THE WOLF STREET REPORT: Is the Corporate-Debt Bubble Ripe Yet?

What does it mean when the Fed and other central banks jointly bemoan the effects of their own policies? Worried about not being able to keep all the plates spinning? (11 minutes)

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  175 comments for “THE WOLF STREET REPORT: Is the Corporate-Debt Bubble Ripe Yet?

  1. Dec 8, 2019 at 11:34 pm

    I guess the trillion dollar question is when, not if? I was at Seattle’s Town Hall on 8th and Seneca for the 20th anniversary of the WTO shutdown, Dec 7th. I got there in daylight and left after dark in a city I no longer recognize. There are so many new high-rise buildings on First Hill, Capitol Hill, and downtown that if not for the street signs at each intersection I would have no idea where I was or heading trying to make it a bus stop to get home. I imagine all of these new buildings are carrying a mortgage and all of them here in Seattle are catering to highly paid techies. If anything goes wrong, and it wouldn’t take much with some luxurious one bedrooms renting for $4,500 per month, then the bust here will be amazing. Add to this how many Fortune 500 companies whose net worth is now less than zero and we have the makings of a disaster..

    • Just Some Random Guy
      Dec 9, 2019 at 10:26 am

      Those $4500 apartments may dip to $4000 if a recession comes (and where is that recession anyway, I’ve been hearing about it for 3 years now).

      But they will never go back to the “good old days” you yearn for. I get your frustration. Your city experienced an incredible 20 year boom and you were left out. But wishing for it to reverse itself won’t change anything.

    • DR DOOM
      Dec 9, 2019 at 11:05 am

      Is the bubble ripe yet? Not by a long shot. Reserve currency status and the petro-dollar are still the King Makers. Main Street money is expensive for me and you but Wall and Broad get it for near zero. It is a foot race between trust and de-dollarization . We are at +60% dollar denominated settlements and falling . There will be a tipping point way north of 0% when it crashes . No one knows what % it will be because human behavior is not rational. My springer spaniel could be the culprit with a new future purchase his favorite snack . The bemoaning and hand-wringing by the Fed is simply a tactic so when it happens they will pull a chart out of the kester locker and say,…yep,we saw it coming and we have a tool box that will fix it.

    • DawnsEarlyLight
      Dec 9, 2019 at 2:01 pm

      The word of the Decade, ‘Over-leveraged’.

  2. Millennial family
    Dec 9, 2019 at 12:28 am

    I can’t understand the economy anymore – houses renting for $4k a month that sell for $8k a month, business school tuition that’s 100k per year all in, healthcare where you pay 10-100 times the Medicare reimbursement rate. Yet everyone is rolling in cash.

    Extremely subsidized food( meal plan deals where we spend $60 a week to feed a family of 4) and extremely subsidized stuff ($200 for huge backyard toys and ride-on toys, that cost $400 20 years ago – my parents could not afford when I was a kid, though they bought a nice three bed house which we can only afford to rent).

    We can’t invest our money anywhere,it costs very little to live ( only real cost is rent which is vastly inflated for our 50s crapshack with a wall heater) and we can’t afford a better life but are sitting on tons of cash. We can’t spend the money we have because we can’t afford a house (1.8 million in a good school district) and don’t want to furnish a rental so we just hoard money.

    I just can’t understand the economy anymore. I’m lost – we’re young – 30 years old. We earn so much money, never thought we’d make almost 400k on a single income, but can’t afford a middle class life. But we’re hoarding cash like mad, it feels like hyper inflation in the Bay Area.

    Can’t figure out if this boat is sinking or not, but everything seems radically out of place.

    • Dec 9, 2019 at 12:41 am

      Millennial family,

      Now try to figure out what someone is going to do who earns “only” $60,000 a year in your area. Or $30,000.

      • Trinacria
        Dec 9, 2019 at 1:23 am

        Your reply is excellent. I am still trying to get my head around the post of millennial family…

        • Cas127
          Dec 10, 2019 at 5:49 am

          Trin,

          “I am still trying to get my head around the post of millennial family…”

          Forget it Jake…it’s Chinatown…er, Silicon Valley.

          The handful of coastal enclaves living the life as described make up a pretty small fraction of America as a whole – and they live on a razor’s edge – which accounts for the economic schizophrenia as described.

          Let interest rates go up 1 pct or more and the implosion will begin…again.

      • Millennial Family
        Dec 9, 2019 at 2:37 am

        I’m not saying our life is hard. It’s not. I understand many people in the SF Bay Area are barely surviving. There is a ridiculous, impenetrable wealth gap that affects everyday life in the Bay Area.

        I’m saying I can’t understand the current economy. I can’t wrap my head around it anymore. Can’t figure out how the current economy is sustainable.

        On a side note, can a family live in the Peninsula with two kids making 30k or even 60k? Rent alone is at least 24k a year post tax. They either have a paid off house with prop 13, are homeless or some unique situation. Daycare alone in the Bay Area is 48k a year for two kids.

        I’m an active supporter of a high vacancy tax on all housing in the Bay Area. There should not be 4 vacant homes for every homeless person or family. Housing is a right, not an asset class.

        • Anon1970
          Dec 9, 2019 at 10:16 am

          You can find much less expensive housing in other parts of the country, but you will probably have to take a cut in salary. I did a quick search on houses for sale in Southfield, MI, a suburb north of Detroit. Admittedly, this suburb has seen better days and its major shopping mall (Northland) was torn down years ago. But there are plenty of homes for sale at prices less than your annual salary. Even the more upscale nearby suburb of Birmingham has affordable housing (by Bay area standards).

          Prop. 13 in California has encouraged people to stay in their homes as long as their health holds up. Even moving nearby to more suitable housing triggers a large capital gains tax for long time home owners (federal and state) sitting on large unrealized gains. Tinkering with the tax code always creates winners and losers.

        • Tony
          Dec 10, 2019 at 3:39 pm

          “Housing is a right, not an asset”. What bull. This is why we can never have “one-person-one-vote” for presidential elections, and let people who live on another planet decide our fate.
          You, Millennial Family, live in a crazy bubble of your own making, and arrive at communist policies, such as “housing is a right”. Why isn’t food a right? Why isn’t fat 401k account a right, so we can all retire? Why isn’t a car for everyone a right? Why isn’t a 4-week vacation a right? Why isn’t free healthcare a right? Why aren’t toys for holidays a right? Why isn’t everything in life a right?
          I’ll tell you why. Because all these things exact a cost, and someone has to pay it. Through hard work and sacrifice.
          What’s next? Socialize all housing and let government give it “fairly”?
          What you are talking about is communism, and coming from someone who is unwilling to venture out to the world. Why don’t you go to Arizona and Nevada, and you can find affordable housing? Why stay in the Bay Area? I lived there and then moved out to Arizona, where I have my 2800sqft house paid off now.
          Think about how you sound to the rest of us. Is it any wonder that progressives like you deserve a label of being communists, starting from your governor who is about to enact rent-controls state-wide and choke off future rent supply, and raise your own rent? I bet you voted for him.
          You need to get out of there and get a life. And don’t bring your progressive nonsense with you. Leave in California.

        • Lisa_Hooker
          Dec 10, 2019 at 6:27 pm

          MilFam – Apparently one answer is to start a daycare business. By hook or by crook.

      • Gandalf
        Dec 9, 2019 at 7:23 am

        They live in their car or in a tent/cardboard box, ergo, the homeless crisis

      • Deanna Johnston Clark
        Dec 9, 2019 at 10:35 am

        My husband and I are 72 and live on 30,000 in a small southern city. We own our little post war house and qualify for Medicaid but pass on SNAP because we don’t want to take what we don’t really need.
        Being college educated, I am very careful and responsible with money. Our grown family lives here, with grandchildren.
        let me tell you this…we help each other all the time…drive each other when a car breaks, make short term loans, eat together some…everything family can do.
        I’m frankly wondering how poor people without our blessings can survive. I’m so, so grateful. I pray young people will create real families and homes and study money, like with Wolf here, and have good friends with ethical characters.

        Faith, love, and community is our hope…humble times are at the door.

        • RD Blakeslee
          Dec 9, 2019 at 12:41 pm

          Dear Ms. Clark,

          People (and families) who think THINK! the way you do will always do well. I know. Our family FAMILY survived the great 1929-1945 times of trouble.

        • Argus
          Dec 10, 2019 at 1:28 pm

          North Americans have been led astray from what is truly important (and contained in your last sentence) by materialism, moral relativism, loss of faith and fractured family life.
          We will survive the coming global financial crisis if we strengthen family and community ties, learn to appreciate a simple life and develop practical skills.
          A few PMs would help, too!

    • Willy Winky
      Dec 9, 2019 at 2:59 am

      You make almost 400k per year – and you are struggling?

      I guess if your goal is to prance about in a private jet then ya, I understand your profound feelings of disappointment and inadequacy.

      • David G LA
        Dec 9, 2019 at 10:33 am

        @ Willy
        I have single friends in LA making 200k a year. They can’t or won’t buy a house – it’s too crazy. As millennial writes – nothing makes sense. So they rent. It’s not struggling. It’s just all very confusing.

        • Dec 9, 2019 at 11:31 am

          Mils don’t want a lot of baggage. This could be the new reality that jobs and situations change quickly. To Mils who grew up listening to financial bloggers explain the quasi nationalized US stock market, Wall St is another GSE, waiting to be buried under a pile of bad debt. Now the Fed is exploring ways to implement QE using charter banks. Oh wait, they call that REPO? Mils are more willing to enter into off Wall St investments, VC i.e. Corporate High Yield debt is out there, maybe less so than other forms of finance, being linked to companies with revenue! If you make 400K, and you don’t spend, you sure don’t park that cash in a CU account. How many 30K retired boomers will fit inside one 400K Mil, who will probably inherit their wealth in a few years. Some in America are going to be very well off in twenty years, (wealth disparity gap blowoff top?) and conventional financial planning doesn’t work for them.

        • Ca127
          Dec 10, 2019 at 6:15 am

          LA,

          “It’s just all very confusing.”

          It is insane…it is ZIRP.

          More less 20 yrs of government halved ntl interest rates have led to cyclically insane housing cycles on the land supply limited coasts – the money-printing repressed interest rates make it possible for housing prices to double – from insane to lunatic.

          But a 1 pct hike in rates threatens implosion – see fall 2017 to winter 2018.

          And…people are waking up…the volume of CA home sales transactions in Bubble 2.0 is only about half of those in Bubble 1.0 – meaning a more brittle mkt but one that will ruin only about half as many.

          Anyone afraid to buy in coastal CA is 100 pct right. We’ve all seen this movie before.

      • Iamafan
        Dec 9, 2019 at 1:16 pm

        I am so disappointed since I made a pittance (when I worked) compared to that. Please.
        I fee like I missed something.

        • Ethan in NoVA
          Dec 9, 2019 at 6:21 pm

          Yea but if you owned a house before the huge run up you have a lot less expenses if you didn’t borrow against it.

          Also, the taxes on someone clocking $400K in Seattle are high.

          I am older but in the same boat. I make more money than I could have dreamed of. It goes really far in used (non-collectable) electronics but no where in housing.

    • Dec 9, 2019 at 3:12 am

      Your health should be your only focus,
      not money, “Millennial Family”;
      stay sane in a world gone mad.

      Housing is the trickiest piece of the puzzle
      because our needs are always changing,
      especially in boom-bust Seattle.

      Micro-Apartments, in an urban setting, are in high demand;
      McMansions, and driving everywhere, are going out of style;
      more so, should fuel prices and interest rates spike again.

      Good security/food/health doesn’t have to be expensive.
      Last 30+ years, I haven’t spent a dime on doctors.

      Most emergency room visits are a result of dehydration;
      a bag of salt water (injected) solves the problem.

      Instead of spending a thousand $ on a ambulance ride,
      and 3 thousand $ on a emergency room visit, I ingest
      enough salt to keep myself hydrated — naughty me.

      Just as sugar amplifies a toothache, salt abates it.

      • Iamafan
        Dec 9, 2019 at 1:23 pm

        Re: Good security/food/health doesn’t have to be expensive.
        Last 30+ years, I haven’t spent a dime on doctors.

        I guess I tried that and ended up in the hospital for a month.
        My opinion – It’s not worth it. Seek professional help.

        Be careful about giving advice online.

    • 2banana
      Dec 9, 2019 at 4:20 am

      1. Realize that the same factors that allow you to earn $400k are the same factors driving housing to insane levels in your area.

      2. Realize when this bubble implodes, so will your job.

      3. Logical conclusion. Save, save, save. Keep on top of your skill set. Be happy for a salary at a 50% cut when reality hits.

      “never thought we’d make almost 400k on a single income, but can’t afford a middle class life.”

    • nhz
      Dec 9, 2019 at 5:40 am

      “I can’t understand the economy anymore – houses renting for $4k a month that sell for $8k a month, business school tuition that’s 100k per year all in, healthcare where you pay 10-100 times the Medicare reimbursement rate. Yet everyone is rolling in cash. ”

      Sounds better than where I live (Netherlands), where rents are often at least 2-3x the monthly mortgage cost; which of course means that prices are (also) sky-high relative to incomes and most homes are purchased with a maximum mortgage. If you don’t have the income (like almost every single-income family nowadays) you have to pay punishing rent and will never be able to save for a home; having ZIRP/NIRP policy doesn’t help with saving either.

      For sure “everyone rolling in cash” sounds like a pretty privileged position, you can move to a cheaper location if that is financially required; others are simply stuck.

    • Jonathon
      Dec 9, 2019 at 6:00 am

      So the national wage average in the USA (2019) is around $47,000. Of course, this is an average and there are outliers on both ends that skew the number.

      You state you make almost 10 times the national average at almost $400,000/year on a single income.

      Pardon me if my sympathy meter is hovering near zero. Perhaps you should survive a single year on the national average wage and then reassess your position.

      • RD Blakeslee
        Dec 9, 2019 at 12:46 pm

        Applause for good-doing is more attractive to me than sour grapes.

    • Brant Lee
      Dec 9, 2019 at 6:32 am

      Perhaps Wolf could help us all look into the powers of banks holding our ‘cash’ (Re: Cyprus), during supposedly what they deem crash or panic economic events? Do US banks have the authority to limit cash withdrawals, freeze accounts or ‘borrow’ our funds to help stabilize their own mess?

      • Dec 9, 2019 at 10:23 am

        Brant Lee,
        Deposits at FDIC-insured banks are insured by the US government, backed by the Fed. If you follow the FDIC limits, you’ll never lose a dime. Over my adult life, three banks where I had deposits collapsed, including a fairly big one during the big bad Financial Crisis. Never lost a dime. So that’s the LAST thing I’m going to worry about. But if you want to worry about it, go ahead.

        • Laurel Phoenix
          Dec 10, 2019 at 11:50 am

          Wolf, I can’t remember on what website I read this is the last couple of years, but it was an article talking about how the actual FDIC account has very little money in it relative to the amount of money banks have currently, so that if there were some kind of major shock to the banks, there wouldn’t be anywhere near enough money in that account to pay back depositors up to their $250,000 limit. Do you know any details on this, and do you think that if there were an economic shock large enough to exceed the FDIC reserves that Congress would just choose to increase the federal debt in order to raise the FDIC reserves high enough to cover all their insured responsibilities?

        • Dec 10, 2019 at 12:23 pm

          Laurel Phoenix,

          People who say this don’t know: one, how banks work; two, how the FDIC works; and three, how insurance works. Or they don’t want to know because it’s a lot more fun to go around fear-mongering.

          When a bank is taken over by the FDIC, stockholders and their capital instantly get “bailed in” and wiped out. The FDIC gets all the assets and takes care of the liabilities in accordance with their place in the capital structure. The secured creditors are taken care of first from the proceeds of the asset sales. And there are always lots of assets left to cover at least some if not all of the insured deposits (unsecured liabilities).

          Bank assets are things like mortgages, other loans, investments, and the like. The FDIC sells these assets to other banks, sometimes for cash, but often in exchange for these banks taking some of the deposits (liabilities).

          So Bank X is taken over by the FDIC Friday evening, and over the weekend, the FDIC makes a deal with Wells Fargo where Wells Fargo buys for example $10 billion in assets and pays for it by taking on $10 billion in deposit liabilities. There is usually a premium that allows WF to make a little money on the transaction.

          The FDIC sells off the banks assets and uses the proceeds to pay off the liabilities, including deposits to the extent possible. Most of the time, this covers most of the liabilities, including most deposits. Some deposits exceed the limits, and they’re not insured and depositors might take a haircut. And the FDIC only has to fill a relatively small hole with deposit insurance.

          Comparing the amount in the FDIC fund to the total amount of deposits (liabilities) is total BS and completely ignores the biggest factor: the assets at the banks. The US banking system has nearly $18 TRILLION in assets. This is what the bank-fear-mongers willfully ignore with their BS.

          In addition, the FDIC is the US government, which is backed by the Federal Reserve’s printing press, which will never allow the US government to run out of money.

          Even during the BIG BAD financial crisis, no FDIC-insured depositor ever lost a dime.

          In terms of insurance:

          If, if, if… If every car in the US got into a fatal accident at the same time, all insurers would be instantly bankrupt, and payouts would be nearly nothing. But the chances of all cars getting into a fatal accident all at the same time are nil. That’s how insurance works.

          FDIC is insurance. The chance of all banks collapsing simultaneously is essentially nil.

          This fearmongering about the FDIC is not based in fact and has no place on this site.

        • Laurel Phoenix
          Dec 10, 2019 at 2:30 pm

          Wolf, thanks for your detailed reply. I wasn’t trying to repeat fearmongering, but trying to understand what the other article I had read was basing its conclusions on and I assumed you would explain it thoroughly and you did. You have elucidated the parts that other article left out so now it makes sense to me why you state FDIC backed deposits are safe. I, too, can’t imagine a scenario where most banking collapsed at once or one where the FED wouldn’t print up more money to solve the problem.

        • Lisa_Hooker
          Dec 10, 2019 at 6:40 pm

          Wolf – I understand banking and FDIC. But I am curious about the dates and how long it took from bank-fail-closed to you having your funds transferred to a good bank and available for use. For each bank, please. No need for names. Thanks.

        • Dec 10, 2019 at 9:28 pm

          Lisa_Hooker

          My first bank that failed was M Bank in Texas (1986? Oil Bust). I don’t remember the details, and on my side, it involved just what I had in my checking account, which wasn’t much, and a MasterCard. I was in the process of moving from Texas to Oklahoma, and still had my old bank account in Tulsa from before Adam and Eve. The details have slipped my memory. It was just not an issue. Everything was smooth. I still have the MC… it went through several acquisitions before becoming a Citibank MC in the 1990s or so.

          My second bank that failed was a local bank in Tulsa in ca. 1989 (oil bust and depression) where I had my mortgage and a checking account. At the time, I was a debt slave, without a lot of cash in the bank. My mortgage ended up with the FDIC before being sold to some outfit, and eventually to Nations Bank. And the checking account ended up at some other bank, where I closed it. I don’t remember the details except that it was smooth.

          The third was a conscious bet I took. On Sep 16, 2008, when WaMu was experiencing a run on the bank, and was desperate to attract deposits via high rates, I bought a juicy 5.5% 5-year CD from WaMu via my broker, fully expecting the FDIC to take over. This then happened a few days later, around Sep 28, when WaMu collapsed and the FDIC took over. The CD ended up with JPM. But it was a brokered CD, held in my brokerage account, so as far as I was concerned only the name on the line item on my brokerage statement changed. I collected interest for a while and then sold the CD for a nice profit after bond yields had collapsed. So yes, this was a bet on the FDIC to make money. And it worked very well. I’ll bet on the FDIC any day.

      • Iamafan
        Dec 9, 2019 at 1:32 pm

        The US government and the Fed (Reserve Notes) can just print money and replace whatever Cash you have. This is NOT a US problem. Be happy.

        If you have more than $250k cash, you can always do what the banks do. Deposit it with the Fed or buy short term Treasury, in your case, Treasury only.

    • Old-school
      Dec 9, 2019 at 6:37 am

      Thanks for the perspective. We are a very diverse country. The Fed has and govt has pumped gobs of stimulous into the country and created many localized bubbles. Maybe the median is 2% inflation, but there are hot spots and decaying spots. My daughter and her husband live in a wonderful all brick home on a golf course, 3,000 plus sq. Ft and paid about $300,000. They both work and the price is probably 1.5× their income. You are making good money. Squirell away as much as you can while you have the opportunity. You always can cash out and move to Podunk USA and be a big fish in a small pond if the bubble bursts.

      • tom
        Dec 9, 2019 at 7:51 am

        I love working & living in Podunk!!

        $100,000/year “business” education, and unable to figure out
        the Bay Area?

        Demand a refund.

      • RD Blakeslee
        Dec 9, 2019 at 12:50 pm

        Why wait for the bust? For me, it’s been a good life “away from it all”, for nearly fifty years.

        I tell folks: “I’m FROM Detroit”.

    • Shizz
      Dec 9, 2019 at 7:05 am

      @Millennial Family – I can understand and appreciate your confusion. Not much makes sense anymore. At the end of the day it’s not how much you make it’s what you save, how much debt you carry and what that debt is for.

      Of course the preferred amount of debt would be zero but that’s not to say that some debt can be healthy if used for the right reasons.

      Just keep your head down and ignore the financially imprudent folks. The only metric that matters is you and yours. Ignore the reckless an their attainment of instant gratification. Using the foolish as a yardstick for your well-being will get you into trouble.

    • Iamafan
      Dec 9, 2019 at 7:34 am

      Not all people are like that or anywhere close to that. You may have been watching a lot of social influencers. They’re fake news.

    • Jonathan P.
      Dec 9, 2019 at 9:14 am

      I’m with you. We are in our late 30s…an attorney and a physician in the East Bay. We had to take out some home equity ( by the skin of our teeth) just to live. Our school district cut funding to basic programs so we have our kids enrolled in private school at a whopping $121k per year for all three kids. We did everything we were told to do. Just trying to pay back our combined student loans of $980,000. We are almost halfway done with paying the loans off. But if we can’t make it on our combined $550k, where are people working? We refuse to use credit cards (been down that road before during residency and fellowship). I might need to switch careers. Half of my neighbors are younger than us and are purchasing $3 million dollar homes in Berkeley/Orinda areas. I remain confused.

      • David G LA
        Dec 9, 2019 at 10:39 am

        Jonathan P
        – that tuition needs to go. Sell the house if it’s in a bad school district and rent an apartment in a good school district. that’s what my professional friends in LA have to do. Rent an apartment in Santa Monica.

        • Jonathan
          Dec 9, 2019 at 10:54 am

          I have signed a contract with a hospital for five years. If I break it, I will have to owe $500k (my wife is a lawyer, so we read the fine writing). I have to live within 20 mins of the hospital (trauma surgeon). I wish I could move. We have 42 more months (not that I’m counting). I took on this context because the hospital offered to provide the down payment for our house, in return for me to work for five years and pay back. Otherwise I could not have qualified for a loan unless I had two years’ income with our current debt situation.

      • Abomb
        Dec 9, 2019 at 10:42 am

        My wife and I make significantly less combined but well above average and also in a more affordable part of the country. We have the same general sentiment as you and the Millennial family post above. For as well off as we are how are others making it and purchasing homes in this market? I suspect many have their foot heavy on the debt pedal and aren’t saving. I can’t imagine this playing out well. Is it gonna crash or just be a long skid…..

        • ethan in NoVA
          Dec 9, 2019 at 6:26 pm

          People with paid off house, or that moved up from paid off house to an expensive house but was able to pay off most of the price are probably rolling in cash. Plus some people do debt.

      • Bobber
        Dec 9, 2019 at 11:38 am

        Good one.

      • Petunia
        Dec 9, 2019 at 2:50 pm

        Jonathan,

        For probably $50K a year you can hire a private fully licensed teacher to home school all three of your children. That should save you $70K, some of which you can use to hire a full time housekeeper to watch them when they are not being tutored.

        Not only will you save money and stress, but your children will be extremely well educated and safe. I home schooled my son through high school. It took two years to get him through four years of high school with about 3-4 hours of instruction a day. We did work through the summers but still took break times at holidays. You can easily educate your kids in half the time and save half of the total tuition. I’m only sorry I didn’t do from the beginning.

        Finding a fully qualified teacher should be as easy as hand out flyers at your local school. You will probably get swamped with teachers who want to work freelance.

        • Erle
          Dec 9, 2019 at 9:32 pm

          Petunia has it.
          You should cruise the roster of student voted best instructors in the local colleges and interview the ones that will never get tenure. For that kind of dough you can hire two if need be.

      • Bart
        Dec 10, 2019 at 2:10 pm

        Hang tight Jonathan. When things turn and they always do, it will be very different. In the meantime, is there enough appreciation in your house to make it worthwhile to sell it? Of course, you have to rent but the school system where you rent would be irrelevant since your kids are in private school. When it blows up, you could go back to your old neighborhood and likely get a house for a lot less or for that matter, once you sell your home, rent and find new jobs is less expensive parts of the world. I know many who cried their eyes out when they found out they had to move to flyover. Now, they wouldn’t leave for anything.

      • Lisa_Hooker
        Dec 10, 2019 at 6:46 pm

        Marrying a lawyer in this day and age may be nice, but it appears one might be better off marrying a CPA. It’s always about managing cash flow.

    • Just Some Random Guy
      Dec 9, 2019 at 10:29 am

      Dude give me a break. $400K and you can’t experience a middle class life? That’s eye rolling ridiculousness. I don’t want to get into a generation food fight here, but your post in a nutshell sums up everything wrong with your generation.

      • Jonathan
        Dec 9, 2019 at 11:01 am

        I have my first vacation I’ve had in four years (more than a weekend) and I’ve spent the first two days thinking about my debt. Here’s what I’m thinking…many of us have a lot of student loan debt. Eventually it will pay off (if we have high paying jobs). The problem is, how do we pay student loan debt, insurance (I’m a doctor), our mortgage 4 bedroom in Berkeley that needs a new roof at $8,000 per month (we are not luxurious here. My childhood home was far nicer), food, gas (there’s so much traffic here. I need a Prius…), children’s schools, property tax ($18k per year), and child care costs became we have no family (weird work hours). I know a lot of families where the parents have to travel for work, so this would put them in a similar situation. I think the landscape has changed a bit and I’ve been living under a rock (a circular hospital ceiling)…I’m in California so 50% of income goes to taxes.

        • Just Some Random Guy
          Dec 9, 2019 at 11:34 am

          “I’m in California so 50% of income goes to taxes.”

          But I’ve been told high taxes = prosperity for all. Are you saying this isn’t true?

          Here’s an idea:

          1. Stop voting for people who impose 50% taxes on you.

          2. If #1 fails, move. I know it may come as a shock to you, but there’s this whole other country/world outside of the Bay Area. Now granted, you won’t have 27 Asian-Ethiopian fusion restaurants serving 172 craft beers within walking distance of your house. But still, might be worth looking into.

        • Dec 9, 2019 at 12:43 pm

          Just Some Random Guy,

          California income tax for taxable income between $343,789 and $572,980 = 11.3%. The rest of the “50%” are federal taxes.

          But property taxes, once you own the home for years, are a great deal thanks to prop 13. You win some and you lose some.

          I agree with your #2: people need to move to other states. Texas is highly recommended. It’s way too congested and crowded here.

        • Anon1970
          Dec 9, 2019 at 3:06 pm

          When you have finished your current hospital commitment, think seriously about moving to a less expensive part of the country.

        • Kerry
          Dec 9, 2019 at 7:57 pm

          Why in the world do you put up with it? Nobody seems to have an answer. I do, peer pressure and greed…

        • TXRancher
          Dec 9, 2019 at 9:07 pm

          Nope Texas is full. Thanks for the advertisement though.

        • Old-school
          Dec 9, 2019 at 11:58 pm

          You are probably in the toughest time of your life. You care about your family and are providing for them and with taxes paying for more than your fair share I would say. Don’t get discouraged. Number 1 thing is to make a budget and stick to it. Make sure you and your wife are on the same page as tough as that will be. Don’t burn out. Number one thing you have is your income. Your education is a lifetime benefit. I would finance it as long as I could at as low of a rate as I could if money is tight. Roofs sometimes can be temporarily patched up to give you a few more years. Finance house as long and at as low of a rate as you can as it is a long lived asset. No eating out if that’s the way it must be. No car payments if that’s the way it has to be. Perfectly good cars for $3000 – $4000.

    • JR
      Dec 9, 2019 at 12:06 pm

      @MillenialFamily – a few years ago I would say you were out of touch. Not so anymore.

      I’m 40. My parents were a school teacher and a house painter. I grew up in a house that was the 2nd home they had built (they were under 30) – on an acre of property with a HUGE garage in the back. We had horses, trailers, 3 vehicles, Atvs, and a boat. And my parents were able to save money for retirement. ON THE SALARY OF A SCHOOL TEACHER AND A HOUSE PAINTER.

      I make over $200k As the owner of a small tech company (very small) and luckily live in a good school district in SoCal – so I don’t have to pay for private school. When you take into account my and my wife’s student loans, our car payments, rent, the insane cost of healthcare, and other living costs, we have trouble saving much.

      We Have great credit and barely qualify to buy a house 1/2 the size of one I grew up in – with no yard, and no toys. And we are years from saving enough for the down payment – if home prices stay where they are (they could go up).

      We know we are fortunate to make what we do, we are grateful and not complaining. But we also sit here and say, “If we can’t do this on our income – which is over 2x the median in our area – how in the hell can the average person do this? Who is buying these houses? How are things not tanking?”

      So we are stuck doing nothing – wondering what the future is going to be.

      I’m stating to believe in history books we and our kids are the generation that is going to be the ones who never got much. Where the system was openly either breaking or changing to something complexly different than what it was. I don’t believe it will return to what it was, and I’m afraid of what the future will be when so many have so little. It’s definitely paralyzing

      • Just Some Random Guy
        Dec 9, 2019 at 12:31 pm

        Sorry to burst your bubble but $200K isn’t anything to write home about in SoCal. And certainly not tech related. A decent coder with a few years experience is making $200K.

        • weinerdog43
          Dec 9, 2019 at 2:31 pm

          Lighten up Francis. He is not bragging; merely making a point.

    • sc7
      Dec 9, 2019 at 2:07 pm

      Take your saved money, buy a house cash in a nice town with good schools in a lower CoL area (yes they exist), and enjoy financial security. You may need to take a pay cut, but you’ll have no expenses having over your head.

      Or, convince yourself you just HAVE to stay in the Bay Area, and suffer forever.

    • Dec 9, 2019 at 2:39 pm

      Millennial family,

      I forgot to add a very important and well-known and well-documented predicament: “You can always easily outspend your income no matter how big your income.”

      • Trinacria
        Dec 9, 2019 at 4:19 pm

        Indeed….as a retired CPA….in my working years I had a client who made a minimum of $600K per year (he and his wife) and sometimes they pushed $1million. They spent like drunken sailors…all the high ticket items including a Ferrari. They would always complain bitterly every time I completed their tax return about how much in taxes they were paying. The wife even said once, wow, it’s tough to get ahead and make ends meet….I had to bite my lip real hard!!! Also, they supported every social program, but did not want to pay for it. After the wife made that comment, I politely came up with an excuse to refer them to someone else…very nauseating.

        • Old-school
          Dec 10, 2019 at 12:11 am

          When I had a family it took a lot of money. Now I am 63 and single. My social security is $1765 per month. Here we are in December and I will have saved $10,000 of it by end of year. I have a nest egg that I can take about $2000 from per month if I need it, but honestly I am happy with my lifestyle and how I spend my time. Its just a different ballgame when you have raised your family and can slow down.

    • Prairies
      Dec 9, 2019 at 2:58 pm

      This post and comments connected point out how sideways the inflation is getting. These are the good times, so take advantage and prepare for the hard times.

      Not many people in today’s workforce understand hard times. 2008 was rough, but free credit came along and “saved” people. At some point that free money is going to be missing from the equation, and the savings will be gone with one medical problem.

      Private education for the children will become a luxury item on the list that gets changed for public schooling to save money for example – willing to make that choice? Be the biggest fish in the smallest pond, you all starve the same.

    • JD
      Dec 9, 2019 at 3:01 pm

      Millenial family, I think you need psychiatric help

    • TownNorth
      Dec 9, 2019 at 3:54 pm

      “houses renting for $4k a month that sell for $8k a month”

      I think this may be people grabbing appreciation and not caring about the cash flow. We are in West LA, seeing lots of homes and condos sell again after 2016-2018 purchases. Same thing in Palm Springs.

      Rents on our street have gone crazy, $5,000 to $7,500 for two bedrooms. The neighbors all had a good laugh about that at first and then they all rented.

    • gary
      Dec 9, 2019 at 10:25 pm

      400K? May I ask what you do?

      • Lisa_Hooker
        Dec 10, 2019 at 6:58 pm

        Don’t know about him, but I direct unicorn traffic flow towards the end of the rainbow. – Sorry, I’m just feeling snarky tonight.

    • paul easton
      Dec 11, 2019 at 2:03 am

      How about the ends of the East Bay BART? Are the schools that bad?

  3. Trinacria
    Dec 9, 2019 at 1:19 am

    Excellent report ! I was seriously wondering about this stuff and how long it can go on…good to know these central banksters might have some inkling of the “pandora” that may indeed unleash… but won’t hold my breath. Yes, indeed, they are caught between the proverbial rock and the hard place – by their own doing as the report points out.

    What would Oliver Hardy say to the Fed, ECB, etc: well, this is a fine mess you’ve gotten us into Stanley !!! Ollie was being kind.

    But seriously, if the European countries know for ZIRP were to work toward low but positive rates, wonder what effect that would have on the rest of the world? Value of other currencies, especially dollar and commodity prices….

    Certainly, governments, corps. and individuals with record debt levels won’t be too happy.

    Capital markets need savings, central banksters give us debt and more debt…totally BASS -ACKWARDS.

    • nhz
      Dec 9, 2019 at 5:30 am

      Return to positive rates is never going to happen in Europe because most EU economies would crash even with rates at a historically low 2-3%; the whole system is now terminally addicted to NIRP/ZIRP, governments (especially in the South), big corporations and homeowners (especially in the North).

      While central banks are working for the 0.1% and they are the ones who have enjoyed by far the biggest profits, reality is that a big chunk of the population also profits from continuing the current central bank policies of ultra-cheap debt for as long as possible – it enables them to live beyond their means at the cost of others (like future citizens). Even those on social security are doing relatively well because most EU governments can borrow money for nothing and spend a bit more each year on welfare. It is interesting to see that both on the left and on the right there is support for current ultra-loose monetary policy (or even looser policy …). Those who are hurt severely are a silent minority in most EU countries.

      There is no way back for politics and not for central banks either, as all these bankers are basically politicians now; at least until they retire from the job and try to clean their slate.

      • Gandalf
        Dec 9, 2019 at 9:52 am

        “never” is a long time, and is equal to “forever”.

        I remember the 70s and 80s when inflation was raging and interest rates were sky high. Money market accounts earned over 10%. My first home mortgage in 1985 had a 10% interest rate. I remember talking to somebody about the high mortgage rates, about how they used to be only 6-7% when my dad bought his first house and he said that rates would “never” come back down again

        ZIRP and NIRP have been with us for only about 10 years. The recorded economic history of humanity is several thousand years old, capitalism is a few hundred years old and the pattern has NOT changed.

        The fundamental problem has always been that capital (excess, investable cash) invariably gets caught up with investing in speculative debt that doesn’t pay off and then blows up. Poof, suddenly all that excess cash/capital disappears like magic. Where did it go? Into all that high living during the speculative boom times, dissipated into the ether, just nonproductive waste heat and entropy

        In another post I pointed out that in the past these speculative boom and bust cycles were largely fueled by immensely wealthy private individuals.

        There isn’t much difference with these central banks now funding these speculative booms other than that they are MUCH BIGGER, and their source funding comes from taxpayers, and so the busts are likely to be bigger and more frequent.

        There will be a bust. Soon (within one to 1-1/2 years), I believe, if the yield inversion is any predictor.

        The recent repo market glitch is a sign, I believe, of a late stage instability in the debt market, which the Fed had to rescue. The report from the BIS said it was caused by four major banks tgat we’re suddenly demanding much higher rates from hedge funds that were doing the highly speculative credit default swaps etc which the banks themselves now cannot do.

        I can see the pattern of the next bust now – these hedge funds are going to go down the tubes, pension funds, VC firms, and the smaller banks and shadow banks not restricted by Dodd Franks are going down the tubes, corporate bond ETFs are going down the tubes, followed by corporate bond mutual funds.

        Can the central banks pull off another rescue? Maybe this time, maybe not. If they go back to ZIRP and NIRP this will just build up another even bigger bubble that they won’t be able to fix when that blows up

        • nhz
          Dec 9, 2019 at 1:30 pm

          My first home in the nineties had a mortgage at 12% and required a downpayment of 20%; nowadays almost everyone in Netherlands gets a zero-down mortgage and rates are 1.0% (10y fixed) to 1.6% (30y fixed).

          That home (huge monumental building, also company office) was one of the three most expensive ones in the city at the time. But the amount I paid then is now only sufficient for the cheapest 1% of homes, maybe a tiny apartment in bad condition and in a less attractive area. Yet incomes are only 50% higher than in the nineties (or 70-100% higher if you count total household income), it is all totally nuts. But it starts to make sense if you realize that going into debt has become about 10x cheaper since the early nineties and mortgage conditions are “everyone who can fog a mirror …”.

          I agree that bubbles won’t last forever, but when this one blows and rates go up again it will take the whole system with it. The whole country is loaded up with 100% or even higher mortgages at valuations that are often 10x higher than one generation ago, it is the US subprime crisis on steroids but nobody wants to see it. And many of those who purchased long ago and have hopefully lots of equity in the home are living on plush government pensions that could evaporate in the next stock market crash.

          The first ones to go down the tubes when this bubble bursts will be savers and small business, NOT the debtors (nothing to collect from them, I guess they will be allowed to live in their homes without paying up just like they did after 2009) and big multinationals (they make the laws, so they will always be bailed out). And I doubt the speculators will hurt either, because their properties will probably prove more untouchable than savings accounts, given the preferences of the average politician. Savers with significant money are a small group over here (maybe 5% of the population). Debtors are a HUGE group; easy decision.

        • Gandalf
          Dec 9, 2019 at 1:55 pm

          I don’t know if this bubble will blow up into another Great Depression like disaster or the next one will.

          In a previous post, I made the point that the relative financial stability of the 50 years from 1930 to 1980 was created by the populist uprising that led to the New Deal and creation if what we would now regard as a democratic socialist paradise.

          The financial stability was created by a tightly locked down and heavily regulated financial and corporate system that prevented the sort of speculative highly leveraged and poor quality debt that we take for granted today.
          And there was that 90% marginal tax rate on the wealthy

          A return to that sort of populist socialist revolution will be the end result of another disaster like the Great Depression

      • Bobber
        Dec 9, 2019 at 11:57 am

        You are correct in saying they can’t let asset prices drop without a financial disaster. This means the only way to stabilize the economy is a wealth tax.

        If asset prices are allowed to drop, you transfer wealth from the wealthy, but you also hurt others (and the general economy) that have purchased assets by incurring lots of debt.

        On the other hand, if you high net-wealth individuals, it’s a clean redistribution that targets the truly wealthy.

        Fair or unfair, this is the only measure that will stave off a financial revolution as a populist movement takes hold across the globe.

        This is why billionaires are fighting to keep things together. Bloomberg is running for a reason, and it’s not to beat Trump. It’s to protect the rights of wealth hoarders.

        If they only tax very high wealth accumulations (say $30 million), I really have no problem with it, as long as its 2% per year or less. That should be enough to root out the rent seekers and family dynasties that have no intention or ability to add value to the economy.

        • nhz
          Dec 9, 2019 at 1:40 pm

          sorry, but this is clueless.

          The real wealthy are not hurt at all by a wealth tax, if only because it is too easy for them to change official residence. My country has a wealth tax of 1.2-1.7% for financial capital (although it isn’t called that for political reasons, and stuff like RE doesn’t count). The elites love it because they pay nothing (or only 0.1% in some cases), only the middle class is hurt. France tried the same but made the mistake of calling it a wealth tax and suddenly they had lots of wealthy people emigrating, just on paper of course.

          I think it is far more fair to let asset price drop back to where they should be without central bank manipulation and let those who speculated (directly, or e.g. by buying a home that really was way beyond their means) suffer the consequences. Much more fair than letting those who did NOT participate in the maddness like many savers pay up.

          I can absolutely guarantee you that none of the US elites cares about a wealth tax. Whether it’s going to be Warren, Sanders or some Republican president the middle class is going to pay the price. Of course they will start with wealth above $ 10-20 million or so (isn’t that what Sanders and Warren and most Congress critters have?) but once established the rates will go up and the threshold for who has to pay will go down a lot, because unexpectedly the billionaires are paying less than projected.

        • Bobber
          Dec 9, 2019 at 2:52 pm

          nhz,

          I’m being realistic, based on the country’s history of bailouts. In a debt bust, taxpayers pay the bill. That means the middle class. Have you already forgotten what happened in the last debt bust?

          Anybody who amassed a $30M fortune over the last couple decades participated in the speculation, if only by holding overvalued stocks, or running a business that soaks up the printed money.

          A wealth tax would target those who benefited from the artificial economy. Restricting that tax to those with $30M or more (i.e., the top 1%) keeps it reasonable.

          Your term “clueless” applies to those who can’t recognize common sense. It’s disappointing you call somebody else’s post clueless, then immediately make a nonsensical statement such as “the real wealthy are not hurt at all by a wealth tax…”.

        • Bobber
          Dec 9, 2019 at 3:21 pm

          By the way, lets not casually spread misinformation by saying wealthy persons in the U.S. can easily avoid U.S. tax by changing residences. Any person’s U.S. source income continues to be taxed by the US, either through a tax return or withholding tax, no matter where a person lives.

          To completely avoid U.S. tax you’d have to denounce your citizenship, and never earn any income from U.S. sources, including interest, dividends, business income, wages, etc.
          Plus, when you renounce citizenship, you pay a hefty exit tax on the value of wealth you own at the time you terminate citizenship.

          If you don’t pay the taxes, you are breaking the law and would pay huge fines and go to jail on tax evasion charges if caught, like what happened to many people with unreported foreign bank accounts.

          Talk of ultra-wealthy crybaby rent seekers and business owners leaving the U.S. is pure hogwash. They would never do it because it would scorch their pocket book, and they know it, yet that does not stop them from spewing verbal garbage.

        • nhz
          Dec 9, 2019 at 4:58 pm

          @Bobber:
          I think there is ZERO chance that a wealth tax for people in the US with over $30 million will accomplish anything. That the US has a bit different tax laws than e.g. EU countries doesn’t matter: the people who are supposedly targeted make the rules, they will make sure that it isn’t them who pay up and they will use any means (like trust funds etc.) to accomplish that. And just to be sure: a wealth tax isn’t about INCOME it is about WEALTH which is something completely different.

          A wealth tax is by definition for the middle class, not for the elites; the US won’t fare any different than all other countries that tried this.

        • Gandalf
          Dec 10, 2019 at 10:12 am

          I’m going to jump in here and say that you guys are mixing up two different things – an asset tax or “wealth tax” versus ordinary income tax.

          Asset taxes are easy to avoid – the assets can simply be transferred to banks or asset structures located in other countries willing to hide these assets. Now, it might be illegal in the country with the asset tax to do this, but discovering where the assets are hidden is difficult. Swiss banks were notorious for hiding the assets of the European elite, until they finally got pried open. Panama became a tax haven, pried open by the Panama Papers. There are plenty of others – as Wolf has pointed out, some of the absurdly large holdings of US Treasuries located in tiny countries are because these are tax shelters.

          Here is the history of the top marginal income tax brackets in the US in a chart:

          https://commons.m.wikimedia.org/wiki/File:Historical_Marginal_Tax_Rate_for_Highest_and_Lowest_Income_Earners.jpg#mw-jump-to-license

          And a written discussion:

          https://bradfordtaxinstitute.com/Free_Resources/Federal-Income-Tax-Rates.

          The top marginal rate reached a high of 94% for income over $200,000 in 1944 in the US, and for much of the postwar period stayed at 90-70%.

          Now, it has been argued that the rich were able to avoid these top marginal rates also, but I would argue that these top rates were far more effective at accomplishing something else – creating a leveling effect or better income equality in American society

          Yes, it was possible to avoid these high income taxes by diverting ordinary income into all sorts of tax shelters, but the fundamental difference between income and assets is that income generally comes from a productive activity that generates a huge paper/electronic trail – statements from the payorsbthat generated the revenue stream, corporate tax returns, pay stubs, bank statements, etc. Cheating on ordinary income is much harder.

          This is how the Feds finally got Al Capone – they didn’t prove that he was a gangster, murderer, or was running illegal booze and other illegal rackets, they just needed the testimony of his accountant and his books which showed Capone had money coming in which he did not pay taxes on.

          And so during that high tax era of American history, yes there were all sorts of legal tax shelters, but these were generally the product of lobbying by an American industry that pointed out that this tax shelter would benefit this sector of American industry.

          And most of all, the high marginal rates discouraged companies from paying their top executives these obscenely high salaries in the tens and hundreds of millions of dollars. Yes, they would figure out some other legal tax sheltered way to pay out lots of money, but total would still be a LOT less, and it would NOT show up as ordinary income

        • nhz
          Dec 10, 2019 at 3:07 pm

          @Gandalf:
          I’m not mixing up wealth and income taxes and I agree that a high income tax for the 1% or so would probably be more effective than a wealth (asset) tax. But both would be leaky, especially in our current world of digital money streams and “flash capital”. As you probably know, Netherlands is THE international gateway for shuffling business income streams and private capital to tax heavens (usually remote corners of the former British empire).

          IMHO Dutch financial history confirms what you said about income tax: in the nineties Netherlands had a 70% income tax, and that rate started already with very modest income. I paid that tax rate for some years and had no problem with it as the tax system seemed relatively fair, inequality wasn’t a problem at that time. With huge reductions in income taxes AND a new wealth tax after 2001 by a liberal government, inequality has surged. Clearly a wealth tax does NOT help with inequality.

          The high 70% income tax did have a problem though which may be specific to Netherlands: when our income tax was started in the 19th century, at far lower rate of course, the local elite (mostly RE tycoons) got a special favor, allowing them to deduct all cost of their homes including loans/mortgages from income. The result was that in the nineties many high income earners purchased the biggest homes they could finance (at very high rates, at the time) in order to bring down their taxable income to nearly zero. Some minor limits have been imposed for these deductions in the last 10 years but no government dares to get rid of them as nowadays almost every homeowner depends financially on continuation of the mortgage deduction, especially those with higher income. Basically Netherlands was/is a tax heaven for high incomes, on the condition that you buy a hugely overpriced home ;)

      • Old-school
        Dec 10, 2019 at 12:27 am

        In a modern democracy things don’t have to be the way they are. Political choices make winners and losers. The US made the choice to offshore manufacturing to China. It helped big business in general and money managers but hurt labor. The US made the decisions to important a lot of cheap labor. It helped big business and money managers and hurt existing labor. If you ever read Hussman’s stuff you know that when labor has no leverage corporate profit margins are high. Labor is finally getting a little bigger piece in US and profits margins are rolling over from all time highs. Trump’ s election was an attempt by red states to stop bloodletting of labor I believe. Might not work out but I think that is why it happened.

        • SaltyGolden
          Dec 10, 2019 at 1:59 am

          Absolutely. These were all genuine choices driven by a particular group, but choices nonetheless.

          The state of healthcare and higher ed in the US are a function of our political choices (tons of nuance obviously)

          Most people in the US are also fat, which doesn’t help. But again, we’ve made that choice (15 Taco Bell commercials/episode of mtv’s Rediculousness).

  4. William Smith
    Dec 9, 2019 at 2:22 am

    Isn’t it exciting to be living during the current times to be able to witness the crash of a civilisation firsthand. What will future archeologists make of the detritus that they dig up, especially around the ruins of the ECB.

    • Deanna Johnston Clark
      Dec 9, 2019 at 10:41 am

      I think of the Victorian times, when there were many poor…but also blessed with culture and pride in their institutions.
      Now our institutions are so corrupt and we have no pride in them, just shame. In some ways that is as hard as being poor…not being able to be proud of our civic life.

      • timbers
        Dec 9, 2019 at 12:36 pm

        Wow. So true, I identify with that. I am so ashamed on my country the United States. Truly a force for evil in the world today. Everything it touches turns to ruins.

        • RD Blakeslee
          Dec 9, 2019 at 1:00 pm

          I also identify with that, timbers.

          But my state of mind doesn’t feel shame for the United States. I busy myself with enjoying life as our family has made it.

        • Old-school
          Dec 10, 2019 at 12:36 am

          The guy that wrote the book about the black swan basically said our big problem in US is that the powerful people in government and many corporations and the central banks don’t really bear the consequences of their bad decisions unlike us peons.

  5. James Naylor
    Dec 9, 2019 at 2:37 am

    “Gird your loins,” Trinacria….as you always say”

    • Trinacria
      Dec 9, 2019 at 4:24 pm

      James Naylor: you ain’t just whistling Dixie as is also said….thank you, I’m glad your like the “gird your loins” expression from scripture. Pretty much says it all…

    • Dec 9, 2019 at 9:36 am

      Claude,

      What took the BIS so frigging long? I said this on Nov 3. Were the BIS and ZH asleep? This was the precise topic of my podcast on Nov 3. And I didn’t just discuss theory, I used an actual example with data the company filed with the SEC:
      https://wolfstreet.com/2019/11/03/the-wolf-street-report-whats-behind-the-feds-bailout-of-the-repo-market/

      And here is the transcript of my podcast, Nov 6:
      https://wolfstreet.com/2019/11/06/whats-behind-the-feds-bailout-of-the-repo-market/

      And I have said this many times in the comments. For people who read Wolf Street regularly, this “stunning explanation,” as ZH put it, is old news.

      • Iamafan
        Dec 9, 2019 at 10:08 am

        There are lots of comments here since August saying the same thing. Sponsored Repo, Non-Dealer holdings needing financing were already discussed here before, if anyone cared to read.

        The JPM switch for holding excess reserves to buying Treasuries. You think that was not approved by the Fed and the Treasury beforehand?

        This is a much better site that ZH. Have you read that comments there?

        By the way, can anyone prove that the Fed Repo has actually stunted the GCF repo? The results are not that big. Look weekly from September 17th onwards. Add the numbers up.

        There’s nothing better than doing your own analysis; a lot better than scare mongering.

        • weinerdog43
          Dec 9, 2019 at 2:44 pm

          “Have you read that comments there?”

          Yes, and that is why I will never go back.

        • Dec 9, 2019 at 2:50 pm

          Yes, I should do a search on all the comments we had on this topic and send them to the BIS. Or maybe that’s where they got their idea in the first place :-]

      • RD Blakeslee
        Dec 9, 2019 at 1:02 pm

        Wolf, it’s a sad fact. Profits are without honor in their own land.

        They have to be satisfied that virtue is its own reward.

  6. Claude
    Dec 9, 2019 at 3:45 am

    Thank you for your brillant work and sharing it

    Behind the everything is ok
    Central banks are so powerful and they are now the market
    Hence, they can keep all asset prices up forever and inflation is good (for who!) and we can hike rates when WE think it will be necessary
    meaning when we loose control and inflation escape and run very high very quickly
    Many are afraid of how long this will last until something uggly happen
    In the meantime party is on on the Titanic deck of Wall Street

    • Old-school
      Dec 9, 2019 at 6:56 am

      I am not sure how powerful central banks are. Maybe they actually get boxed in by the smart money. In a way I think it’s a smackdown between the two. The market is bigger than the Fed by maybe 50 times so the Fed can get ran over if they they get over their skiis. Extraordinary Fed policy means the smart money who have a better understanding of the system, do better than the average Joe.

      In 2009 Warren Buffet understood the Fed was going to go all in on reflating assets so he was buying. The average Joe thought the system might come to an end so they were hoarding cash and paying down debt. My friend sold stock mutual funds at the bottom. She has recovered to some degree but it meant she probably is going to have to work til 65 instead of 50.

      It’s interesting looking at 20 year returns on sp500. Buying at bottoms give you around 20% returns, buying at top about zero.

      • Iamafan
        Dec 9, 2019 at 7:47 am

        Here’s a good one. Put mid 2013 as your end point of the SPX. Now put a start point right before the dotcom crash. If one bought like to buy and hold look at the $10k accumulation value. They just went through 2 bottoms. Disastrous.

        But if you went in 2013 and stayed in till 2017, the picture was rosy. Nice.

        • nhz
          Dec 9, 2019 at 5:35 pm

          In my country almost everyone who invested after 1998 has lost money; the stock index is still 15% below the 2000 all time high. Much of Europe is pretty similar.

          Yes, those who started investing in 2003-2005 or 2009-1011 in index funds did very well, especially when you assume the market can no longer crash. But the records show that in those years most small investors were selling and not buying. You know that we are nearing a top when the general news media start reporting about new stock market records (on a short term basis, obviously), IPO’s etc. every day or general news sites have the stock market ticker on their front page; when they stop talking or move the stock indexes to some obscure page it may be time to buy ;)

  7. Andre Schmid
    Dec 9, 2019 at 3:50 am

    Brilliant!

  8. 2banana
    Dec 9, 2019 at 4:25 am

    It is an old scam.

    “If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.” — Tommy Jefferson

    “I sincerely believe that banking establishments are more dangerous than standing armies, and that the principle of spending money to be paid by posterity under the name of funding is but swindling futurity on a large scale.” — Tommy Jefferson

    • Ensign_Nemo
      Dec 9, 2019 at 4:47 am

      There was a report issued in 2011 that claimed that the Federal Reserve created $29 trillion in new money and loan guarantees during the 2008-2009 financial crisis. The total GDP of the US was about $14.72 trillion in 2008, so this was about equal in worth to two years of the total amount of goods and services that the country could produce.

      http://www.levyinstitute.org/publications/29000000000000-a-detailed-look-at-the-feds-bailout-of-the-financial-system

      The federal government spends about $4.4 trillion, or about 20% of GDP, per year. There is a public debate and political battle for those dollars every year. Elections are held every two years for the House, so that voters can fire their Representative if they don’t agree with his voting record.

      The Federal Reserve can create or guarantee 200% of GDP in a year – *ten times* the federal budget – whenever it likes. There is no public debate, and it’s very hard to even discover what they are doing, much less to stop them from doing it. They are so secretive that they won’t even tell us the names of the banks that actually own the Federal Reserve. Nobody can hold them accountable, as we don’t even know who the real owners are.

      The Federal Reserve is the real ruling power in the USA.

      • 2banana
        Dec 9, 2019 at 6:00 am

        Are you red pilling?

        Additionally, the Fed members are also revealing how political they really are with current/former members opining on:

        1. The Fed should “fight” climate change

        2. The Fed should enact policies to “hurt” PDJT

        3. And there is no doubt on how long and the massive amount of QE/ZIRP went on to help “hope and change.”

        • Dec 9, 2019 at 10:17 am

          2banana,

          Bush handed Obama the Financial Crisis in January 2009 and told Obama, the banks are collapsing, and real estate is collapsing, and the bond market is collapsing, and stocks are collapsing, and the economy is collapsing, and there will be 10 million people who will lose their jobs, but I’m outa here, and this is your problem now. So, good luck.

        • timbers
          Dec 9, 2019 at 12:41 pm

          And look what that got us – GWB’s 3rd & 4th term.

        • leroy
          Dec 10, 2019 at 9:53 am

          “Bush handed Obama the Financial Crisis”

          It was a partisan Liberal Congress that passed into law the cause for that Financial Crisis.

          I don’t like Bush, either, but he doesn’t own that bubble.

      • Iamafan
        Dec 9, 2019 at 7:38 am

        So which large economy in the world don’t have a manipulative central bank? Get used to it and profit.

        • nhz
          Dec 9, 2019 at 1:42 pm

          Which significant economy in the world doesn’t have a central bank tied to BIS and hasn’t (yet) been invaded or toppled by the US?

      • Dec 9, 2019 at 10:01 am

        Ensign_Nemo,

        Two things concerning $29 trillion:

        1. that was absolutely the highest figure anyone could concoct. Other estimates were at $16 trillion and below.

        2. Those were flows, not total amount “created.” Meaning, for example, it lent out $10 billion in short-term funding to entity X and got this money back three months later. And it lent this $10 billion to entity Y for three months. And then entity X needed money again, and so the Fed lent it $10 billion for three months, etc…

        Under its various bailout programs (TALF, etc.), it did numerous of those loans, and they overlapped, and they were all paid back at various times over the period of a couple of years. It was a significant pile of money, but it kept circulating. So the maximum outstanding at any one time was a lot lower than $29 trillion or $16 trillion or whatever and was reflected on its balance sheet at the time, which instantly jumped from $800 billion to $2.2 trillion.

        • Iamafan
          Dec 9, 2019 at 10:11 am

          Please emphasize that the Fed does NOT lend without GOOD collateral (e.g. Government securities); and they charge interest.

      • Lisa_Hooker
        Dec 10, 2019 at 7:38 pm

        When the first $700 billion bailout was proposed the reaction from the people to their representatives was so outspoken that the Congress voted down the bill.

        The treasury and the NY FED went to work and 3 days later it was passed by Congress.

        So much for representation.
        So much for voting.

    • Zantetsu
      Dec 9, 2019 at 12:09 pm

      That’s the second time you’ve posted that fake quote by Thomas Jefferson. Stop propagating fake quotes please!

      https://www.monticello.org/site/research-and-collections/private-banks-spurious-quotation

    • Lisa_Hooker
      Dec 10, 2019 at 7:25 pm

      “The people are naturally conservative. They are more conservative than the financiers. Those who believe that the people are so easily led that they would permit the printing presses to run off money like milk tickets do not understand them. It is the innate conservation of the people that has kept our money good in spite of the fantastic tricks which financiers play-and which they cover up with high technical terms. The people are on the side of sound money. They are so unalterably on the side of sound money that it is a serious question how they would regard the system under which they live, if they once knew what the initiate can do with it.”

      – Henry Ford, in “My Life and Work” 1922

  9. David Hall
    Dec 9, 2019 at 7:44 am

    Many Walmart workers are PT employees. They may earn $12/hr.

    University of Vermont out of state tuition, room and board is over $50,000 a year.

    The school I went to charged $2500 tuition, room and board about 40 yrs ago. They cut back state funding since then.

    Nursing home care is $90,000 a yr. More in one nursing home with a low vacancy rate.

    The cost to deliver a baby is over $10,000. + doctor visits.

    In 1960 a quarter acre lot in SW Florida was $20 down and $20 a month.

    • Iamafan
      Dec 9, 2019 at 7:50 am

      You forgot the cost to visit ER or a hospital stay. Social security sent me a copy of what they paid my hospital. I almost fainted again.

  10. Keepcalmeverythingisfine
    Dec 9, 2019 at 8:18 am

    Dear millennial family. I was in your exact situation before the dot com crash and again before the GFC (assuming you work in tech). I successfully navigated both crashes and recoveries. Although I could have done far better, I did well enough. The plan is pretty boring on paper: Keep you and your family healthy, buy a modest house just at the edge of a desirable area in a good school district and pay it off in 15-20 years, put 10% at least in your IRA/401K and fund a 529 plan immediately after your children are born, keep your skills relevant and do your best to navigate changes in your industry, buy the S&P 500 through the trough and hold, choose the right partner and avoid divorce, live in the moment and trust yourself.

    Most people go wrong by not doing these basic boring things. A very few people get wrecked by tragedy. You have “QE On Demand” that makes your job a little harder than it was for me, but accept it and move on.

    • Iamafan
      Dec 9, 2019 at 8:55 am

      Looks like most in the poor and lower middle income strata would not be able to do these tips. I haven’t met a millennial who puts at least 10% of their income in a 401k plan. But I live in a small bubble.

      • Trent
        Dec 9, 2019 at 11:42 am

        I’m 36 and I save about 25-30 percent a pay. Don’t put it into a 401k though

        • Iamafan
          Dec 9, 2019 at 1:07 pm

          You are a great saver then. My kids need to learn from you. I need to “force” them each year, to put 18% in their 401K despite my gifting them the limit of $15k a year. PS. I don’t think I have many years to live because of my stroke, so I have to do this.

          Keep up the good work.

        • Kerry
          Dec 9, 2019 at 8:21 pm

          Finally, some one who gets it…

    • akiddy111
      Dec 9, 2019 at 11:28 am

      Keepcalmeverythingisfine,

      You more or less hit the nail on the head. I, too, navigated 2000-02 and 2007-09 fully invested.

      I have nothing to add to your wise comment, As Charlie Munger would say.

      But really, $400k a year ? Cry me a river !

      We have had over 10 years on uninterrupted gains in the S&P 500. Heck , we barely have market sell offs anymore, which is a pity.

      I have been reading and listening to “the Fed this and the Fed that” since i started investing in 1996.

      Gosh, the Santa rally this year was a highly likely event. Even the bearish articles i read here and elsewhere – October going into November – were the usual ho hum. Manufacturing slow down. So what !

      We have Repo QE. Enjoy gains. Deal with next year when it gets here.

      Costco, Nike, Starbucks, TJX, CMG, Googl, etc,…. gains, gains, gains year in and year out. ,

      I suppose if you cannot stand a 50% drop, then stick with your 2% on t -bills. Maybe too old, maybe too scared maybe a combination of both in a lot of cases. Fine. Understood.

      I will probably get banished from this site for these optimistic comments. No worries.

      But yes, Keep calm everything is fine.

      But i would strongly suggest that people not waste their time waiting and hoping to one day sit back and grab pop corn. You will only go to your grave with that mindset.

      • nhz
        Dec 9, 2019 at 1:46 pm

        You sound like many of the people I encountered on investment website discussion forums in 1999/2000. Most of them never returned after the dotcom crash, and not because they had retired for life thanks to their touted epic stock market gains.

        • akiddy111
          Dec 9, 2019 at 2:29 pm

          Yes. I was on those forums in 1999/2000. I learned quite a bit.

          However, one of my core holdings in 2000 was Centex Home builders. At the time it’s ticker symbol was CTX.

          It’s business was growing like a weed and it had a low P/E and a low net tangible book value.

          My attorney friend at the time had CSCO as his core holding. I remember explaining to him why i thought that it is hard to justify a p/e of 250 regardless of the growth, quality and moat of a business.

          Apologies if i sound like a raging optimist.

        • nhz
          Dec 9, 2019 at 5:06 pm

          @akiddy111:
          maybe you are right to be an optimist for yourself and one of the few percent of small investors who can make a profit in good and bad times; but then you are the exception to the rule.

          Most small investors make money until the next crash when they are wiped out and replaced by new canon fodder. We have a hole new ensemble of them nowadays compared to pre-2008 markets, let alone pre-2000. Most of these new speculators (who see themselves as “investors”) have never experienced a real stock market crash, to them a declining stock market (for more than just a day or so) is such an outdated concept …

      • Iamafan
        Dec 9, 2019 at 2:22 pm

        Re: We have had over 10 years on uninterrupted gains in the S&P 500. Heck , we barely have market sell offs anymore, which is a pity.

        What will interrupt you? Major Crashes.
        How about December, 2018? Feb 2016? Sept 2015?
        Jun and Nov 2012, Aug & Sep 2011? and July 2010?
        I guess they are just ruts on the road or speed bumps.

      • Willy Winky
        Dec 10, 2019 at 1:43 am

        ‘how in the hell can the average person do this?’

        A lot of them turn to Fentanyl, alcohol and meth to numb the hopelessness.

        In places like Hong Kong, where an 198sf. apartment costs USD500 (you read that right – a little bigger than a car park space) people riot.

      • Willy Winky
        Dec 10, 2019 at 1:50 am

        You are aware that the stock market is kept afloat primarily on the back of hundreds of billions of dollars of buy-backs by corporates who gorge on nearly free money from the central banks?

        I wonder if you saw this article today that indicates that accounting fraud at major corporations is systemic

        https://www.zerohedge.com/markets/profit-inequality-it-possible-sp-500-companies-make-money-and-no-one-else-does

        If you don’t take money off the table and blow it before the global economy collapses, then you will live to regret it.

  11. timbers
    Dec 9, 2019 at 8:26 am

    Here’s a thought:

    This time really IS different.

    How?

    May be wrong and welcome corrections because my memory of QE goes back only 10-15 years or so, but is this the first time the Fed has d used pre-emptive QE or insurance QE? Reaching into the tool box sooner and with greater gusto.

    Another thought:

    Is there any example of a sovereign currency nation having failed with QE polices…unless you go back to WW1 & 2? For example Japan has QE for a very long time and you can say it’s a failure but there has been no spectacular collapse and since Japan’s QE benefit the rich, the powers that be will say it’s a success.

    So to fail, I mean a spectacular collapse and failure.

    • Iamafan
      Dec 9, 2019 at 8:51 am

      It’s just paper or digital zeros.

      Look at Japan and Germany right after WW2. The sun always rises.

      Remember these are countries while you are an individual. You can’t print but hopefully you can inherit.

      • nhz
        Dec 9, 2019 at 11:22 am

        Germany after the Weimar hyperinflation is a very different story though, the financial destruction of almost everyone ultimately led to the horrors of WWII. What the FED and ECB are doing now could have the same results.

        • Iamafan
          Dec 9, 2019 at 1:03 pm

          I think you have it backwards. During the time we had a gold standard, printing a lot of money was disastrous. You needed to go the war to dominate and get even. When we ditched the gold standard and experimented with QE, we realized how “stupid” we were then. So now we just print and wonder what the consequences might be.

        • nhz
          Dec 9, 2019 at 1:51 pm

          @Iamafan:
          You think Zimbabwe was on a gold standard when they more or less repeated the Weimar experience?

          Do you think Gideon Gono was more stupid than Bernanke, Yellen, Powell and their ilk? (I don’t think so, I once read an extensive interview with the man and I think he is quite savvy; not a clueless alternative universe dimwit like most of the FED heads, they could learn something from him).

        • Iamafan
          Dec 9, 2019 at 2:24 pm

          @nhz

          Try thinking the world’s largest reserve currency.

          Money talks and B* walks

        • nhz
          Dec 9, 2019 at 5:09 pm

          @Iamafan:
          Ah, that’s why Trump and the people behind the screen are feverishly working on alienating almost every other nation and starting ever more trade wars. Good luck with that special protection for reckless policies thanks to reserve currency status; IMHO it only means the unavoidable bust will be even bigger.

    • Paulo Zoio
      Dec 9, 2019 at 3:56 pm

      The cracks in the system will show up only when the velocity at which money disappears (from high yield BBB bankrupcies) is higher than the velocity at which the CB’s print money. Till then, nothing happens. Just money flowing…

  12. breamrod
    Dec 9, 2019 at 8:39 am

    the central banks don’t care about the average citizen. They only care about the banks, “the system”. Maybe one day the “junkyard dog” that is America will figure it out and the bankers will be wearing orange. One can at least dream!

    • nhz
      Dec 9, 2019 at 11:24 am

      For sure they don’t care about the banks or their financial owners, especially in Europe; just look at their stock charts …

      But I agree they care about keeping the system alive, after all the best way to rob the bank is to own one (even better if it is a central bank).

  13. weinerdog43
    Dec 9, 2019 at 10:10 am

    Off topic, but I hope Wolf will have a comment about the demise of Celedon Trucking. Great story over at Freight Waves that even mentions Seeking Alpha. Good luck to those drivers.

  14. Just Some Random Guy
    Dec 9, 2019 at 10:39 am

    I travel a lot for both bidness and pleasure. And virtually every flight I’m on is oversold. Gone are the good old days where you can show up at the airport and get on an earlier flight. Today, you get on a standby list with 35 people in front of you. Every restaurant I go to seems to have hour long waits for a table. Every storefront has a help wanted sign. I get recruiter calls/emails on a daily basis practically begging me to consider their offers or asking me if I know anyone who is looking.

    And then I come to places like this and you’d think it’s 1931.

    • Dec 9, 2019 at 10:49 am

      Largest bankruptcy filing ever by a trucking company happened today. Stand by details.

      And flights are overbooked in part because the Boeing 737 MAX is still grounded and airlines have slashed their flight schedules because they don’t have enough planes to fill the gap left by the Boeing 737 MAX. Check the news every now and then.

      • Just Some Random Guy
        Dec 9, 2019 at 11:29 am

        There are something like 400 MAX planes worldwide. Worldwide, there are about 100,000 flights daily. In other words, the MAX grounding is a rounding error in the grand scheme of things.

        Flights are oversold because demand for travel has increased during this economic boom and has been happening long before the MAX fiasco.

        • Dec 9, 2019 at 3:31 pm

          Ha, you kinda sorta got me here. Southwest has 34 Boeing 737 Max out of about 750 total planes, so about 4.5%. In March it cut its revenue forecast, and said it expects to have cancelled 2,800 flights in the first quarter due to grounding of the plane. So causing some more tightness in the market, but not hugely.

          Also over the Labor Day weekend, we flew into your bailiwick, from SFO into SLC, and had no problems. I didn’t see any overbooking chaos.

          What I should have said, and what I’ve been saying ALL YEAR, while others were clamoring for rate cuts: Consumers are doing fine, and most services (finance, healthcare, professional, etc) are doing fine, but there are weaknesses in parts of the goods based sector, some of which I spelled out here and elsewhere:

          https://wolfstreet.com/2019/12/06/categories-driving-the-decline-in-goods-based-sectors-after-the-boom-of-2018/

      • Iamafan
        Dec 9, 2019 at 2:36 pm

        Who is Celadon? Were they a JB Hunt wannabe? What’s their business model?

    • MC01
      Dec 9, 2019 at 1:56 pm

      Funny thing is I keep reading about the overbooking problem exclusively in the US market where the Three Sisters (American, Delta and United) plus Alaska, Hawaiian and Southwest have effectively created a cartel nobody is willing to tackle. No problem booking a flight to Singapore, Bangkok or Kuala Lumpur right now, and those destinations are always packed. In fact I am looking Bangkok right now and prices for January are surprisingly low.

      To be completely honest I am surprised the Three Sisters haven’t put their lobbyists to work to reduce the number of flights to US destinations originating from abroad to put some upward pressure on ticket prices because they don’t earn enough money, the poor dears. ;-)

    • Xabier
      Dec 9, 2019 at 2:18 pm

      Ahem, if you were to reflect you would see that not one of those things which you mention indicates a thriving and stable economy.

      Not one…..

      There will always be someone standing in the shadow of a tsunami wave saying ‘Tsunami? What tsunami?!’

      When the banker Warburg warned of impending disaster he was laughed at in boardrooms, and called ‘Gloomy’.

      Who was right, him or his detractors?

      • Just Some Random Guy
        Dec 9, 2019 at 2:56 pm

        Yeah, full planes full of people going on vacation has nothing to do with a thriving economy. Neither do full restaurants with people spending money on dinners and drinks.

        But I guess in a world where $400K a year = poverty, anything can happen.

    • Prairies
      Dec 10, 2019 at 9:55 am

      Depends where this place is that you speak of. There are likely just as many ghost towns as booming towns, and from what Wolf reports I would bet Cali has a lot of what you describe. But those restaurants will stay understaffed, minimum wage jobs can’t provide housing in that state so people don’t fill those roles. If people don’t fill those roles you experience long wait times with your $400k a year, private school friends and families filling fewer and fewer restaurants and stores.

      You are in a good spot, the contractors that took work for Celadon – not so much.

  15. IslandTeal
    Dec 9, 2019 at 10:52 am

    Morning… OK WolfRichter you got us all… LOL… I don’t know what to do on $400k per year…. Boo hoo.

  16. Bobber
    Dec 9, 2019 at 11:01 am

    I guess Yellen’s talk about central banks exercising “macroprudential regulation” was just gibberish. The spin-doctors at the central banks will say anything to take pressure off for the moment. They are now stuck in their own web of fabrication and delusion.

  17. Dec 9, 2019 at 11:50 am

    Been defending corporate high yield debt and will continue to do so. That debt is positioned to do well no matter which way interest rates move, or what happens to US credit rating. Treasury policy since 2009 is fully supportive. The volume of existing debt is the controlling factor even if new issues slow. Does it matter if you issue new debt at a higher yield but in smaller volumes? What does that do to the existing debt? It makes it more valuable. This is the reason USG paper will collapse, they cannot reduce the flow of new issues, they have no revenue. NIRP bonds have collateral value. In the final crash government central banks will be swallowed up by corporate entities, and it was all a matter of their own policy making decisions.

    • Lisa_Hooker
      Dec 10, 2019 at 7:55 pm

      Why would corporations want the liability of swallowing up central banks? The present system is working just fine for them.

  18. Petter
    Dec 9, 2019 at 12:40 pm

    I wonder when the world will wake up to the face that this is a GIANT PONZISCHEME!!

    • Kerry
      Dec 9, 2019 at 8:30 pm

      Hey Petter, they will wake up when it hits them squarely in da face. This is all just math. Math tells us this will end badly. People cannot grasp simple math anymore…

      • Lisa_Hooker
        Dec 10, 2019 at 8:01 pm

        The problem is that simple math does not include the concept of infinity or imaginary numbers. These bankers have no limits.

  19. Iamafan
    Dec 9, 2019 at 12:57 pm

    A layman’s explanation.

    During Quantitative Tightening, the Fed destroyed more than $650 billion of Government Securities (about $390b Treasuries and $260b MBS).

    Because the Fed did not rollover this debt, then upon maturity, the debit / credit with the Fed’s Balance Sheet is …
    Asset: Securities (-) and Cash (+) [Liabilities: actually this is deducted from the Treasury TGA account (-)].

    But then the Treasury Dept had to replace the money they just lost (since they spent the money already) with the Fed QT by selling more Treasuries, so primary dealers use the same amount of their (excess) Reserves and buy more Treasuries.
    In essence, Reserves FALL, and the Treasuries which the Fed shredded ended up getting replaced with new Treasuries with the Primary Dealers.

    This is basic accounting. Now there are more Treasuries in the dealers’ hand that will be used as collateral at Repo. So the need for greater Liquidity. This ain’t rocket science. If you squeeze one end, it oozes out the other end.

    • Dec 9, 2019 at 2:42 pm

      Replaced with shorter duration maturities. It doesn’t ooze out the other end, this ain’t gastroenterology either.

  20. MC01
    Dec 9, 2019 at 2:41 pm

    Last Friday I read exactly the same lamentations (“Negative interest rates were a mistake” and “Corporate asset purchase schemes should be reconsidered because they have seriously distorted security markets”) originating from none other that President of Bankitalia, Italy’s central bank!
    This comes at a time when general consensus is the ECB will cut rates by a further 10bps and increase net asset purchases by €10-20 billion/month before the end of the year so I have to ask: what is going on here?

    My personal idea is that central bankers are merely working us marks: Europe’s economy depends on those ultra-repressed conditions, starting from the now universal real estate bubble that’s preventing the whole Continent to sink into a recession. Even if the will to normalize is there, politics will never allow it.
    This is like one of those comedies with a historical setting where the evil ruler takes delight not merely in oppressing his subjects but by ridiculing them. Think King Louis in Mel Brooks’ History of the Worls, Part I.

    • nhz
      Dec 9, 2019 at 5:17 pm

      I think the banksters are just covering their a** with these warnings, so they can continue business as usual but say “Told you so!!” when SHTF. They don’t care, they all get automatic political asylum in Switserland with their families and fat bank accounts when the revolution starts.

      It is very similar to all those former ECB bankers etc. who after retirement start explaining that we are on the road to ruin and should change course, but strangely they never thought of that while in their influential position. And yes, “Let them eat NIRP” is probably also a factor.

  21. Prairies
    Dec 9, 2019 at 3:23 pm

    I stockpiled popcorn to watch this show unfold, I underestimated how long this ride could go on for and ran out months ago. Good news though, I started volunteering at the local theatre to work the projector I get free popcorn. I can now enjoy the show again, but at some point the credits need to roll and this shit show needs to end. Sane adults need to start adulting, the children bickering is the worst part of this movie.

    • DawnsEarlyLight
      Dec 9, 2019 at 5:06 pm

      Until we run out of hamsters, the wheel will keep turning.

    • Beardawg
      Dec 9, 2019 at 5:33 pm

      Word

    • Saltcreep
      Dec 10, 2019 at 7:19 am

      As I see it, Prairies, there really aren’t any sane adults around in meaningful positions. The incentives inherent to our politics guarantuees that we will keep exacerbating imbalances and choosing the easy options until we no longer have any easy options left.

      Funnily enough, when writing that last sentence I was unsure whether I should write ‘inherent in’ or ‘inherent to’, so I did a search, and the first quote in the first link provided seemed pretty apt in the context of the current topic:
      “Our inherent indolence, our apathy in times of peace is proverbial” W.J. Tucker

      (Even more funnily, I’m still not convinced that I ended up using the most appropriate preposition, even after looking it up.)

      Anyway, in my little corner of the world (Norway) household debt to household disposable income just reached a ridiculous, but not all that funny 232%, and 45% of new retail loans issued take the debtors to over 400% debt to gross income. In addition, consumer loan deliquencies just hit 9.4%. And still most people around seem remarkably indifferent to such data, just brush off any suggestion of taking a more cautious approach, and appear to see the increasing imbalance as normality.

      Add in a recent warning issued by the European Systemic Risk Board about the high household debt combined with the housing bubble, a declining currency resulting from this precarious situation, and government still backed down on suggested measures to increase required bank risk reserves on residential and commericial property loans, as such measures neither garner favour with voters nor with the banks or the commercial sector.

      Our myopic, short term self interest always trumps long term sustainability, it seems.

      • nhz
        Dec 10, 2019 at 3:19 pm

        Ah, just 232% household debt to GDP … Netherlands is already above 280% and pushing higher again ;)

        Just yesterday there was a TV documentary about our housing crisis (record unaffordability, record amount of homeless people, totally dysfunctional market etc) and both “experts” and consumer advocates had the same basic solution: make it much easier to take on even bigger mortgages ;(

        • Saltcreep
          Dec 10, 2019 at 4:16 pm

          Private debt to GDP here is also around 280%, I believe. Almost 2/3 of that is corporate debt, if I recall correctly. The figure quoted in my post was household debt (not including corporate) relative to household disposable income. We’re also about at the same level as you Dutch in that respect, but at least The Netherlands are currently on a declining trajectory in terms of household debt/GDP, whereas we’re on a rising one…

        • Saltcreep
          Dec 10, 2019 at 4:42 pm

          Dammit, now I just did it myself. I meant household debt/disposable income, not household debt/GDP. I’ll conveniently blame you for my error. :)

      • Lisa_Hooker
        Dec 10, 2019 at 8:07 pm

        This is not a problem as we no longer have debtors’ prisons.

        • Saltcreep
          Dec 11, 2019 at 4:55 am

          Hey L_H, maybe not ones of bricks and steel, since modern individual debtors that become insolvent are expected to provide their own board and lodging.

  22. Kerry
    Dec 9, 2019 at 8:32 pm

    Until we embrace the Truth, chaos will reign…

  23. The Rage
    Dec 9, 2019 at 10:30 pm

    Yeah, but the corporate “debt bubble” is basically a artifact of the subprime consumer debt bubble much like corporate debt expansion was in the 00’s followed the mortgage bubble.

    Basically it can keep going up until subprime lenders start going under, dropping consumer lending and final demand. Then corporate debt will drop.

Comments are closed.