THE WOLF STREET REPORT: The Giant Sucking Sound of Financial Repression

In the US alone, it impacts nearly $40 trillion. And there are consequences for the real economy (10 minutes).

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  115 comments for “THE WOLF STREET REPORT: The Giant Sucking Sound of Financial Repression

  1. William Smith
    Jul 28, 2019 at 9:36 pm

    As usual, a succinct description of a complex situation. Since this situation seems like lunacy, there must be vested interests that engineered and/or who benefit from this. Just who are they? I suspect that the new “god” borrowers are just a side effect of something more nefarious. Is this some sort of persistent systemic attack? As I see it, all roads must now lead to a big crash.

    • IdahoPotato
      Jul 28, 2019 at 9:58 pm

      Look no further than Twitter.

    • Jul 29, 2019 at 2:41 am

      The “borrowers” who benefit are mainly the large corporations with ready access to financial markets. They use this money for things like share buybacks, mega mergers, or aquisitions of potential competitors. Large asset holders also see benefit from rate repression.

      The many borrowers without this financial market access don’t benefit from it at all, particularly if the bulk of their earnings is from devaluing wages.

      • Jacksontiger
        Jul 29, 2019 at 5:42 am

        Yes we even see junk rated companies borrowing at negative interest rates while consumer credit card rates are very high.

        • William Smith
          Jul 29, 2019 at 7:58 pm

          That explains a lot if those in charge cycle positions between corporate and reserve bank boards. So this is clearly corporate welfare under the very clever guise of “helping” Joe Public (by massively devaluing his wages). And if corporates buy their shares back, that means they gain majority voting rights , (plus high share prices & bonuses) and the other shareholders be damned. So now they are “public companies” but actually run as private fiefdoms. I wonder if they engineered this scheme or just took advantage when the GFC happened (and the banksters that *should* have gone to jail didn’t). Sadly, all this is a bit too convoluted for Joe Public to understand (and get angry about).

      • Jul 29, 2019 at 12:16 pm

        By the new libertarian philosophy corporations are beneficial hosts to parasitic consumers (or the other way around). To emphasize the advantage of one party or the other begs the question.

      • QE
        Jul 30, 2019 at 5:26 am

        These corporations are worth more broken up. They need to be restructured and I dont buy the notion that no one is ever supposed to lose his job.

    • Les
      Jul 30, 2019 at 8:46 am

      The financial firms have to extract more equity from assets as yields fall. Without the central banks pushing up asset prices, bond yields would’ve risen long ago.

      It would’ve made more sense to put a floor on yields and conduct asset purchases accordingly. I recall that the Fed set a 2% floor during one of these many periods of QE.

      I think the problem is compounded by Europe’s solvency problem and the desire to keep up with China.

  2. Michael
    Jul 28, 2019 at 9:51 pm

    The Fed is criminal at best.

    • Mike
      Jul 30, 2019 at 2:18 am

      Amen as to what Michael said. From the point of view of the rich the decent ones like Ray Dalio are giving the same warnings but in very diplomatic or technical language. Even he talks about the great economic inequality and debt resulting from the interest rate manipulation of the Fed which may cause drastic political change … I hope.

  3. Iamafan
    Jul 28, 2019 at 9:56 pm

    As retirees, my wife and I know that we will have to spend our principal for old age and cannot rely on interest.

    • Trinacria
      Jul 28, 2019 at 10:21 pm

      Agreed and very sad. Many people will indeed end up spending their principal before this is over… I just despise the term “the new normal” for the simple reason that is softens the malpractice and chicanery that these central banks have perpetrated by keeping this scam going for ten year. This term (new normal) is deliberate as words do matter!!! People should refrain from using this term. So, we should call it the “new abnormal”. Money needs to have a fair price, otherwise we get zombie companies. This won’t end well. It should end in jail for many bankers.

      • KPL
        Jul 29, 2019 at 12:17 am

        “It should end in jail for many bankers.”

        As long the central bankers all over the world lead this pack!

        The central bankers seem to have only one and only job and that is to steal from savers in the guise of helping the economy and common man. Thieves one and all! Con-men to boot!

        • MD
          Jul 29, 2019 at 3:42 pm

          Merely doing the bidding of their former – and future – private company employers.

          It’s a heist, backed up with loads of propaganda to blame it all on ‘government interference’ and ‘regulation’.

          Seems to be working a charm.

      • sierra7
        Jul 29, 2019 at 8:56 pm

        Trinacria:
        May I edit your comment?
        “It (should have) end(ed) in jail for many bankers”!
        We have the absolutely gutless government and greedy financial world to blame for this fiasco. And, now as Mr Richter reports they will exacerbate the whole mess.

        As a multi-year retiree on a very modest income that income has been deflated since the GFC of 2008 by “free money” for the perpetrators and “stripped corn on the cob” for the plebes. I’m lucky not to have large expenses and if the consumer market depended on me for income they would all go broke.

    • Petunia
      Jul 29, 2019 at 9:51 am

      Keep an eye on the new social security act being passed as we comment. They are raising the benefit a bit for workers, while raising the taxes for most. The real problem is that no matter how much the cola is for benefits, they will charge you twice as much for medicare. Ask for a cap on medicare that is below the benefit increase, or your retirement will disappear while you are still “retired.”

      This is a topic that needs a lot more attention and nobody is talking about it.

      • Anon1970
        Jul 29, 2019 at 12:20 pm

        Premium surcharges for Medicare will hit a growing number of seniors in coming years. The income level at which the surcharges kick in has not been adjusted since they were first levied over a decade ago. Taxpayers who were prudent with their spending and contributed to IRA/401k plans will be especially hard hit two years after they become subject to Required Minimum Distributions from their retirement accounts.

        • Iamafan
          Jul 29, 2019 at 1:38 pm

          Someone has to pay for socialism, right. Old people.

      • wkevinw
        Jul 29, 2019 at 1:02 pm

        Yes, these retirement/pension “schemes” (including social security/medicare) only work if the money is truly invested; i.e. into things that improve economic productivity- so an economic return can be realized.

        Pay-go programs are always going to have these life-cycles/features: 1. “fixed” by increasing premiums/taxes (e.g. Reagan’s time), 2. taxing or reducing benefits.

        It’s math (actuarial).

        • Michael J Bernard
          Jul 29, 2019 at 6:40 pm

          I always thought it was an ironic circumstance of cross-atlantic differences in the nonnotations of words….

          When I worked for a UK based corporation it always kinda rubbed me wrong way our retirement plan was always refered to as a “scheme”. I would have liked the world “plan” better even if only for my own mental well being.

          My current retirement plan is with a company that promotes that their customer service number is 1-xxx-pyramid. I always remark to them that I’d assume that “pyramid” is the last thing you’d want associated with a savings/retirement plan. Or even a decent scheme.

          Connotations….Always causing problems.

          mB

    • Mike
      Jul 29, 2019 at 2:17 pm

      You are lucky. Most Americans will have to work until the die. Pensions have been cored out by the Fed’s low interest rates. E.g., Calpers and other pension plans cannot meet their obligations and receive only low interest rates on their investments. Moreover, to chase yield, these pension plans have purchased truly risky investments, so not only will their investments not yield substantially, but the banksters’ fraudulent tactics mean that these pensions will ultimately suffer HUGE losses, sooner or later.

      The securities (e.g., bonds or securitized auto loans paying ultra low interest rates) will be worthless when interest rates ultimately rise. Alternatively, the dollar (and hence those securities) may lose most of its purchasing power.

      Interest rates can be kept low for a long time, but not forever, Sooner or later inflation or a financial collapse will occur. It is like squeezing a balloon. The Fed can squeeze and squeeze with its crony banksters, but ultimately the balloon will pop. The bankster can only make the U.S. and the Fed be reckless for decades, not forever.

  4. SomethingStinks
    Jul 28, 2019 at 10:06 pm

    I don’t benefit from this farce one bit, and neither do people I hang out with . But here’s what I see, Trumps recent attempt to pressure JP into lowering rates just might cost him the election. If the damn economy is going to fail and I am going to lose my job; due to high interest rates, so be it. Let’s get on with it, rather have it blow up in my time than my child’s. If an Elizabeth Warren is going to make it happen then I’m going to vote for her, even if that mean there’s a gun grabber in the WH.

    • doug
      Jul 29, 2019 at 6:46 am

      Gun will not be grabbed. Settled law for a long time now. NRA fundraising device only…

      • mike
        Jul 29, 2019 at 2:22 pm

        Amen. Stop listening to the new Republican’s lies. George Will and other, honorable Republicans have abandoned the corrupt, new Republicans due to their use of blatant lies to win votes and reckless lack of concern for the welfare of the US, its economy, or its population. Watch what David Stockman and other persons say. The new Republican party is driving the US off a cliff. I abandoned it long ago.

        • cienfuegos
          Jul 31, 2019 at 6:11 am

          Along with the Democrats…Trump is certainly a symptom of our diseased body politic, but are Democrats the cure? The bankrupt policies of both parties over the past 30 years is what got Trump elected!

    • Stephen
      Jul 29, 2019 at 7:27 am

      Pray, tell me who would do the ‘grabbing?’ Biggest private holders of fire arms: Active Military, Former/retired Military (that would be me), Current Law Enforcement, former/retired Law Enforcement. So, who will be taking from these groups??

      • GP
        Jul 29, 2019 at 11:08 am

        Sorry, this is wading deep into controversial political topic…

        Stephen,
        You are assuming equal footing in this tussle, but only government can write laws.

        With just one act of outlawing weapon ownership, millions of law abiding gun owners will be considered law violators. People with families, with jobs – they don’t want to be categorized as criminals.

        FDR didn’t have much trouble ‘buying back’ gold coins from people for $20/ounce.

        • DR DOOM
          Jul 29, 2019 at 12:05 pm

          Gold was not and is not the constitutional coin of the USA. Silver is the constitutional coin of the USA . FDR did not seize silver coin because that would run afoul of the constitution as would gun grabbing. The average person then as today had never seen a gold eagle much less have one . FDR needed the gold for international selltlements . Voting will not change our republic . Enforcing our constitution could if we the people had the courage to demand it , we do not. We the people have been successfully divided into all types of political fragments . We the people have been divided . The Empire will now have to run its course and deliver its carnage to we the people to deal with. Just like the Blues , it’s an old true story.

    • Petunia
      Jul 29, 2019 at 9:46 am

      Elizabeth Warren could have done a lot to jail the bankers, instead she gave it lip service and did nothing. Vote for her by all means, and watch yourself get even poorer. Did you hear about her new fellowship for her campaign workers, not paid work, but free labor. What she says is not what she does.

      • RD Blakeslee
        Jul 29, 2019 at 11:08 am

        I’ve paid attention to pols for years, and THERE HAS NEVER BEEN ONE who does not mouthe promises never kept.

  5. makruger
    Jul 28, 2019 at 10:16 pm

    Time for a quote from the good ole days:

    “The real difficulty is with the vast wealth and power in the hands of the few and the unscrupulous who represent or control capital. Hundreds of laws of Congress and the state legislatures are in the interest of these men and against the interests of working men. These need to be exposed and repealed. All laws on corporations, on taxation, on trusts, wills, descent, and the like, need examination and extensive change. This is a government of the people, by the people, and for the people no longer. It is a government of corporations, by corporations, and for corporations. — How is this?”

    Diary entry (11 March 1888) – Rutherford B. Hayes – 19th President of the United States.

    • robt
      Jul 28, 2019 at 11:39 pm

      How is this? The age-old question with an obvious answer.
      0.1% make it happen, 0.9% manage it, and 99% say ‘what are my hours and how much do you pay?’

      • ZeroBrain
        Jul 29, 2019 at 12:22 am

        Do you fancy yourself in the 0.1%?

        • alex in San Jose AKA Digital Detroit
          Jul 29, 2019 at 1:02 am

          I’ll say it again: People like to win, and in any good game you have winners and losers, like in baseball. But why make it life-and-death? It doesn’t have to be, in our modern, productive, economy. We have fun boo’ing a pitcher who’s having a bad streak; we don’t follow him home after a game and burn his house down.

          To me anyway the answer is fairly obvious: Have an economic game where there are winners and losers but have regulations or social mores etc. that mitigate this and take things away from this red-in-tooth-and-claw society we live in now where people are dying for lack of insulin and other cheap drugs.

          (I was sinking pretty low there for a while, and $30 – at US prices – worth of antibiotic pills got rid of my pneumonia and may have saved my life. Imagine being homeless and raggedy and smelly, which I may have become if I’d lived long enough and let it go that long, and trying to get those pills in the US – lotsa luck!)

          Emphasize the good feelings and good will you gain, if you are rich, by helping the poor instead of buying gold-plated toilets or flying off to “safaris” where you shoot a tethered animal.

          This is what the rich did in traditional societies – they gave a lot more away than our present-day rich, isolated and scared, do.

        • robt
          Jul 29, 2019 at 10:34 am

          Never the 0.1, partly in the 0.9, mostly in the 99. The best was the 99, with no worries to take home at night.

      • cienfuegos
        Jul 31, 2019 at 6:14 am

        Succinct, and accurate.

    • Thor's Hammer
      Jul 29, 2019 at 8:27 am

      “The definition of fascism is The marriage of corporation and state ”
      ― Benito Mussolini

      ***Boeing buys the FAA
      ***Bezos strangles retail commerce like an Anaconda.
      ***Facebook develops the most Orwellian information collection agency in history and sells the data to the NSA
      ***Donald Trump elected by hiring Cambridge Analytics to run his election strategy.
      ***Full Spectrum Dominance and Endless War national policy that only benefits the Military Industrial Complex

      • MD
        Jul 29, 2019 at 3:53 pm

        Bingo! Give the boy a lollypop.

        I think I hear Orwell spinning in his grave…and Eisenhower, who did try to warn you! On TV!

        Now you’ve got endless, pointless war, stupefyingly expensive war in dusty places against nebulous, ever-shifting, newly-created enemies (whilst being trained like Pavlov’s dog to scream ‘socialist’ or ‘communist’ at anyone who calls for affordable universal healthcare) and John Bolton…enough said, sadly.

  6. timbers
    Jul 28, 2019 at 10:26 pm

    The solution is obvious:

    The Fed should announce a interest rate INCREASE this week.

    At least .50% and no less.

    This would produce maximum affect and fell all the Zombie corporations Wold has long wrote about.

    The down side? A technically statistically minor recession.

    OH MY!

    The upside?

    Subscribers to Netflix pay for their viewing experience, not SAVERS and RETIREES.

    • sc7
      Jul 29, 2019 at 8:39 am

      That might make the Timbers’ neighbor home price index fall, though.

    • DR DOOM
      Jul 29, 2019 at 2:57 pm

      Timbers , I agree .

  7. John Vermeer
    Jul 28, 2019 at 10:30 pm

    Thank you for this expose on low interest rates, Wolf, I seldom hear anyone in the real world talk about it. I was able to stay afloat @ 5-6%
    interest without touching principle but by 2010, was unable to find
    any instruments paying that. So as you say, was forced to cut spending, to the bone, and
    as costs rise, I continue to cut, getting less and less for the same amount of money. I gave up my car, turned off my cell, and moved out of California, where I was born, to move to the southeast. Here at least I have a comfortable home with a roof over my head that’s paid for, and there are trade-off’s, I have some land. But none of my contemporaries (born in the 30’s) seem aware of rising prices or low interest rates so I keep my mouth shut about my situation. I’m well aware of what the FED has done and why and who it is benefiting. At some point there will be a price to pay for all of this though I may not be around to see it. How different the final years of my life would have been had I
    been able to draw just 5-6% interest on my savings.

    • Trinacria
      Jul 29, 2019 at 9:36 am

      Along those lines will be other collateral damage…state pension funds. In order to work, these pension funds make actuarial assumptions of approx. 7% returns. Fixed income instruments are a part of this – so good luck. The pension funds of Illinois, Kentucky and New Jersey aren’t looking too good, not to mention a few other states as well as big unions. Will all these get bailouts at some point as they will probably be victims of the low interest rate policies?

      • Wolfbay
        Jul 29, 2019 at 3:29 pm

        Once these state pensions start going belly up the federal government will have to bail them out(meaning tax payers) . The most irresponsible states and cities will benefit the most by having better government services will they were living beyond their means and then by receiving bigger transfer payments when the pensions go belly up. Talk about “moral hazard “.

    • Iamafan
      Jul 29, 2019 at 12:52 pm

      The giant sucking sound of AT&T bond pays at least 5% but you have to live with the risks of living with the squid.

  8. Ed C
    Jul 28, 2019 at 10:37 pm

    Excellent description of what is going on and the effects it is having. Keep up the good work.

  9. Dale
    Jul 28, 2019 at 10:44 pm

    Great work as always, Wolf!

    The framework for the current financial repression was laid by Ben Bernanke, who complained mightily of a ‘savings glut’. According to Ben (and every Fed chair since), the savers must be punished for having saved. (Ben and the others never said this, but their every action was to that end.)

    Of course, Ben was completely wrong. There was no savings glut. There was instead a ‘debt glut’ caused directly by — we all know — the Federal Reserve and other central banks. But Ben’s position (maybe coincidentally but probably intentionally) veiled the Fed’s role.

    Historically, i.e., before Ben, the FFR averaged 1.75% above inflation. Now it averages well below inflation (excepting a few months generously allowed by Mr Powell). Hence the present danger.

    Ben said that rates would never normalize in his lifetime, and I tend to agree for the simple reason that the Fed has allowed too much debt to build, and that debt simply cannot be serviced.

  10. DP
    Jul 28, 2019 at 10:52 pm

    Just like Richard Nixons “temporary” measure of breaking the link between the dollar and gold QE, NIRP etc were always going to become a permanent feature of the new normal race to the bottom. Personally I recently moved into long precious metals position through several different avenues as our central bank has already cut twice in as many months here in Aus.

    • Jul 29, 2019 at 7:47 am

      A counter-trend will develop in gold from the start of May 2020 to the end of September 2020. I’m betting heavy during that time gold will be pounded back down to the $1,200 even mark U.S. The time to buy gold will be at the end of September 2020 no matter who wins the 2020 election.

  11. TownNorth
    Jul 28, 2019 at 11:22 pm

    If interest rate repression was an emergency measure, and the emergency is now over, why continue it? What’s the logic?

    • DP
      Jul 28, 2019 at 11:34 pm

      I assume because it was always intended to be permanent despite how it was telegraphed.

    • Dale
      Jul 29, 2019 at 11:41 am

      Interest rate repression was also used from 1945 to 1980 to enable the Federal government to deal with its debts from WWII.

      The difference is that debt levels (other than federal debt) were a much smaller part of the economy, and there many relatively low-risk investment alternatives during that period, so that investors (including retirees) didn’t have to reach for yield unless they liked risk. Now everybody has to reach for yield (with high risk) or rely only on principal.

      Of course, the Fed is implicitly saying it will guarantee all stock market investments, so…

      • John Vermeer
        Jul 29, 2019 at 6:14 pm

        You’re right Dale, at 73 I had to re-enter the stock market to earn
        dividends, at a time when I should be sitting in my rocking chair.
        I put about 40% of my cash in the market in recommended dividend stocks but now see that the bluest of blue chips carry trillions of dollars in corporate debt. I just have to keep my faith in our system of capitalism and trust that we’ll come out of this at the other end. So far so good.
        Now the question is what to do with the dividends: stockpile them in a savings account or reinvest them and build something for my grandchildren?

        • Dale
          Aug 1, 2019 at 5:20 pm

          I will note that US real corporate profits, by all measures (pre/ post tax, with and without CCadj and IVA), peaked in 2012, and it has been down hill since then. (Source: BEA.)

          I agree with Buffett that US corporations are in the long-term the best investment. But he has also said that US profits /GDP would have to come down by another 40% to be sustainable.

          The Fed will not want equities to drop, but they are facing some severe headwinds. And the more they fight, the worse it gets.

    • Dale
      Jul 29, 2019 at 11:43 am

      I left out another major difference:
      Back then, when bubbles formed, the Fed (usually) tried to deflate them. With the (possible) exception of Jay Powell, the Fed has not in the last 10 years tried to limit bubbly activity = financial instability.

      (Note: Jay Powell is recorded in the Fed transcripts as having noted bubbles forming as early as 2012. So he knows the score. But maybe he wants to keep his job more than he wants to do his job. We will see.)

    • MD
      Jul 29, 2019 at 3:58 pm

      The logic is that you were lied to – typical ‘disaster capitalism’, using crisis to implement measures to suit your own interests – in this case, the handing over of trillions of dollars of cash, and the power to former investment bankers to manipulate IRs to create asset bubbles to benefit ‘their kind’.

      Hence the 19th-century levels of inequality.

      We are all gulls, I’m afraid. At least the French have the ba11s to revolt over it – all the Yanks and Brits (Canadians, Ozzies etc.) seem to do is to say ‘please sir can I have another?’ as they check to see how much the value of their house(s) have gone up today.

  12. joanrn
    Jul 28, 2019 at 11:34 pm

    wolf you have a good grasp on how it feels to be entering retirement and knowing that your income will not keep up with inflation. The economy is also hit on the younger end of the spectrum because of student loans. there is also a third hit to the expenses of consumers and that is parents paying off student loans and other debts. i did spend some $$$ on remodeling my home. i plan to maintain my home during retirement. i spent as much remodeling to enjoy my home, as i would have spent on a real estate broker to sell my home.

  13. SaltyGolden
    Jul 29, 2019 at 12:50 am

    Though I enormously appreciate the content of these reports, my favorite part about the Wolf Street Report is feeling like I’m listening to a subversive underground broadcast of actual reality vs. all the bull$hit out there…

    Kind of like Nada in “They Live” putting on the sunglasses. Thanks again and keep up the good work.

    • Dale
      Jul 29, 2019 at 11:46 am

      It is refreshing. Whenever I see a podcast or video, I usually skip it as it takes too long to convey information with audio or video. But the Wolf Report is one of the few exceptions for me. (Ray Dalio is another exception.)

      • DR DOOM
        Jul 29, 2019 at 8:38 pm

        At the end of the day this post by WR demonstrates that he is everyday man or person if you are a Pc freak or a zim or zir or a it. Hell I’ve had too much single malt . Should have went to sleep.

  14. Dickybird
    Jul 29, 2019 at 2:39 am

    A line from Shakespeare’s Hamlet is, “Neither a borrower nor a lender be”. This advice should now be, “Only a borrower never a lender be.”

  15. medial axis
    Jul 29, 2019 at 4:05 am

    Let’s face it, central banks, world wide, have shown they cannot be trusted with our (?) money. It’s a pity there’s not an alternative form of money, don’t you think? One controlled by no one? But that would never work, would it. Wouldn’t it? I keep saying the – revolution will not be centralised.

  16. Blockhead
    Jul 29, 2019 at 4:08 am

    It’s not just the Fed, it’s also the BoJ, the Ecb and just about every so called Central Bank in the world, including China where the economy is drowning in debt. My question is this: why does the whole world allow such a very small group of unelected officials to drive the global economy to ruin? The answer must be: the whole world has gone bonkers.

    • Tang
      Jul 29, 2019 at 5:01 am

      This is happening all over the world. Elected officials, appointed officials and those wanting to hold on to power.
      Is call staying alive. Do whatever it takes to stay alive for themselves. Nothing matters.

  17. Gold is just..gold
    Jul 29, 2019 at 5:16 am

    If you’re getting next to no interest, why feed the beast? At say 1% interest, the risk of bail-in is significantly more. Take your money out of the system in cash. It still is YOUR money. Give whatever notice the banks require. Tell them in writing what you’re doing & why. As far as I’m aware, there’s nothing they can do do prevent that…..at the moment; who knows when capitol controls will commence.

    What to do with the cash. Well $100,000 in 100’s fit into a standard envelope, an inch or less thick, from memory. Not that big. Five envelopes? Still not a huge volume. There are non bank safety deposit facilities – more would be available once the business opportunities became apparent.

    The best way for savers/retirees to fight the beast is to attack it where it lives & breathes. Cut its b***s off.

    PS I walk the walk, did all of the above in the GFC. To hell with them.

    • Gold is just..gold
      Jul 29, 2019 at 5:26 am

      PPS the biggest obstacle to taking action is in your head. Get that sorted and it’s just simple logistics.

      • MD
        Jul 29, 2019 at 4:01 pm

        Invest it in ‘just gold’ – it’s done pretty well lately, particularly if one’s FIAT isn’t the US dollar.

        USD1400+ when things are apparently better than they’ve ever been (they say) means USD2000+ easily when the next mahoosive crisis comes along. And it will.

    • Serge
      Jul 29, 2019 at 11:16 am

      $100,000 is 1000 bank notes of $100. It’s about 5 inches thick. Rim of paper for comparasing is 500 sheets.

      • Thor's Hammer
        Jul 30, 2019 at 7:14 am

        Imagine you are on “The Road” with ‎Cormac McCarthy. What commodity would you rather carry on your hand cart? A 5″ stack of bank notes barely sufficient to start a cooking fire, a brick of shiny metal too soft to make arrow points, or a box of cartridges for your 30/06?

    • fajensen
      Jul 29, 2019 at 1:48 pm

      For cash girders, there is Asset Forfeiture, Anyone feel like making a donation to the cops doughnut fund?

  18. breamrod
    Jul 29, 2019 at 5:44 am

    yes cash will work for awhile. Until confidence is totally lost. Then what? I wouldn’t want to be holding just FRN. Remember all fiat money goes to zero eventually.

    • SocalJim
      Jul 29, 2019 at 9:36 am

      FRNs will never work. FRNs that are tied to CMT only work if the FED lets the short end of the curve rise. The only reason they would do that is to protect the USD. Otherwise, the FED will jeep their foot on the short end of the curve forever because they have no choice. They are in the corner.

      FRNs that are tied to rates spread off the CMT will rise in a credit crunch, but you might never get paid.

  19. Mark
    Jul 29, 2019 at 5:53 am

    “It should end in jail for many bankers.”

    How about that plus jail for the dual-“citizens” in the Senate and House ?

    Put them all in together.

  20. David Hall
    Jul 29, 2019 at 6:18 am

    I paid off my home. My home price has been rising faster than inflation. This can not last forever. Bought some long term bonds when interest rates were higher. Studied dividend yields and earnings yield. Some companies pay dividends four times a year from earnings. Some companies raised dividends. Having job skills paid well for some. Not taking an ocean cruise or going to Vegas preserved capital.

    I was looking at building a small house. They do not allow under 1100 sq ft, no multi family housing in single family residential zoning, no add on apartments with a separate entrance, etc. The size of homes people have been building got larger each decade. More building materials consumed, higher property taxes, higher insurance and utility bills make it more difficult to save a dollar. Looking for cheap housing, but it is rigged to favor building larger homes. Another county allows a 600 sq ft house. The Florida citrus industry is less than half of what it used be due to citrus greening disease. They are selling diseased orange groves for $10k an acre.

    I have enough, but I worry about others who have not.

    • funkseoulbrotha
      Jul 29, 2019 at 10:38 am

      Then, please share your money with me.

  21. KiwiinCanada
    Jul 29, 2019 at 6:42 am

    The need to buy votes drives the process. You can only do this at the margin with debt because taxes don’t buy votes and are suppressive. You create a population dependent on public service jobs and handouts and they become the core of your voting base. You than become dependent on increasing debt to keep this base happy. Interest rate repression of increasing severity is necessary at this point to “painlessly” deal with the accumulated debt loads. This process does not have a happy ending in the long term, but people’s attention span discounts the future aggressively. What matters in the corporate sphere is the next quarter and in the public sphere the next election cycle.

  22. Iamafan
    Jul 29, 2019 at 7:01 am

    As if this ain’t bad enough, think about all the old people who did reverse mortgages so they could live and monetize their home knowing they would lose it to the bank someday.
    Well, the bankruptcy of Ditech the servicer of these reverse mortgages is causing some payments getting stuck. What will they think of next to make life harder to old people?

    https://www.americanbanker.com/articles/bofa-sides-with-elderly-borrowers-in-ditech-bankruptcy

  23. Michael Engel
    Jul 29, 2019 at 7:14 am

    If the Fed cut rates, dividends will be cut, but the value of bond asset will rise.
    China best investment is US treasuries.

    • Jul 29, 2019 at 7:56 am

      ALL dividends including corporations who increased dividends for the last 100 years will be slashed wholesale across the board when the U.S. stock market finally implodes and never rises again for decades to come. The fallacy about buying the dip just boggles my mind. How can so many people be so wrong?

    • Jay
      Jul 29, 2019 at 8:09 am

      Was that part of the real “trade deal”? Rates go down, “Great Trade Deal” is made, Stock market booms, Trump reelected, China gets US treasuries worth much more. A great negotiator would have made “the deal” before it is ever public. Or am I giving the powers that be too much credit? Thoughts?

      • SomethingStinks
        Jul 30, 2019 at 12:09 pm

        I don’t understand about the trade deal. China is pumping so much crap into the USA, through Ebay, Rakuten, Wish etc, its mind boggling. Mostly counterfeit stuff. You can pickup a Leupold riflescope on wish.com for 80 bucks. Of course this one’s not made in Oregon. So what the heck is this trade deal they keep talking about. We are already bent over taking it up the @$$. The Chinese buy our land, sell us crap, in a 100 years this will be United States of China, if we keep hocking the country away.

  24. Zippy
    Jul 29, 2019 at 8:50 am

    “In the years alone… impacts nearly 40 trillion dollars” In the years alone? What? Are you referring to the “years alone” since the GFC and in the US only?

    • Jul 29, 2019 at 9:35 am

      “In the US alone.” As in the subtitle.

  25. GarethM
    Jul 29, 2019 at 9:09 am

    Avid subscriber, love your content Wolf!

    Everytime I see 1% or 2% earnings on savings, my stomach turns. That’s rough, and abnormal.

    I’m a gen-X-er just past the cusp of millennial, finally with no student debt, but just hocked to a house so one debt replaces another. I see it as a forced saving, albeit an asset I need to tend to and spend money curating. Single-earner, wife raising our boys, but managing to contribute just enough to 401k to meet the company’s max matching contribution.

    What can I do to change the 1%/2% to something triple that? Historically you gotta push out the risk to grasp further in the return. What business can one start that provides a higher “conservative” return for retirees (and eventually people like myself)?

    I keep racking my brain against those types of questions…but am unable to think my way through to the other side.

    Anyway, a bit of a vent. How do you be solutions-driven when you’re up against this type of problem? Its tough.

    All ears. Keep well everyone.

    • Petunia
      Jul 29, 2019 at 11:11 am

      The secret to better returns is discounts. Don’t pay retail for anything, buy off season, use coupons and coupon codes(which I hate), pay off your house, prepay your real estate taxes(some places give a discount), etc. The money you save is your return.

    • Iamafan
      Jul 29, 2019 at 12:18 pm

      If you are maxing your 401K contribution, then you are contributing $18k of your salary. This amount removes about the same in CONSUMPTION and can reduce your taxes accordingly (it might even put you in a lower tax bracket). Congratulations, save money.
      The next problem is WHERE to put your 401K money. Most guaranteed return funds are only 2%. Usually it is a swap agreement with a financial institution which you hope does not go belly up. Better than nothing.

    • Paulo
      Jul 29, 2019 at 4:00 pm

      Get your house paid for before making other investments. Your return is terrible, anyway. Double up on principal payments, and like Petunia said below, shop the specials and sales. When your house is paid for it is like you just got a giant pay raise. Then, buy another house and let the renters pay it off. I know many who have done this and have done well. Furthermore, you can be a good landlord who treats their renters well, and treat them with respect as people and not just a source of income. You will be able to afford to do so.

      • Ethan in NoVA
        Jul 29, 2019 at 4:55 pm

        There are a lot of people trying to become landlords. It’s cheaper to rent where I live than to buy. I’m not sure how you would get a cash flow positive house without bringing a substantial down payment? Perhaps in other markets.

    • Jean
      Jul 30, 2019 at 11:23 am

      Up here in Canada you can buy Solar bonds at 5% and 6% depending on type of bond. If in US, there might be something similar.
      http://www.solarbonds.ca

  26. tommy runner
    Jul 29, 2019 at 10:12 am

    enabled by the rules and regs, you know the ones sent down to us on tablets by the guy w/ the beard and robe. the ones our ‘elected officials’ hide behind when they tell you he also asked us to pick up their pensions and anything good for you starts w/ an ‘s’ and everything good for them is.. the law. so remember, (where you can) to just click your heels before you ‘vote’ for your rulers next time.

  27. SocalJim
    Jul 29, 2019 at 10:19 am

    There are only two possible endgames … inflation or deflationary bust. At this point, these are the only possible outcomes.

    The optimal portfolio is a barbell structure … cash equivalents coupled with rental properties in blue chip zip codes.

    In either endgame, you have enough winning cards. The answer is obvious.

    • sc7
      Jul 29, 2019 at 11:40 am

      *real estate bought 7+ years ago in blue chip zones.

      I think when deflation hits, landlords are going to have a hard time keeping rents from falling.

      I’d not advise paying today’s prices for a rental property in coastal markets. The math doesn’t pencil out well.

      • Petunia
        Jul 29, 2019 at 11:57 am

        I’m with you on the real estate analysis. I lived in south FL in an affluent zip code. When the SHTF every house went down 40% the first year. I was easily able to rent another home, with no credit, because the landlords were desperate.

    • Dale
      Jul 30, 2019 at 8:19 am

      Jim, I think your strategy is excellent. But it is not without its risks.

      I think you have mitigated significantly against overbuilding of rental units, which definitely has occurred in much of the country, by choosing premium locations. In my area, a high-end complex just lowered its prices by 1/3 to compete. It had been at 20% occupancy after 2 years, so no wonder.

      Another risk is taxation that cannot be pushed onto tenants. California — with its extremely high level of inequality and poverty — may be forced to increase property taxes to cover pension and other costs including increasing services for the poor. This would probably happen in conjunction with a downturn that reduces California’s main source of tax revenue (income taxes), so a double whammy.

      But we will see.

    • Bobber
      Jul 30, 2019 at 10:04 am

      The Fed won’t allow consumer inflation to get too far away from the 2% target, so the main risk is deflationary bust that would either be induced by the Fed or induced by the market on its own. Also, booms followed by deflationary bust is a clear pattern in history. I prefer cash equivalents over real estate at this point in time.

      That said, some assets are necessary in case the Fed does allow inflation to get out of hand. Lately, the Fed has a tendency to change policy without notice. For example, QE became a regular tool and not a temporary extraordinary measure at some point. Also, Fed embarked on its own useless and ineffective trickle down theory called “wealth effect”. Encouraging wealth disparity and rewarding capital became an unspoken part of its mandate at some point.

  28. WSKJ
    Jul 29, 2019 at 10:20 am

    Another aspect of the VLIRPs, not to mention the NIRPs, etc.:

    on CNBC this morning (July 29, 2019), a news clip reports that the IRS has sent out letters to 10,000 investors in cryptocurrencies, informing them that they may be in violation of federal tax law.

    The IRS had apparently, some time ago, made statements to the effect that cryptocurrencies would be treated as property, not as currency. Not clear from the news clip what the nature of the possible violation is.

    One of the anchors’ following questions was, how do they know these investors are holding cryptocurrency ? Well, I do have the probable answer to that one: that info is in the federal warehouse by Salt Lake City, where all our electronic info is stored. And apparently they have good enough computer skills to search the data for cryptocurrency holders. The idea that cryptocurrency can be secret is exploded.

    This is a propos of today’s column, thanks Wolf, because as a number of commenters have said above, the common man has to look for some way to invest for the future, and bonds at 2% and lower, are not it. I’m guessing that cryptocurrencies are not it either.

    Thx, Wolf

    • WSKJ
      Jul 29, 2019 at 10:42 am

      I should be clear that I do not advocate cheating on taxes, but I do believe that one of the basic beliefs in the founding of the United States has been the belief in the right of privacy (security in home and person), and this is endangered by the establishment of electronic media, and the laws of the last few decades which allow and require its storage and use by the government.

    • Petunia
      Jul 29, 2019 at 11:18 am

      If you used your credit card or debit card to buy the crypto, they know. I believe they are only taxing the increase in value of any redemption.

      BTW, the block chain is an open ledger, so they also know where every bit of your crypto is or went. Which leads to an obvious question, so how come they get stolen and never recovered.

      • ZeroBrain
        Jul 29, 2019 at 1:00 pm

        Even with an open ledger, crypto is easily washed. There are services that allow many different parties put some amount of crypto “currency” into the pot, and then each party takes out a random one equal to what they put in. You can receive your payment at a random wallet address that no one knows belongs to you. Do that enough times and ownership is totally obfuscated.

  29. Michael Engel
    Jul 29, 2019 at 10:59 am

    1) Since 2008 UST front end was hugging zero, while the CPI
    average about 2%.
    On $20T debt US gov made : 8Y x $20T x 0.02 = $3T, but investors assets were rising.
    2) From mid 2015 the front end had on a bull run, while the
    the long duration moved down.
    3) They collided, creating a narrow bottleneck.
    4) TLT peaked in July 2016.
    5) SPX had a bubble, became vertical, with x3 tops, almost reaching
    2.618 x ( Oct 2007(H) @ 1576 – Mar 2009(L) @ 667).
    6) SPX from Jan 2018(H) to Sep 2018(H) draw a resistance line.
    7) We are approaching this resistance line. SPX might not give up so fast and have a dead cat bounce to around 3045.
    8) UST safe assets will become the new king, forming the next bubble.
    9) Investors wish to preserve capital by moving into king cash, UST, or HQ corp bonds.
    10) Switch before the bond bubble will be pricked.
    11) Forget about dividends and spending money on China.

    • Iamafan
      Jul 29, 2019 at 1:52 pm

      Re: On $20T debt US gov made : 8Y x $20T x 0.02 = $3T.

      What??? I don’t get it.

      The Fed makes interest on the 4T assets it bought. Most are returned to the Treasury after paying IOR and IOER and expenses. IOER has to lower or interest has to increase if the Treasury wants to get more back.

      But Treasuries bought by others are a different beast altogether.

  30. Zeppo
    Jul 29, 2019 at 11:29 am

    The Bilderbergers met last month in its usual secretive manner. Three years ago, its focus was on a growth and inflation path that would help ease the pain created from the staggering amount of global debt. Politicians with global business backgrounds who exhibit leadership qualities in the area of economics are rare finds. When I perused the exclusive list of invited guests to last month’s meeting, the names Stacie Abrams and Jared Kushner got my attention. The Bilderbergers did manage to avoid the candidate mill production line.

  31. Michael Engel
    Jul 29, 2019 at 11:33 am

    NYC Lincoln center.
    The West Side Story musical was a romantic gang fight, Romeo & Juliet.
    It became a tragedy, but at destruction peak , the seeds of culture
    were planted, the dance & the music started and Columbus Ave became top of the line, a desire shopping and RE area, near central park.
    Baltimore never experienced any bubble in the last 50Y.
    NYC intend to merge with Baltimore.

  32. Jul 29, 2019 at 12:34 pm

    The system has been destroying the spending power of the dollar (and the generations which earned and saved that money) and they will soon destroy the currency (and those people) as well. The ability to control assets is more important than wealth. The people who control bank policies have no real wealth, and are by definition highly paid bureaucrats. When they control the same assets that constitute wealth, they control the outcome. Central banks are buying gold, if you could print worthless fiat and buy gold, wouldn’t you? The point of this whole exercise has been to destroy collateral. Now they grant credit without collateral to whoever they fancy (or pays the mordida, often in political mana). The GND is this system on steroids but with accountability. There is no one to blame (more) than the fiscal conservatives. In the global scheme you have to worry that in China and Russia, collateral still makes a difference, so they buy gold, and RE. In a serious recession depression hard cash will matter. Will they smash it to bits? In the GD the margin calls evaporated the M1 supply, this time they seem committed to pumping in new cash but at diminishing value, it takes more of it to stay even. In the final outcome they will turn a dollar into a dime as the ultimate hubris to what happened by way of the free markets a hundred years ago.

  33. Jesse
    Jul 29, 2019 at 2:04 pm

    I agree that interest rates are artificially low and have been for years, prior to President Trump being elected. Rates have actually increased since he was elected. I understand why he would like to see interest rates lower as he is trying to get more businesses to invest to grow the economy. However, as Wolf reported lowering interest rates will not necessarily grow the economy, and in fact will likely impede progress the longer interest rates are kept artificially low. It helps with government debt and corporate debt, but also encourages inappropriate investment and spending. Artificially low interest rates are doing more harm than good.

    Having said that I agree with most of Trump’s agenda and actions he has taken. The option to President Trump would destroy the country. And for those of us that have any savings, expect your taxes to go up, including the likelihood of a tax on savings/ wealth, lower quality healthcare and higher prices, and increased lawlessness. The Socialist Democratic Party won’t stop until they control everything.

  34. Jake Bodhi
    Jul 29, 2019 at 5:09 pm

    Do I ever miss Paul Volcker. Thanks Wolf!

  35. Iamafan
    Jul 29, 2019 at 5:53 pm

    alright, get ready!

    WASHINGTON — The U.S. Department of the Treasury today announced its current estimates of privately-held net marketable borrowings for July – September 2019 and October – December 2019 quarters:

    During the July – September 2019 quarter, Treasury expects to borrow $433 billion in privately-held net marketable debt, assuming an end-of-September cash balance of $350 billion. The borrowing estimate is $274 billion higher than announced in April 2019. The increase in borrowing is primarily driven by changes in cash balance assumptions.

    During the October – December 2019 quarter, Treasury expects to borrow $381 billion in privately-held net marketable debt, assuming an end-of-December cash balance of $410 billion.

    During the April – June 2019 quarter, Treasury borrowed $40 billion in privately-held net marketable debt and ended the quarter with a cash balance of $264 billion. In April 2019, Treasury estimated privately-held net marketable borrowing of $30 billion and assumed an end-of-June cash balance of $270 billion. The change in borrowing resulted from lower net cash flows partially offset by the lower end-of-quarter cash balance.

  36. Stephan in NY
    Jul 29, 2019 at 11:21 pm

    I just never spend anything. All I do is buy $5 used books from Amazon. I gave up buying magazines, new books, etc. Everything became too expensive so I just hold on to my money and only buy cups of coffee and go to the library where everything is free.

    America pretty much sucks.

    • Jul 30, 2019 at 11:07 am

      I am frugal as well. TV on the antenna. Read gifted old copies of NYorker Mag. Spent some money on a small greenhouse, want to grow vegs all year, cost of produce offseason is too high. Ca library system is the best. Medicare has been a blessing. Keeps me alive. Thinking about buying $100 beer mug.

  37. Kraig
    Jul 30, 2019 at 1:09 am

    @alex in san jose

    >Have an economic game where there are winners and losers but have regulations or social mores etc. that mitigate this and take things away from this red-in-tooth-and-claw society we live in now where people are dying for lack of insulin and other cheap drugs.

    So like Norway,Denmark and the UK(healthcare free at point of use, paid for by the state)

    That will cost your healthcare companies billions,good luck getting that through the legislators.

  38. unit472
    Jul 30, 2019 at 3:48 am

    I am becoming more concerned about the integrity of the banking system than the interest they pay on deposits. Last month Chase Bank issued 7 credit cards in my name but with others names on them. Capital One ( tonight admitting their data had been breached) issued an unsolicited credit card in my name that was, fortunately mailed to me. SunTrust is refusing to reimburse me for $1475 electronically transferred from my checking account to a Goldman Sachs account that I have no idea what for.

    Worse still I have auto deposits coming in to that checking account and auto disbursements for, among other things, my health insurance but I cannot review the transactions has SunTrust has blocked on line access to my own checking account. I will have to physically go to the bank today to see if my deposits are still there and, in a few days, return to see if the payments were made. This is the state of ‘banking’ today. People overseas can access and transfer money from your account or request a credit card in your name and the banks will do it and not even notify you.

    • Gandalf
      Jul 30, 2019 at 10:01 am

      Unit472
      You got hacked. It’s more likely from your computer or some other financial information source if three different banking systems are involved. Wolf had a good article about locking down credit scores from the three biggest agencies a year or two ago, as Equifax got hacked

    • Jul 30, 2019 at 11:08 am

      freeze your credit

  39. AV8R
    Jul 30, 2019 at 11:26 am

    It was never the intent of Government sponsored, tax advantaged retirement planning that your savings would provide for a lifetime of interest payments that covered your nut and left the principle to your kids. The bargain was simple. Save now and withdraw to spend later at a lower tax rate. You could outlive your money. There was risk.

    The Fed shouldn’t have raised rates until the MBS on balance sheet was liquidated.

  40. Andrew
    Jul 30, 2019 at 11:09 pm

    Nice production, Wolf. It sounds casual, as if you’re speaking off the cuff, but the digital editing tightens it up. You’re not reading a script, are you?

Comments are closed.