they purchased worth less than they paid. You know, even if it isn’t public, they also have 2 sides to their ledgers. Otherwise, why not just purchase all the bonds in the world? And the FED isn’t really the 4th branch of government. It is really a private bank organization. Its job is to promote and protect its members (owners).

    What I’m getting at here is that the FED has already lost control and will now be chasing the rates upward as the mal investment and wasted borrowing on consumption that can not be repaid continues to collapse. The raising rates will eventually destroy the FED as its book value and its real value dramatically separate. The US gobbermint would have to jump borrowing at that point and interest rates would go even higher collapsing the entire world’s economy.

    And this is after the borrowing binge that Trump wants to inflict upon the US and the world. His plan isn’t to increase income into the gubbermint but just spend like a drunken sailor.

    Depending upon the timing, who’ll get clobbered first? The FED or the US gubbermint? Or the ECU? Or China or Japan?

    • jim says:

      all fall

    • Kent says:

      The Fed is the one entity on the planet that can legally print dollars and buy bonds with the printed money. And it is an arm of the federal government (the legislative and not the executive, though). So there is no threat of the Fed being destroyed, or the federal government ever going bankrupt.

      They can cause so much inflation that people lose faith in the currency. But that would be bad for banks, so it won’t happen.

  18. night-train says:

    Regarding inflation. Won’t Trump’s 35% tax rate on many imported goods fuel inflation? Or, will it suppress the consumer’s ability to purchase these goods?

    The next thing we are likely to have to replace is the washer & dryer. I think I am going to pick a pair up on sale and put them in the storage unit.

    • Albert E says:

      I have hoarded almost everything I would need for the next couple of decades. Today I am taking delivery of around six appliances all bought at reasonable appliances.
      Bring on the stagflation.
      Well I don’t wish it on us but I’m as ready as anyone I think

    • economicminor says:

      It is hard to have inflation and production while the workers are already over their heads in debt.. Raise the prices and consumers will be forced to buy less. This less will immediately translate into lower revenues for the producers. They will be forced into a death spiral. Both here and abroad.

      IMO Trump will not follow thru on most of his campaign promises except to lower taxes to the elite and mess with Obamacare, Medicaid and maybe Medicare. He will allow his Zealots to put up bills to reduce women’s rights and voters rights on lots of levels and probably reduce further our rights in suing corporations while using taxpayer monies to make himself far wealthier. He will use his new power to take away citizen’s rights as in the Indian Treaties. He has no compassion for humanity. He is a Crony Capitalist at heart and a Charlatan.

      • Kent says:

        I didn’t vote for him (nor Clinton), but I’m willing to give him a chance. See what he does before going hyper-negative. I hated seeing that with Obama too. Too many people blaming him for things he really had no control over.

        • slynns says:

          I’m not so much hyper-negative as scared as f*ck. You don’t need to give him a chance to see what kind of person and “leader” he is. The past predicts the future.

          He’s a failed business man – I’ve lost count of his bankruptcies, 4 or 6? And lawsuits against him – shockingly high number. Not to mention a civil suit against him for child rape (the court filings are a fascinating read – highly recommend). Would you say you’d “give him a chance” around your 13 year old daughter?

          He is, however, a successful capitalist as he has privatized gains and socialized his losses by not paying contractors what he promised them, among other practices. His “art of the deal” is simply to cheat others.

          I think a more apt phrase is that you’re willing to “wait and see”. As if any of us has a choice. I doubt even he knows what he’s going to do next. I genuinely believe he suffers from diminished mental capacity – possibly due to his age or being out of touch as he tries to live and behave like a king/reality tv star among us.

          His unpredictability in all areas of leadership is what concerns me with making investing decisions for my future. I hope for the best – but what exactly would that look like?

        • d says:

          “He’s a failed business man – I’ve lost count of his bankruptcies, 4 or 6?”

          Are you using “Business man ” in the Japanese manner.

          Hi’s grandfather and father were both mob connected.

          Just like him

          What he is, is a successful, professional fraudster.

          The American system encourages such, as its laws were created, and are maintained, by such.

          The only people immune from inside trading prosecution in the US.

          House and Congress members.

          The rot starts at the top.

          Which is where he has made it to

          3 generation from Draft Dogging Brothel keeper, to President.

          Not to bad.

          Remember Joe Kennedy was a bootlegger. Just a BIG one.

          Only in America

  19. Albert E says:

    Sorry again reasonable prices.
    Have hoarded a spare i pad too.
    Before the apple price hike in Blighty
    Shouldn’t have bothered

    • d says:

      Do you have a new post apocalypses supply of spare miniature soldered in battery’s for all those electronic appliances??.

      If you store them, you may find they do not work, due to on board battery decay, when you take them out to use them.

  20. ANON says:

    Wolf, I simply cannot imagine a long enough period of lousy growth and rising rates at this point. No matter how hard I wish for it, I can only see a crash, and the more I try to get a grip of the figures involved, in both non-existing promises and number of people (see your China articles) the more it looks like something close to a full stop is in the cards.

  21. Dan Romig says:

    One of the factors that facilitated economic growth in the last hundred or so years was oil based energy. We still have inexpensive oil, to the tune of 96 million barrels a day, but this will not last forever.

  22. r cohn says:

    Growth is dependent on 2 factors
    a. demographic growth
    b. productivity growth

    Slow demographic growth is pretty much in the cards.
    Productivity can be improved with fewer onerous government regulations,but significant jumps in productivity can be accomplished only through dramatic new technologies,i.e. electricity,the automobile,the computer,and to a lesser extent,the internet
    There is no indication that lower corporate taxes will result in more CAPEX;on the contrary there are plenty of reasons to believe that lower taxes will mainly result in more buybacks .
    Most developed countries have incurred large debts and have increasingly ageing populations..Both of these factors are inimical to growth over an extended period of time

    • Kent says:

      I would add:

      c. A mechanism for productivity growth to lead to wage growth. &
      d. Valuable new and expensive things people want to buy.

      Without (c) people aren’t in a position to buy things. And without (d), businesses have no need to create new jobs to produce things.

    • Tom Kauser says:

      Nil velocity and the swaps!
      Playing all the old hits.

    • Bob says:

      That’s correct in my opinion. There will be no capital or human investment until the prospect for positive return improves. This means wages, equipment, real estate, etc. have to drop in value to match the reduced demand potential.

      I for one wouldn’t invest in any business unless the P/E multiples drop to sane levels.

      The Fed thinks the higher asset values stimulate growth, but they actually impede growth at the peaks.

  23. Tom Kauser says:

    The governors talk and act like no one has the ability to see thru their scam!
    They need a massive recession or they will have to print a fresh 20 trillion on top the old 20 trillion?

  24. ML says:

    If you grow outwards but your inner growth does not keep pace then you would fall over.

    That is what is happening. Too many people thinking the only way is onwards and upwards.

    There are other ways.

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