Bank of Japan Stops QE, Reserve Bank of Australia Starts Tapering, Bank of Canada & Bank of England Already Tapering, Amid Shock-and-Awe Rate Hikes in Emerging Markets

The Fed is a laggard, now discussing when and how to taper QE. The ECB is an even bigger laggard, as inflation begins to rage.

By Wolf Richter for WOLF STREET.

The Fed is a laggard, not the leader, in ending the ridiculously easy money policies. At the ECB, internal resistance is building against its asset purchases but for now is getting squashed, leaving the ECB even further behind than the Fed.

The Swiss National Bank continues full tilt, but it doesn’t buy Swiss assets; it prints francs and dumps those printed francs for assets denominated in euros, dollars, and other currencies, including US stocks, which is a different ball game and works as long as enough foreign investors are silly enough to buy these Swiss francs.

But other central banks have already started the process of tapering asset purchases or hiking rates. The Bank of Japan, which started tapering months ago, has now completed its tapering and its total assets actually fell. And some central banks have announced rate hikes, and others have already imposed hiked rates, including shock-and-awe rate hikes in Brazil, Russia, and Turkey to tamp down on raging inflation.

So these are the major central banks that are ever so gingerly stepping away from the ridiculous easy money policies.

The Reserve Bank of Australia announced today that it would taper its QE, by reducing weekly purchases of government bonds by A$1 billion a week, to A$4 billion a week.

The Bank of Japan, one of the most voracious money printers over the years in terms of the size of its economy, behind only the tiny Swiss National Bank, has already been tapering its asset purchases for months. With the BoJ, one has to look at the numbers, not at the mumbo-jumbo in the press releases. The BoJ publishes its balance sheet numbers every 10 days.

The balance sheet data release on July 2 revealed that its total assets, after months of slowing purchases, actually fell by ¥7.7 trillion ($70 billion) at the end of June compared to the end of May, to a still gargantuan ¥717 trillion ($6.5 trillion):

The three-month moving average of its monthly QE purchases shows the ongoing trend: In April, May, and June, its total assets increased by an average of only ¥0.78 trillion per month, the smallest increase since the beginning of Abenomics in 2012:

The Bank of Canada announced the first reduction in its purchases of Government of Canada bonds in October last year, from C$5 billion to C$4 billion, when it also ended buying mortgage-backed securities. In March 2021, it started unwinding its liquidity facilities, citing “moral hazard” as reason. In April, it announced a further reduction in its purchases of Government of Canada bonds, to C$3 billion, citing “signs of extrapolative expectations and speculative behavior” in the housing market.

The assets on its balance sheet have now dropped from C$575 billion at the peak in March, to C$481 billion as of June 30:

The Bank of England announced in May that it would reduce its asset purchases, tapering the bond purchases from £4.4 billion a week to £3.4 billion a week.

Like the Bank of Canada had denied in October that its tapering was actual “tapering,” the BoE also denied that its tapering was tapering, calling it instead an “operational decision” that “should not be interpreted as a change in the stance of monetary policy.”

The reason this tapering isn’t tapering, according to BoE governor Andrew Bailey at the post-meeting press conference, is that the BoE didn’t change its “fixed amounts” of its overall QE target of £895 billion, it’s just buying less per week to get to this target.

The Central Bank of Turkey shocked the financial world in March with a shock-and-awe rate hike of 2 percentage points, from 17% to 19%, to tamp down on raging inflation and prop up the lira, when economists had expected a rate hike of half that magnitude. Shortly after the shock-and-awe rate hike, Turkey’s President Recep Tayyip Erdoğan came up with his own shock-and-awe move: he fired the governor of the Central Bank. Under the new governor, the policy rate has remained at 19%.

The Central Bank of Brazil has hiked its policy rate three times by a total of 2.25 percentage points, since mid-March, 75 basis points each time. The first of the rate hikes was shock-and-awe, with economists expecting much less of a hike. Since March, the Central Bank has raised its policy rate from 2.0% to 4.25%, and has put more rate hikes on the table, to tamp down on raging inflation.

The Bank of Russia has been “surprising” economists with multiple rate hikes, and steeper rate hikes than expected, starting March 19 with a 25-basis-point rate hike, when none was expected, followed on April 23 with a 50-basis-point hike, and on June 11, with another 50-basis-point hike. Over the period, it had raised its policy rate from 4.25% to to 5.50%.

The next policy meeting is scheduled for July 23. And Bank of Russia Governor Elvira Nabiullina has already prepared the markets for the possibility of a shock-and-awe rate hike of up to 100 basis points. The reason: raging inflation, which the Bank of Russia, as she said, sees as “not transitory.”

The Bank of Mexico hiked its policy rate by 25 basis points on June 24, to 4.25%, also surprising economists that had not expected a rate hike. No one ever appears to be expecting rate hikes.

Norges Bank, the central bank of Norway, which never got into QE, confirmed repeatedly that it would start raising interest rates in the second half of this year, now likely in September, and put two more rate hikes on the table for next year.

The Riksbank, Sweden’s central bank, announced in late April that it is following through on its plan and end its QE program by late 2021.

The Fed itself is now discussing when and how to reduce its asset purchases. The Fed still claims that it sees the raging inflation as “transitory” or “temporary.” In its announced sequence, it will end its asset purchases first; then after the balance sheets stops growing, the Fed will hike its policy rates; then later, the Fed may shrink its balance sheet. This was the sequence last time, when inflation was still below the Fed’s target, and that’s the plan going forward.

The gradual pace assumes that this raging inflation, the worst since 1983 even according the Fed’s own low-ball measure, of today is truly “temporary.” But if it turns out that business and consumer behavior with regards to inflation has changed — as I see and allege all over the place, including in the largest retail category, auto sales — which would render this raging inflation much more persistent, then the Fed may belatedly come up with its own shock-and-awe treatment to get a handle on it.

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  167 comments for “Bank of Japan Stops QE, Reserve Bank of Australia Starts Tapering, Bank of Canada & Bank of England Already Tapering, Amid Shock-and-Awe Rate Hikes in Emerging Markets

  1. Sea Creature says:

    I had no trouble at all raising professional rates to my customers last month by about 10%.

    Everyone sees inflation all around and everyone is charging more for everything. It was an easy sell with no pushback at all.

    Everyone knows it’s just ‘keeping up’ with utilities, insurance and everything else around us (and them) up about 10% in the last year or so.

    Indlation ‘Transitory”.. bah humbug!

    • Educated but Poor Millennial says:

      Did you raise your employee’s wage , voluntarily 10% as well?
      Thats the catch.

      • RightNYer says:

        For many employees, NOT increasing their portion of health insurance is tantamount to a large raise (but maybe not 10%).

    • Heinz says:

      “I had no trouble at all raising professional rates to my customers last month by about 10%.”

      Then your customers better raise their prices and rates an equivalent amount or they are losing the inflation race.

      That is how roaring inflation gets started.

      • Joe Saba says:

        can’t wait to see how HIGHER FUEL PRICES is gonna get passed along

      • Sea Creature says:

        Roaring inflation has already started. That is the problem..

        Blame the fed.. this is a national policy issue. Fed needs to stop printing money and interest rates need to be normalized.

        At a small company level, there is not much any of us can do individually.

    • Anton says:

      same here. I raised by hourly rate 20% over the last 12 months with zero pushback from clients.

      • Heinz says:

        I guess they were not little mom and pop clients, more likely local/fed .gov or corporate clients with deep pockets that can absorb such big operating cost hits– for now.

        However, if I were in business and had some serious competition in my field I would not be so nonchalant about hiking my rates to get out ahead of the inflation curve first.

    • Old School says:

      Let’s see where things are at in a year. So much instability with asset bubbles everywhere and now wages popping up. Just have to remember current policy has a shelf life.

    • Christopher spisak says:

      Fed will never consistently raise rates. They might do a .25% but it will be for show. They wnt taper either, just the opposite….they be buying more treasury bonds and printing more money! All there doing is jaw boning! They proved it to all of us in 2018 they cant unwind the balance sheet. If they couldn’t do it then why do people think they can do it now!?? The Fed is screwed and Powell knws it. But the market falls for all this BS! We havent seen anything yet when it comes to money printing…enjoy the show!!

  2. Minutes says:

    Wolf what do you make of the flattening yield curve? 10 year seems to be rather bearish for growth going forward considering how high inflation is right now.

    • Wolf Richter says:

      Minutes,

      The Fed is STILL buying $120 billion a month in Treasuries and MBS. That pushes down long-term rates. Forget the yield curve during QE; it’s meaningless.

      If the Fed wants to let long-term rates to rise, it should end QE now, meaning stop adding to its balance sheet now, and forget about the slow process of tapering its purchases, and then in two months start reducing its balance sheet. Then watch the yield curve steepen as the market is then free to respond to inflation, which is not the case now.

      • Educated but Poor Millennial says:

        Wolf,
        Do you think that FED is doing an experiment and walking in a dark room? Or they really know what they do and what outcome it would be, without braking the camel’s 🐫 back?

        • jon says:

          FED knows exactly what they are doing and are doing what they want to do which is not what they stated to do.

          FED wants to help the rich and are doing this exactly.
          People are fool if they think FED has any other motive or are fooled by their stated goals.

        • Wolf Richter says:

          Educated but Poor Millennial,

          The explicit purpose of the Fed’s asset purchases is to increase the wealth disparity between the wealthy and the bottom 50%. And it works wonderfully. The Fed calls this the “wealth effect.” Nothing is accidental here:

          https://wolfstreet.com/wealth-effect/

        • Educated but Poor Millennial says:

          I know these facts. Nothing new here, however, my question was that if this can work with this much pressure on the lower class.

        • MCH says:

          @EbPM

          The “lower class” is missing one thing here: lots of firepower, which is exclusively the domain of the government. As our great leader recently proclaimed: “F-15s and nukes.” But for all that, there is this constant obsession with gun control. Which is kind of odd.

          If the lower class don’t like pressure, there is another solution, hand outs. Which on the surface looks good until one realizes, there is this slow and inevitable upward creep of prices.

        • Winston says:

          “But for all that, there is this constant obsession with gun control. Which is kind of odd.”

          Not at all.

          For F-15s, etc. (sans nukes) success against small arms, see “Afghanistan” and with F-4s, F-105s, etc. (sans nukes) against same see “Vietnam.” Sure, they had a terrain and jungle cover advantage, but the main point is that conventional armies don’t fare well against gorilla forces.

          If a significant portion of the US population ever turned violently against DC, it would all be over for them relatively quickly. Which is exactly why they’re making such a HUGE deal about 6 Jan and why they want to scrub the military of “extremists.” They know that.

        • Spiff says:

          They seem to be well equipped to fit the camel with a backbrace and continue to lower its standard of living into greater degrees of miserable squalor.

        • NBay says:

          Yeah, go trash the ONLY institution that (even though now very seriously gutted) that can stand up to the Corporations and ever growing PE and family dynasties,

          e.g., your OWN democratic government attempt.

          I guess all you stupid bastards want the Company Towns back? You won’t even get that, you will all be re-living the Gilded Age, homeless, or at BEST in crowded tenements or flop houses.

          Forget it, there is no arguing with brainwashed “free market” “taxes are evil” Calvinistic idiots.

          Lincoln was right, as soon as the wealth distribution got too extreme, the “rich would prey on the prejudices of the people and the Republic destroyed.” You damn near got the 4th Reich and your “Savior” in 2020.

          The only enjoyment I get out of it all is that many of you that think you are wealthy enough to be along for the ride, ARE NOT.

        • MCH says:

          @Nbay

          It’s laughable that you actually think our government is trying to reign in corporations. And not continuing to perpetuate the status quo. Just like the Fed pumping money into the system and that same government handing out cash like it was not their money.

        • NBay says:

          MCH-

          I did NOT say “IS”, I said “CAN”…..don’t lie to suit your agenda, it’s bad form.

          You forget I was raised with a powerful corporate lobbyist uncle with a very well known Senator (among other DC types) “in his pocket”, as my cousin says. I met a lot of these DC power brokers; elected, military, party hacks, and corporate lobbyists.

          But Gov’t IS the ONLY institution that has the POWER to, and the nasty rich powerful players I mentioned are working tirelessly to make people just mindlessly hate ALL their government rather than go after Corps and insist on laws that control their actions more…..like what Teddy and FDR had to do, to restore the balance of power.

          Lets maybe start with a “bounty hunter” style IRS, at LEAST Kennedy level tax schedules, and dump Citizens United.
          Liz’s one or more time wealth redistribution taxes are a good idea, too.

          As for the FED, it just represents one of the MANY “corp-types”……. BANKING….ostensibly….

          I don’t see your Fox programmed “militiamen” going after corporation’s or PE’s headquarters and leaders, or people like the Kochs with much vigor….why not, if they are “buying” our government away from us?

          Last night’s quote from Tucker, “If you raised taxes it would destroy wealth”. One of his best, did you see it? Did you find it “laughable”? I did.

      • Parallel17 says:

        QE has only a small effect on the long curve. The curve is saying there is no reflation.

        • Wolf Richter says:

          QE and the hoopla around it have a HUGE effect on the long end of the curve. That is its explicit purpose. That is why it exists. Obviously not a minute by minute or day by day basis, but over the longer term.

          If the Fed wants a 4% 10-year yield, it can do that just fine by ending QE and unloading its balance sheet, with some real hoopla around it, such as inflation being real, no problem.

          BTW. the 10-year yield is DOUBLE what it was a year ago!

        • historicus says:

          Parallel17

          The curve means nothing if the Fed is manipulating it.
          People see low ten years and say…”See, no inflation”.
          Well, let’s SEE where rates really are…..stop the QE and retrieve the extra 27% that was pumped into M2 last year…

          Care to look?

      • Randy says:

        The LIE of fiat currencies and electronic bookkeeping entries must be supported by even MORE lies!! Eventually, the old maxim of not being able to fool all of the people all of the time pops its ugly head up, and then it swallows us all!
        If you tally up the number of fiat currencies in the world that have failed over the last 700 or so years, you will have more than 600 of them before you even get past the letter B of the alphabet!! Why is that?
        The real definition of inflation, and the reason why we know it’s true, is because it’s easily demonstrated with facts and logic, is this; Inflation is the increase in the prices of goods and services due to the decrease in the perceived purchasing power of a fiat currency. The equation MUST remain balanced, so when the fiat loses PPP, more of it is needed to keep the equation of how much goods/services can be bought with it. Simple.

        • K says:

          Amen. I just heard reports about more, major, mainland Chinese companies defaulting on their bonds. If so, and if enough finally fail, as expected because most are Ponzi schemes, that may be the trigger that starts a US stock market avalanche when so many stocks bought on margin are sold by brokers to mitigate their damages because over leveraged persons that gambled using margin cannot cover their margin calls.

          If not now, I expect the collapse by October.

        • K says:

          To clarify, even mainland Chinese companies that start out with the best of intentions can be suddenly ordered by the CCP to use all of their funds bail out this or that company of a CCP member, lover, or crony. Thus, all mainland Chinese may suffer sudden, fatal losses because most CCP-linked companies, particularly state owned enterprises, are run with the competence, ability, and business expertise possessed by drunken chipmonks, since CCP members are distinguished by their greed and incompetence.

          I am sure that The Zetas gang in Mexico has greater business expertise than the CCP gangsters.

      • Onetwothree says:

        The Fed primarily buys shoe term treasuries not 10 yr

      • BatHelix says:

        Hi Wolf…I’m really curious what you think of the Swiss being able to get away with having a stable currency and be able to keep printing and buying up US stocks. I can’t believe that they get away with this and gov’ts allow it as we’re basically giving away our country for free in a sense. I have no idea of the total amounts so maybe you can throw a monkey wrench in this but would the Swiss be able to buy enough stocks to get their whole country a solid retirement fund that finances their government through dividends?

        • Dave says:

          I’m Swiss and I can shed some light on it. The SNB expands its balance sheet because it deems the Swiss Franc to be overvalued. As net exports make up a huge amount of the GDP contribution, they keep on printing Swiss francs in exchange for foreign currencies. Those foreign currencies are invested in assets. 20% equities 70% government bonds, 10% corporate bonds.
          Thus, the SNB quarterly announces its profit/loss. It pays out dividends to the cantons (=provinces), each year several billion Swiss Francs which are directly used for budgeting purposes. Some politicians ask for more: They want the asset holdings to be transferred to a Sovereign Wealth Fund (similar to Norway) which would benefit the Swiss people.

        • Wolf Richter says:

          It works as long as there is this crazy demand for Swiss francs. That mood can change overnight. And then this game ends. But for now, there is this crazy demand for francs. And the SNB is wringing it as hard as it can. It makes sense from their point of view.

          The SNB doesn’t disclose details of its holdings except of its US stock holdings which it has to disclose due to SEC regulations. So we don’t know what non-US stocks or bonds it holds, but we know what US stocks it holds, based on quarterly SEC filings.

        • Swamp Creature says:

          I’ve been thinking of cashing in my increasingly worthless dollars for Swiss Francs. You can do this over the counter at Wells Fargo.

        • Nick Kelly says:

          There seems to be a narrative that the Swiss are running a hedge fund or worse a SPAC based on the crazy idea that its currency has value when it’s more like Bitcoin and people are silly to accept it for US stocks.

          The main problem for the SNB has always been to stop the franc rising to the point it endangers the Swiss economy which is highly dependent on exports. Here are its 2020 exports to the US alone:

          Switzerland exports to United States Year 2020
          Pearls, precious stones, metals, coins $31.84B
          Pharmaceutical products $25.14B 2020
          Optical, photo, technical, medical apparatus $3.61B 2020
          Machinery, nuclear reactors, boilers $2.88B 2020
          6 more rows
          Total to US alone 2020 was 72 billion.

          One expense Swiss Inc. doesn’t have; two pointless lost wars costing, let’s be conservative, and say a thousand billion apiece.

        • Nick Kelly says:

          PS: the SNB has to buy US$ to keep the franc competitive. But what to do with those US$. The ten year T bill? How has that, or just cash worked out? Like everyone else, it looks like the SNB has decided US equities are the best place for US$.

      • gametv says:

        Couldnt the reason the Fed is not tapering be that they understand that as soon as they have used up the excess funds in the Treasury account, they need to finance about 300 billion of deficit spending per month that is not happening now?

        The big problem is that the Fed really didnt think that when they started to use up that extra money in the Treasury, they should have stopped the asset purchases, so it didnt have a double impact. But that is what they did.

        So lots of governments have stopped purchasing assets or slowed it down and the demand for Treasuries from other countries is falling, so it is up to domestic investors to prop up Treasury prices?

      • Christopher spisak says:

        That 120 billion is going to 300 billion, watch! Fed balance sheet going to 20 trillion. All this taper talk frm them is nonsense. If they do cut anything it might be the MBS purchases, but i doubt it. There jawboning the market.

      • HR01 says:

        Wolf,

        AMEN, brother! Our nominee for Fed chairman: Wolf Richter.

        Would one up you. Wait just one month, then start selling everything not nailed down. Would crush inflation rather quickly.

        Sure, a small army of zombies would assume room temperature but hey, that’s a feature, not a bug.

  3. The US is relying on a strong dollar to maintain demand for their paper. Russia stepped over the line this weekend. It’s game over for Putin. When the real fireworks start they will all be piling into dollars. When Russia is done say goodbye to the American insurrectionist movement as well. All the other CBs of the world know what their next move is, and that doesn’t include buying their own paper. US is lender of last resort. The global financial system will bend but not break, hopefully.

    • ivanislav says:

      Can you please elaborate in concrete terms?

      • Nacho Libre says:

        Never mind him.

        He is modern day Paul Revere warning us that the Russians are coming.

        • Joe Saba says:

          since no other countries want to get paid in other fiat currencies
          merican fiat $dollar to rescue

          meaning corrupt govt can keep spending until other countries stop using our currency to make settlement with BIS

    • Jacob Hunt says:

      Good luck with that opinion buddy!!
      The context of this article is that the world is reacting to inflation while America waffles.
      The world is close to turning it’s back on your USD.
      27% more in a year, and you think it will stay strong when the FED is behind the curve?

      • Buck is still the safest port in a storm. Developing nations write their sovereign debt in dollars. If the US wanted to compete with the EURO they could revisit the AMERO. Why sully the brand? “The US does not support a weak dollar policy..” JY, in response to previous admins policy. Yields come back down and Fed is no longer behind the curve. Remarkable that CBs work in concert, doing the right thing at the right time, tapering, raising rates, and the US (dollar) benefits. It’s almost as if, that’s what they want.

    • NBay says:

      Way to smoke out the trolls, AB! Ya got two of the worst here.

      “Good bye to the American Insurrectionist movement’s Russia promotion did it.”

  4. historicus says:

    The Fed’s game is to promote inflation…and when it arrives, explain it away. (transitory)
    Why would the arsonist put out the fire?

    It is theft, plain and simple….and violation of at least two of the THREE Fed mandates, for those scoring at home.

    But who would jump up and stop this game of pumping assets …. to thus save the People from a ruinous inflation? Good question. Waiting.

    • Nacho Libre says:

      @historicus

      Thanks for keeping at it.

      To your last question, I don’t know who will stop it but it’s heartening to see more people asking this question.

    • Say It Aint So says:

      You won’t find too many people who’s 401K’s are still growing by double digits for the past 13 years…hard to hear them complaining when they dollar cost average each month and are seeing their “retirement” continue on Fed induced growth of equities…Many of these folk could care less about “Wealth Inequality” so long as their account continues to grow. Should we experience another 2001 or 2008 drop…then the war drums of the common man may start to beat…

      • RightNYer says:

        Yeah, perhaps, but the “common man” only has $30 or $40k in those 401Ks. So if the “growth” is due to inflation, and not actual economic growth, he’ll be worse off.

      • Heinz says:

        “Should we experience another 2001 or 2008 drop…then the war drums of the common man may start to beat…”

        Only about half of US population own stocks, and the lion’s share of that is concentrated in hands of top 10% of Americans (income level). This very fact illustrates the Fed’s signature Wealth Effect operation (wealth disparity) in action.

        My point is that for most of our population stocks rising or falling are not a meaningful factor in their daily lives or financial status.

        They are busy keeping a roof over their heads and food on table.

      • YuShan says:

        Yes, the typical “I’ve got mine” mentality.

    • Turtle says:

      Got to hate how they steal money from people saving for a home purchase while at the same time making homes cost more. Fairly malicious, I’d say.

  5. H.K says:

    Taper… not to taper…

    Why isn’t anyone asking why the fed is even buying MBS, especially rmbs? Almost as if they are trying to fuel a housing bubble…

    But hey CPI though right?

    But hey, a new SPAC though right?

    But hey, FOMC meeting though right?

    Keep it going…

    • Dazed And Confused says:

      Larry Summers was asking why Fed is still buying MBS last week.

      • Swamp Creature says:

        When we have to go to that hack Larry Summers to get words of wisdom then you know we are in serious trouble.

        • NBay says:

          Yeah, he’s probably down at Wells Fargo buying Swiss Francs right now…..”smartest guy in the room”, so they say……

      • Old School says:

        Larry is a progressive. He is pretty certain current policy is too accommodative and is going to create a stagflation disaster and progressives take the blame.

        Watched a couple interviews. He kept saying it’s simple arithmetic and he is worried.

        • RightNYer says:

          He’s progressive, to a point. Remember, he was forced to step down from Harvard’s presidency after leftists threw a tantrum over his (correct) statements that men and women have different brains.

        • Old School says:

          RightNY.

          I agree. He is too truthful for the modern progressive. He was tossed out by the woke crowd long ago for a truthful statement.

          His views on money are too conservative for modern progressive.

          Been watching on-line videos on stock market crashes and frauds (MF Global and Enron) to keep my head straight about current situation. MF Global and Enron both had super driven CEO’s who got too levered up because they had personality defect. They wanted to prove something to the world and they got to where they knew best. Oops.

        • Person X says:

          Progressive!? You’ve got to be kidding. Summers is a wannabe Gordon Gecko, “capitalism solves everything, greed is good” … moron. He is such a grifter dummy willing to say anything that he was scooped right up by the prior administration to make excuses for doing all the things to juice the stock market that they had once railed against whenever they’re not in office. Regurgitated all the demonstrably false Republican talking points that we should just give corporations and rich people everything and we’ll get more crumbs. He’s an idiot.

    • Wolf Richter says:

      “Why isn’t anyone asking why the fed is even buying MBS,…”

      EVERYONE is asking that. Fed heads are already proposing to end MBS purchases faster than Treasury purchases.

      • MCH says:

        Oh no, that’s not going to be good for the housing market.

        • Jon says:

          Don’t worry
          FED would do its level best to keep the yield low artificially low.
          All asset markets are safe

        • Phoenix_Ikki says:

          Don’t worry, once the market tank. Weimar Powell will be back for the rescue. Right now they are just imagining about thinking about thinking stop buying MBS. We are still not there yet.

      • Bam_Man says:

        IMHO, the Fed is buying MBS so that when the bulk of the asset side of their balance sheet turns to dust, they will at least hold title to some residential real estate.

        IIRC, the Rentenmark (which replaced the worthless Reichsmark in 1923) was backed by farm land and commercial real estate.

        History rhyming…

      • Yort says:

        The Fed buy MBS as it creates a “wealth effect” for the bop 40-80% of Americans who have little to no net worth beyond the home(s) they own (actually rent from banks). The fed is not worried about long run as he will be long retired by the time things go scorched Earth, and short term his policies will temporarily solve all fiscal matters tied to everyone needing more and more and more money…the Fed is a fiscal and monetary Santa for everyone!

        And it works by allowing Americans to borrow from their homes like an infinite ATM. And seeing that we are on pace to see over $1 trillion inflows into equities this year, with the last cumulative 20 year equity inflows being only $770ish billion according to Bloomberg, I’d say some of that Home ATM scheme, along with trillions in stimulus, is being pumped into stock ETFs ( $1 in passive ETFs creates $5 of stock “wealth” and that is another huge black swan to unravel someday)…so it would seem there are many, many complex mechanisms that are creating unheard of paper wealth for mostly the top 1%, via Fed “helping” bottom 99% homeowners. It is really a complex beast to say the least…mom and pop seem happy the house goes up $50k-$100k, and the top percent is deliriously happy their stock portfolios go up a few million.

        Everyone’s a “winner” short term…yet we know who really wins end the end, as the top 1% are not only inflation-proof, they actually are getting much more wealthy as inflation goes into high gear. Stagflation will be very profitable for the top 1% who hold most of the income producing assets of “things people need”. Everyone else, even the top 10% minus top 1%, will see a “Materialistic Volume” of living decline over the next decade…IMHO.

        Yet perhaps this is what saves the planet from global warming, as to be honest all 7 billion humans can’t live in McMansions drive rare Earth intensive EVs 15 miles every day to get a $6 Starbucks coffee, as living beyond the reality of physical finite resources available on Earth is truely transitory, and will not fit the infinite resource (Earth provides infinite everything) and endless productivity increases (humans become 24/7 working machines) model that is assumed via pure classical American style capitalism. A “Materialistic Volume” of living decrease could be good for everyone over the long run…so perhaps the Fed end up accidentally saving the planet in the long run…HA

  6. cas127 says:

    Wolf,

    Thanks for the useful info.

    In an era marked by accelerated/accelerating money printing, it would seem that the CBs are likely to have to operate with some significant degree of backstage coordination, lest foreign exchange rate changes badly impact intl trade flows.

    That said, other countries’ tapering and/or dramatic rate hikes suggest a prelude to US tightening sometime relatively soon.

    I think.

    • Jacob Hunt says:

      I think your right in the coordination, but surely the USD has had its run and the US as reserve currency is fostering a world that can not recover. It’s been 21 years since the dotcom bubble burst, and we have been in ‘recovery’ ever since, because of the Fed’s disastrous measures. The only way the world recovers now is for the USD to lose reserve status, and debt to matter again.

      • Heinz says:

        “… we have been in ‘recovery’ ever since, because of the Fed’s disastrous measures.”

        Viewed from any angle, it is apparent this period has assuredly NOT been a normal recovery but an ongoing financial emergency with sirens and horns blaring as evidenced by Fed and Sugar Daddy U.S. Sam’s ongoing (13 years and counting) monetary and fiscal tidal wave (QE, ZIRP, and now MMT).

        • cas127 says:

          I agree.

          For me, the best measure for how bad things have been is just how long the Fed has implicitly or explicitly forced the 10 year Treasury (a benchmark competitor that corporate bonds/loans are more or less priced against) to be under 5%.

          They have done so for the last 18 years…and kept it under 3% (!!) for 10 of those 18 years.

          For the preceding 35 yrs (1967 to 2002), the 10 yr Treasury was less than 5% for…1 yr.

          And it was above 7% for 20 of those yrs.

          So a decent argument can be made that things have been sufficiently bad in a macro sense for the last 18 yrs, that the Fed has either explicitly acted (via money printing) or implicitly (via uncountered intl savings flows) to slash savings/lending rates by more than half (from 7% to 3%).

          That isn’t a sign of strength…it is a sign of macroeconomic weakness (far below full employment, borrowers who die off at rates above 3%, etc.)

  7. Michael Grace says:

    ZIRP will soon end; the currrency tensions are palpable

    • Jon says:

      The real rate is already negative .. deep into negative territory for quite some time
      It won’t end unless some catastrophic event happens

      • Kenny Logouts says:

        Unforeseen consequences and all that.

        The Fed have already been pointing out problems for months.

        The higher asset valuations go the higher the risk for losses.

        Tether cryptocurrency systemic risk.

        The list is endless.

        Inflation will only be temporary if the everything bubble crash is around the corner.

        Unless you all expect pay rises when everyone has just lost 25-50%?

        The super rich you ask? Well who has been unwinding assets at ATH for the last 18 months? And where did all the proceeds go?
        I’d say the super wealthy the Fed cares about are well positioned by now.

      • Old School says:

        I heard but have not verified that CBO is forecasting negative real yields for the next 10 years. More of the same I guess, until something breaks.

  8. makruger says:

    Continued Fed yield curve control seems pretty surreal with inflation well in excess of 5%. The FED seems to have lost its collective mind. With today’s plunge, the yield on the 10 year has now dropped 25% over the last several months.

    I shudder to think what the next round of inflation numbers will look like.

  9. Dazed And Confused says:

    Didn’t other CBs e.g. ECB tighten before the Fed after GFC?
    And didn’t that turn out to be a mistake resulting in double dip recession in euro zone while US had a long slow expansion with low inflation.

    Maybe history is about to repeat itself.

    • Wolf Richter says:

      Dazed And Confused,

      ECB tighten after the financial crisis? Hahaha. The ECB started bailing out entire countries to counter the Euro Debt Crisis and save the euro. It cut its rate from 4% in 2008 to 1% in 2009 and then, except for two minor squiggles, kept cutting rates until they were negative, which they still are.

      On top of that, it started all kinds of balance sheet activities, including its LTRO loans and bond purchases.

      This had nothing to do with the economy but with the debt crisis — meaning that the ECB was trying to keep the currency union, the Eurozone, glued together without losing members, such as Greece, Italy, or Spain through a sovereign bond default (though Greece did default). It was bailout mania for the sake of the euro.

      • cas127 says:

        Wolf,

        It might help all of us to understand CB macroeconomic control (er, efforts at control…) via interest rate manipulation better if you were to do a post boiling down what basically happens at a micro level when interest rates change.

        For me, the last 20 odd yrs show…

        1) A very strong policy to force/require/allow the 10 yr Treasury (a proxy/benchmark for corporate lending) to go from the rough 1967-2002 mode of 7% to something closer to 3% from 2003 to date.

        2) At the micro level this means that corporate borrowers are being encouraged/subsidized to grow (theory) or to simply stay alive (reality).

        3) But there is no free lunch and the Fed isn’t a wizard that can pull a unicorn out of its *ss, so this borrower subsidy comes out of the hide of savers/savings (that got roughly 7% plus from 1967 to 2002…and only about 3% plus from 2003 to yesterday).

        From a certain perspective, it might be said that savings seedcorn is being whittled away in order to subsidize the survival of uncompetitive corporate borrowers.

        Or at a minimum, the macroeconomy has been sufficiently sick for the last 18 yrs that a country that used to be able to pay 7% interest can only now afford 3%…without tipping itself into mass bankruptcies.

        I know these are gross simplifications and that others may view the situation from a cynically sunnier perspective (“look at all those overseas savings coming here, driving down rates”…uh huh…) but I think there is some value in trying to boil down the motivations and consequences of Fed interest rate manipulations.

        Sometimes the pros/semipros on the board obsess over the forest of detail, while the more casual/occasional reader here may not fully grasp the forest yet.

        And even the pros might benefit from a stepwise re examination of the intent/result of Fed interest rate policy at its roots (versus the often complicated process of interest rate policy implementation).

  10. Auldyin says:

    Great stuff!!
    Couldn’t you set this item to music W?
    I’m thinking it would go well with Sousa’s ‘Liberty Bell’
    We’ve all been saying this for so long. WTF them all.
    One little aside from UK re BoE :-
    Andy Haldane at his leaving speech said UK was at a ‘very dangerous’ point for inflation. Within hours Baillie was on the media saying it was all ‘transitory’ and under control, talk about an FU leaving speech.
    The direction is now obvious, only the speed left to argue about.

    • Wolf Richter says:

      Wagner’s Ride of the Valkyries?

      • Artem says:

        The FED will start taper QE jawboning relatively soon, but hikes won’t come for at least 3-4 years from now. Powell was appointed by Trump so any sudden moves are politically inadvisable.

      • Paulo says:

        Wasn’t that the theme of Apocalypse Now. :-)

      • Dan Romig says:

        I’d go with Anton Bruckner’s Symphony No. 4, which was premiered in Vienna, 20 February 1881, by Wolf’s great-grandfather Hans Richter and the Vienna Philharmonic. (just guessing – same last name, eh?)

        “In the first movement after a full night’s sleep the day is announced by the horn.” -Bruckner

        It is my favorite piece to listen to when driving my M4 at a brisk pace.

    • roddy6667 says:

      Bach’s Toccata and Fugue in D Minor . Often heard in vampire movies.

  11. Humpty Dumpty Economy says:

    I lead a team where we evaluate wages across our network on a weekly basis. Over the past couple months, we have approved wage increases for dozens and dozens of cities. Each week, another dozen or so. And these aren’t small increases either. We are talking about 30-50%. People who used to make $10/hour are now making $15, people who were making $12/hour are now making $17, and so on. And we are still struggling to hire!

    At the bottom rungs of the labor market, inflation is severe.

    • Ron says:

      Finally try cutting management pay should help cover expenses

    • Paulo says:

      I haven’t made those low of wages since 1980, and I’m a blue collar guy. That was over 40 years ago….and we have free healthcare. Does anyone think this situation can last? I don’t see how it can.

      • Nicko2 says:

        Stay ensconced in the safe and quaint woods of Vancouver Island Paulo, the wider world is far too harsh for you.

      • VintageVNvet says:

        Me 2 Paulo; both on the wages and, at that time carpenter,,, then got my license as GC in SF bay area and wages were doubled, then again, twice, before I had to stop working in the field because I was embarrassing the 20 year younger guys by doing at least half again as much work. (LOL)
        Please keep up your informative commentary.

      • Anthony A. says:

        Paulo, healthcare is not “free” in Canada. Or anyplace else for that matter. Someone pays for it.

        • Nick Kelly says:

          True, but all in the cost is about half the US per capita and everyone is covered. Harvard says everything medical in the US is the most expensive in the world.

      • Turtle says:

        Dude in Norway told me his appendectomy cost $35 and I was like ROFLMAO LOOK AT YOUR TAX BURDEN BRO!

        • BatHelix says:

          Yeah…and see what your tax burden comes out to for the average guy when you add back in the roughly $7000/yr per person cost of healthcare that either you or your company is paying. It comes out much higher but you also get the added option of being completely ruined for the rest of your life if you have something happen to you and do not have coverage or are hit with some bs technicality. We need healthcare and to slash the costs … and think of how many more people might risk striking out on their own to start something if they weren’t tied to needing to keep their job for healthcare.

        • Nick Kelly says:

          See above. Of course his op didn’t cost 35$.

          So here it is again: the ACTUAL cost per person in Canada is about half the actual cost in the US and it delivers better outcomes.
          The doctors and clinics are private, but the insurer is govt.
          Harvard estimates that the US wastes 200 billion; it gets nothing for the 1.5 hrs per day the doctors spend talking to the insurers.

          Then there is the incredible gouging by the drug cos. Insulin, INSULIN ! is 1000% of the Canadian cost, which is NOT normally subsidized in Canada. A stat from WS I queried and WR confirmed: US drug costs are 12% of TOTAL wholesale.

          The US medical empire is out of control and and devouring the economy.

  12. breamrod says:

    it’ll be interesting what the fed says at Jackson hole in august. Maybe they hit at tapering but I bet they won’t pull the trigger just jawbone as usual.

    • Jon says:

      Expect more transitory bs.. moving the goal post ..more jaw boning
      More talk about tapering but nothing concrete

    • Depth Charge says:

      “Everything is going just as planned, though I’d prefer to hear of more deaths of despair than we’re currently experiencing. Muahahahahahahahaha!!! Another jigger of $400 Courvoisier, please.”

  13. Tom Stone says:

    Being old and a tad skeptical by nature I see “Pump and Dump” with the same people who did good after 2008 doing very well indeed.
    And a whole lot more poor people who used to be doing OK.

    It’s time to add a fourth rule when buying Real Estate, “Location”.
    Say it four times.
    Put a little thought into where you buy.
    Look around any major US city and you can see the birth of Favela’s.
    We are going to get a Domestic Terrorism bill, we already have overt censorship ( Durham investigation, Hunter’s laptop, Ivermectin) and the 1033 program is being expanded, again.
    This stupidity is traditional among elites, but that doesn’t make it any less stupid.

    “Do not muzzle the kine that trample the grain”.
    And there was something about a goose that laid Golden eggs…

    • Nicko2 says:

      The advice remains the same; always buy the cheapest house on the best street (or neighborhood, if be the case).

  14. Nathan Dumbrowski says:

    Policy ranges from negative % to 19% for the listed countries. But all are having crazy inflation problems. Could this Genie have gotten out of the bottle? It takes time as mentioned previously to have these rates take hold and control inflation is the fundamental thinking. But these WTF charts show inflation is raging around the world

    $1 cheeseburger is $5

  15. Brent says:

    “A switch in time saved Nine”
    (humorist Cal Tinney,1937)

    “Ich bin ein Taperer”
    (Jerome Powell paraphrasing JFK’s “Ich bin ein Berliner”)

    Yes Mr.Richter,all of a sudden new winds are a-blowin’…

    “Economist” article on July 4,2021:

    “The queue to quit QE.
    Central banks face a daunting task: tapering without the tantrum”

    • BuySome says:

      Hmm…when Kennedy told the citizens of Berlin that he was no more than some form of jelly donut, Oswald proved the point by puncturing that pastry. Doubtful that Powell would risk revealing the flaw in his own bakery, but perhaps he might go with a german word describing a sticky bun since Taperer has no meaning in German.

  16. I see the Fed as a Drunken Sailor slowly chewing a giant wad of bubblegum in order to eventually plug a surging geyser type leak in a sinking U.S. sailboat. The longer the Fed Sailor Powell and Crew dawdles, the lower the boat sinks and the more difficult it becomes to steer. I can see the U.S. Ship of State totally under water, and Sailor Powell, up to his neck in choking putrid seawater, telling the populace that all is well, just going through a little rough spot on the cruise to prosperity.

    Being so far behind the curve on reversing Loosey Goosey Monetary Policy that could have been tapered/ tightened beginning in 2014 and normalized based on market determined costs of capital by 2018, THAT THE ODDS OF A FED PANIC ARE PROBABLY AT 80% AT THIS POINT. This is why I still think these Drunken Sailors will be forced to raise rates sequentially beginning in the Fall of this year. REDUCING THE FED BALANCE SHEET VIA TAPERING MONTHLY PURCHASES OF TREASURIES AND MBS IS WAY TOO SLOW OF A PROCESS TO PLUG THE HOLE IN THE U.S. VESSEL IN TIME TO SAVE THE DAY.

    $74 per barrel oil is nowhere near being reflected in the supply chain’s costs to the extent it will be in the month’s ahead. Like a pig working its way through a python, the oil shock no one is talking about is going to guarantee that the transitory handle falls off into a PERSISTENT INFLATION handle going into 3rd Quarter, 2021. Dwindling inventories of cheaper oil are being depleted as Americans stomp on their Covid masks and take to the roads and skies. Pig poop is about to pop out the other end of the Supply Snake.

    Interest rates are so messed up that it is impossible to predict what a normal yield curve would look like in this end game of the 2009 economic cycle. The recent air pocket in yields is due more to investors fleeing the Greatest Equity Bubble in History to the mistaken safety of debt instruments than any real attraction of earning a negative Real Rate over the next 30 years with a laughable 2% cover-nothing yield. The Bond Vigilantes will once again take the determination of interest rates at the longer maturities out of the hands of the Drunken Sailors at the Fed. The Fed will be forced to adjust short-term rates to catch up to the inflation pushed rates the market will impose upon them and the financial markets. Stocks will not fair well.

    • Tom S. says:

      I wonder if the yield curve would be inverted without the Fed. The 2 year in the 4% range and the 10 year…??

    • Brant Lee says:

      “Like a pig working its way through a python.”
      Can I use that?

      Yes, the inflation is probably just getting started. Corporations, the pros at slapping on higher costs to feed their stock continually, are about to take full flight, drooling at the chops.

      Then the gov throws in another ‘Last’ stimulus, there we go again about Christmas time. It’s going to take lots of trillions to make everyone like the vice president.

  17. Yamo says:

    Printing trillions from thin air is not a recovery, its a farse unless you returned back, but we all know it will never happen, a piece stolen is not returned back ever, unless the poilice catch you, but the police are the politicians who already are the rats, so nop.

  18. Swamp Creature says:

    The Fed is following the same playbook as Jimmy Carter’s Fed Chief Miller (former golf cart manager) did in 1976/1977. Following interest rates up after the the fact with meager incremental tightening. As a result interest rates will rise even without any Fed action leading to a housing financing credit crunch.

    • ivanislav says:

      It’s a prevalent idea that inflation and increasing interest rates will bring down home prices, but Robert Shiller’s data over the 1976-1986 decade shows that housing price growth was above trend. A mortgage payment shrinks with rising inflation, which incentivizes buying, and inflation obviously increases price levels over the long term (including housing), by definition. Also, I am not talking my book – I would like lower prices.

  19. MJM - WA says:

    Gosh…and here I was thinking that the Fed’s reverse repo activities had effectively already partially reversed (tightened?) it’s prior QE purchases. Instead of selling $1T of securities, the Fed is merely renting it all out.
    What am I missing here?

  20. Outwest says:

    This intrest rate environment fuels the .01 percenters. Good luck turning off that spickit of prosperity…

  21. SpencerG says:

    How do I get a sweet gig like being on the Board of the Bank of Canada? They can slash assets from their balance sheet… jack up interest rates… and still not tank their nation’s economy because the Crazy Gringos to the South (who are by far their biggest export market) are pouring gas on the fire with their own QE and fiscal stimulus.

  22. Anthony says:

    I don’t understand the view that the super rich don’t want interest rates to rise to the normal 6-8% or higher. If I was super rich and owned a bank, then that’s exactly what I would want. It would allow me to make massive profits lending money to the proles and for those that can’t pay back, I can transfer made up mortgages, into real assets, as I take your house. This is a policy that has worked in the past, so why not now. After all, chaos is wonderfully profitable.

    If the 1% of the 1%, really do want everything, then this is what will happen and happen soon. It’s really up to them and their timing and there is little we proles can do about it.

    • Desperately Seeking Susan says:

      Wolf since you offered your best guess about tapering I’d like to offer mine.

      The Fed won’t taper. Instead they will give in to inflation and sacrifice the dollar.

      The right thing to do is let rates rise but the political collateral damage is too great and the fed will take the easy way out and try to inflate the debt away.

      There will come a time where the choice will be equally terrible. Hyperinflation or allowing the everything bubble to pop.

      At that point the market will realize the Fed has no clothes. They’ll print to infinity but it will have no affect and rates will rise and the bubbles will pop. It is unavoidable.

      The silver lining… or more appropriately the gold lining in this grim prediction is the dollar will be re-tethered to gold and the reset will be $10000 or more to a dollar.

      Honest money will forced into existence but a decade of pain will result because our leaders let us down and we remained silent when we should have been screaming from the rooftops.

      What would George Washington think of what has become of this great country he fathered? If he knew I wonder if he would have used birth control.

      • RightNYer says:

        I disagree. The Fed derives its power from the dollar. The dollar dying means the Fed is powerless, and it’ll be clear they lost control. If they raise rates, at least they’ll retain their power and semblance of control.

        • Bobber says:

          Yeah, but if all the G20 inflate their currencies in unison, like they are doing, currency values will not be impacted. That is why central bankers act together.

          The key to building wealth over the next few decades might be identifying a jurisdiction that is more conservative with the money-printing. I’m thinking about some Asian countries.

      • BatHelix says:

        I’ve thought this way for a decade and maybe I’m just tired and have recency bias but I’m forced to think of Japan and how printing has not led to inflation. I think there may be something wrong with the textbooks and how we look at this with a modern economy because it seems that because we innovate so quickly we are able to do things better and cheaper which pushes down on prices. I’m starting to wonder if the inflation will just be manageable while they keep printing and “accommodating” which is their perfect scenario of course. The fed and the rich just keep getting what they want and that would be the best thing possible so I assign a bit of weight to that probability. The only other scenario is they try to tighten while knowing they will stop…and then we have a market tantrum and they come back in stronger than ever. We would be in a true doom loop if we really had inflation then but I’m starting to doubt my “doom porn” ideas where my gold allows me to buy up my neighborhood and I’m the only rich guy left standing.

    • Nicko2 says:

      In developing/emerging markets, the local elites are perfectly happy with double digit inflation and high interest rates. Coming soon near you?

  23. Phoenix_Ikki says:

    We poor muricans, all we get is a FED that’s daydreaming and thinking about thinking of tapering in some near or not so near future. You have to give credit where credit is due, looks like most of the other central banks have more balls than Weimar Powell, if only by a little. I am just hoping they will move to the next thinking stage of ending at least MBS purchase but I think there’s still 2 more thinking about thinking after that so maybe another couple of years to go…

  24. Andrew Wilson says:

    The BoE is a special case given that it’s Governor was carefully selected by the PM as a loyal servant and the number one aim of the UK gov is to mask from the public the disaster that Brexit is.
    A year ago a senior minister admitted that the covid shutdown was very useful in that it enabled a diversion from the effects of Brexit and a highly expansive monetary policy that otherwise would have been unthinkable to a Chicago style free marketeer led government supposedly scornful of subsidies and the dead hand of the state.
    Expect all decisions of the BoE to be led front and centre from the Treasury.

  25. Gyalogtank says:

    And the Hungarian National Bank is not even mentioned despite it raising interest rates last week.

  26. Bead says:

    Look at the bright side: once we’re all making six figures we’ll be more equaler, right? These Fed PhD’s are wizards, creating “equity” through sleight-of-hand and well-timed mumbo-jumbo. The politicians can simply throw the gubmint into cruise control and collect their fortunes. While all the little countries undergo their terrors of inflation us Romans will enjoy the rewards of empire.

    • Turtle says:

      The publisher of Millionaire Next Door will need to rename it to the Multi-millionaire Next Door at this rate.

    • Brant Lee says:

      Will my Social Security go to 6 figures soon?

      Can’t wait to see what they figure for this year.
      .05% raise?

  27. Micheal Engel says:

    1) A year ago NYC, DC, Seattle, Portland and Floyd City blew up.
    2) A year ago an ammonium nitrate ship blew up.
    3) The tourists didn’t come. Beirut was gone.
    4) After corrupt politicians bank run, people can withdraw only $100/m from the banks.
    5) The gangs provide weapons and food stamps to their people. The rest : starvation. The police disintegrated, army have no bullets, no food.
    6) There is no civil war. The gangs domination is too strong.
    7) The weakling leadership don’t answer the people.
    8) There are shooting in the long gas lines.
    9) There are shooting in the subsidized rice lines. The supermarkets shelves are empty.
    10) There is no electricity in country.
    11) The “saint” and his gang will save Lebanon.
    12) Tehran salivate : another country is gone.

  28. David Hall says:

    Negative interest rate government bond volumes are diminishing.

  29. Micheal Engel says:

    1) The annual cost of the FIRE department with a 30Y mortgage @ 3.75%, 20% down, is about 20K/Y.
    2) Most people are happy the rise of home prices. They won. They celebrate.
    3) Raising mortgage rates to 6%-8% will ruin the RE market.
    4) Gravity with Europe NR will constrict the rise of the US 7Y-10Y, therefor mortgages.
    5) US10Y – DET10Y = 1.65%. It’s mid range between Oct 2018 high @2.8% and June 2020 low @0.9%.

  30. fred flintstone says:

    Commodity market charts are turning down big time.
    The inflation appears to be transitory.

  31. KGC says:

    What blows my mind is the fact that Congress (who’s main job is to act as the financial branch of the USA Gov’t) is not even in the picture. Why hasn’t the media pointed out that it’s their JOB to ride herd on the Fed?

    I realize it’s not as headline grabbing to actually do what they’re supposed to (vs. leading another sub-committee investigation into politically correct verbiage or ex-presidents sexual practices) but what’s it going to take to get them to actually do something about the economy?

  32. Chris Herbert says:

    Whew, what a mess of comments. Fed fed the 1% with financial asset bubble. The 1% also own lots of Treasuries with no interest income. So they would like some interest no? Fed raises % rates to funnel some more cash to 1%. Financial bubbles psssshhhhh out. 1% sweep in and buy cheaper financial assets. Start it all over. Got to love no government and out of control Capitalists/Oligarchs. The solution is simple. Tax wealth and trading markets. Tuition debt relief. Re-regulate markets. Break up monopolies.

    • MonkeyBusiness says:

      All of that requires a revolution. Since muppets only know how to spend, then nothing will change.

    • Artem says:

      Every revolution, every FED financial repression move, every draconian law, is going to have winners and losers.

      We went down the 0% interest financial repression rabbit hole for the sake of stability. Now the distortions created are threatening the system in a new way.

    • Nacho Libre says:

      If we are breaking up the monopolies, let’s start with public schools. They smother any competition and go by the motto “no kid gets ahead”.

      • NBay says:

        Nah, Fire Departments have a better monopoly, we should privatize them first. Make them compete fairly in a free market.
        As it is the resident gives the contract to whoever shows up first, most likely getting a half-ass job done.
        And the consumer is screwed by government again.

        • Nacho Libre says:

          Why not? Why do you assume they will do a half-ass job?

          At least they won’t mint out fresh batch of Marxists every year.

        • NBay says:

          Why do you assume government does a half-assed job with education?…… because they don’t teach Calvinism…exclusively?
          I think a class in Comparative Religion widens one’s perspective on human supernatural theories, and your favorite is just one of many.

          BTW; Marx was just a classical economist, and Kapital is required reading for any Economics Major.

        • Nacho Libre says:

          Assume? Those things have been running for a long time and we have the data.

          It’s a monopoly where the payers (property tax payers) and customers (students, parents) have very little say in how things should run. It’s run by bureaucrats and unions in an echo chamber.

          Spending per student has gone up steadily, but the comparative performance of students with rest of the world has gone in the opposite direction. Universities have to get foreign students, high-skill jobs have trouble finding qualified local candidates. Bars are lowered, teaching is done for tests.

          Focus is on inclusiveness and participation, not excellence. Yet there is no school choice. Kids of poor parents can’t escape the ghetto, because these bureaucrats decide kids need to attend their own friendly neighborhood non-performing schools.

          Now the bureaucracy itself, teacher retirement is unfunded obligation. That cost doesn’t show up on the books yet. Eventually either the benefits are cut and or the school districts get bailed out by the deficit spending fed gov.

          Why are you in denial?

  33. 3D Modeler says:

    Despite what they claim, the Fed is subject to the vagaries and influence of politics just like other government agencies. As the Misery Index continues to climb…especially for the large millennial voting block, one political party will try to blame the other for the pain caused by inflation and the growing wealth disparity. If Jerome Powell thinks he was under political pressure to do a 180 deg turn back in 2018, he ain’t seen nothing yet.

    • Artem says:

      3D Modeler,
      Yes, but raising rates into 2024 election cycle is just politically impossible. You can start talking about hikes, but you can’t do hikes until after November 2024.

      • MonkeyBusiness says:

        If you take political cycle into account, then raising rates will never be possible!! Also the Fed didn’t raise rates last year, and it didn’t even factor into the election.

        The Fed’s also supposed to be independent. Why should they care who is in charge over at the White House.

      • 3D Modeler says:

        True, Artem, but at a minimum they can start tapering/stopping the $120B/mo QE right now…in advance of the 2022 mid-terms. As far as interest rate increases go, that’s going to be tricky no matter what. Each small basis point increase is going to have a much more dramatic impact, given the fast-approaching 30 handle on the national debt.

  34. Swamp Creature says:

    Off topic but I just heard on several networks that the IRS has 35 million 2020 tax returns in the queue that it hasn’t even looked at. Mine is one of them.

    • Swamp Creature says:

      Spoke too soon. Just got a notice that my refunbd is heADED FOR MY BANK TOMORROW.

      The IRS must be reading my Wolf posts

      • NBay says:

        The Post office will tear off the bank routing number.
        But you know this.

      • Swamp Creature says:

        Verified my refund just went into my Wells Fargo checking account. Took a total of 4 months to process a simple tax return which was received March 13th by the IRS. Included my Dec $1,200 EIP stimmie payment. The IRS wants another 80 billion to go after taxpayers

  35. Bam_Man says:

    I may have mentioned this before on this forum, but it is worth saying again.

    Anyone waiting for the “bond vigilantes” to show up is going to be gravely disappointed.

    Due to the EXTREME over-indebtedness of the US economy (at every level) anything more than a token increase in rates will rapidly result in an deflationary implosion.

    The other thing to bear in mind is that when intrinsically worthless, fake money is created in such mind-boggling amounts (see M2), it cannot and does not EARN more than a minuscule amount of interest. Case in point Venezuela. Official (low-balled) inflation rate of 2,850%. 10-year government bond yield is 10.43%.

    Venezuela is of course an extreme example, but illustrates the point. We are headed there and will have high inflation with REAL interest rates that become more and more negative over time – eventually reaching a similar extreme.

    • Artem says:

      Bam_Man,
      Gross versimplification. Venezuela is isolated and depends on the kindness of strangers, making bolivars AND their IOU’s unusable.

      America still has alot of friends willing to pump oil (Middle East) and manufacture necessities (Asia) for pennies. Global suppliers have to be unwilling to supply in order to realize an inflationary depression.

      • Bam_Man says:

        Artem, I am not particularly impressed with your reading comprehension skills.

        Where did I say (or even imply) that we are going to “realize an inflationary depression” or hyperinflation?

        I said that REAL interest rates will become more and more negative. And the fact is that they MUST, or we will rapidly find ourselves in a hyper-deflationary depression.

        • Artem says:

          Bam_Man,

          “Venezuela is of course an extreme example, but illustrates the point. We are headed there and will have high inflation…”

          Nothing is wrong with my reading comprehension.

    • Wolf Richter says:

      When the Fed started QE in late 2008, it took the remaining bond vigilantes, who had gotten uppity again, out the back and shot them. And that was that.

  36. Swamp Creature says:

    J Powell will increase margin requirements to curb speculation. The markets will crash as a result.

    • Turtle says:

      Almost anything he does at this point risks crashing the stock and real estate markets, if you ask me. He’s waited too long. Good grief, Ron Paul was right about all this.

  37. Micheal Engel says:

    1) France 7Y gov bond rate = (-) 0.3%. 25Y mortgage rate : up to : 1.7%. Mortgage loans up to 110% of value.
    2) DET 7Y = (-) 0.5%. 30Y mortgage rate : 2.0% on 320K loan, 7%
    down payment, transfer tax : 6%, comm : 3.6% and notary : 2%.
    3) The initial cost : 7% down + 12% for the rest, on a 350K euros house.
    4) European rates between 6%-8% : no way.
    5) The EURUSD is down from 1.25 to 1.2 since Jan 2021.
    6) Europe RE deflate in dollar terms. It will get worse.

  38. Depth Charge says:

    These clowns decided to fight an economic problem by creating an even worse one. Jerome Powell and his buddies should be in prison on economic terrorism charges.

    • Brant Lee says:

      Politicians beg to differ. Current times are better than a beer commercial, it doesn’t get better than this. No budget. Cha-Ching, order more wine. The only argument going on in Congress is who gets the most.

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