THE WOLF STREET REPORT: What’s Behind this Messed-Up Bond Market?

The total focus on the Fed. And then the Fed steps away. (You can also download the WOLF STREET REPORT wherever you get your podcasts).

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  141 comments for “THE WOLF STREET REPORT: What’s Behind this Messed-Up Bond Market?

  1. Tom Stone says:

    Pay no attention to the man behind the curtain.

  2. historicus says:

    What say you when someone makes the comment that ….

    The Fed cant raise rates because the debt service cost would be impossible.

    • historicus says:

      Follow up question…

      When Powell and pundits point to the bond market and say “see, this is what people think of inflation…look at the ten year….”
      I understand the game the market commentators are playing…but we are getting disingenuous and intellectually dishonest comments from the Federal Reserve Chairman.
      Your comments…

    • Wolf Richter says:


      “The Fed cant raise rates because the debt service cost would be impossible.”

      Yellen already disagreed with that. She said in June, in preparation for higher rates, that higher interest rates would “actually be a plus for society’s point of view and the Fed’s point of view.” And I agree with her on that.

      • Jezabeel says:

        Higher rates will last a few months. Then they will go back down again. Plenty of reasons to cut: Omega variant, global warming, BLM shopping spree, Mercury in retrograde. Any pretense will do.

      • Swamp Creature says:

        Jim Cramer said on CNBC that higher rates will have to wait a bit because the 1st priority of the Fed is to keep stimulating the economy and mitigate the negative effects of the Delta Variant.

        He said J Powell was doing “One heck of a job”.

        • Wolf Richter says:

          Swamp Creature,

          The sequence is:

          1. End QE
          2. Raise rates some
          3. start unwinding balance sheet (“balance sheet normalization”)
          4. while continuing to raise rates.

          That’s how they did it last time, and that’s how they’ll do it this time.

          So yes, raising rates has to wait till tapering is finished and QE has ended. Then the rate hikes can start.

          There is a logical reason for this sequence: QE pushes down long-term rates. So if the Fed raises short-term rates while pushing down long-term rates, it would be like forcing the yield curve to invert.

        • RightNYer says:

          Cramer is an idiot. First, I’ve seen very little evidence that the delta variant is doing anything to negatively affect the economy. Those of us who are vaccinated are not concerned (because, media hysteria aside, COVID, including delta, is not a material risk to vaccinated people). Those people who are not vaccinated don’t care about it, and are living their normal lives (and in some cases, taking enormous risks). There is zero reason that this variant justifies continuous “stimulus.”

          Second, the last 13 years has demonstrated that printing money does anything to stimulate the economy as a whole. The asset markets, yes, but not the economy. Anyone who claims otherwise is either stupid or lying. Which category does Cramer fall into?

          Third, I really don’t understand this constant lauding of Powell. Powell, at every turn, has taken the easy way out. It’s like congratulating a parent of teen children for “doing one heck of a job” by giving those bratty children everything they want and then being amazed by how little they complain. Well, yes, in the short run, it’ll look like you’re doing “one heck of a job,” but the deleterious consequences don’t come until later. It’s one thing to say that you think Powell’s actions are necessary, but mindless printing of currency is something that has been attempted many times through history. It’s not “brave,” it’s not “creative,” and it’s certainly not worthy of accolades.

        • andy says:

          Cramer maybe an idiot, but if you followed his advice since he coined the term FANG, you would have made 10 times your money.

        • RightNYer says:

          Andy, and had I bought Bitcoin in May of 2016 and held it until today, I’d have made 100x my money. What’s your point?

        • A quarter point is nothing, compared to the QE backstop. The yield curve means nothing, banks prefer QE to lending money retail or SB, let the shadows and CUs do that. I would compare the Feds various programs and the hysteria about their continued support to the Afghan war. Then suddenly support is over, chaos, and what’s next, the big yawn. They have put enough money in the system to run things on autopilot for years and the Taliban can’t govern.

        • Artem says:

          We will get to step 1.5 before going to step -0.25

          Rinse and repeat.

        • Old School says:

          At some point you got to give a drunk tough love and see if he can live without alcohol.

        • sunny129 says:


          ‘’ve seen very little evidence that the delta variant is doing anything to negatively affect the economy.’

          Checkout ETFs representing respective tourist sector!

          JETS – Airlines
          BEDZ – Hotels – HLT, MAR
          CRUZ – Cruise lines CCL, RCL, NCLH
          EATZ – Restaurants
          CARS /HAIL – Auto industry

          See how grear they are doing as of today!?

        • William Susel says:

          I just cannot see the Fed following a sensible policy such as the Wolf suggests.
          They may start it, but the political screams would be intense, so intense that the Fed would back off.
          With this weak president, and the damage that will occur to the “connected” higher ups and their shrill badgering to bring things “back to normal’ (By their definition) the carnage will continue.

        • RightNYer says:

          Who said anything about the stock performance of those industries? Stocks have nothing to do with the economy these days.

      • Eugenio Triana says:

        There is no real extra cost for raising rates, the government can pay any amount of interest rates it wishes.

        But raising rates is a negative for society. It rewards zero risk strategies like buying government bonds and institutions and individuals that already have money. It encourages these wealthy sectors of society to take money out of the economy and divert it into savings.

        • historicus says:

          I disagree.
          First, raising rates puts interest income into the economy, and that money will be spent. The “lender” is the beneficiary of the arrangement, rather than the borrower. When the lender is slave to the borrower due to rates artificially low as in the past 12 years, the world is upside down.
          Regarding diverting money to savings…..healthy savings rates are an indication of a healthy consumer. The opposite, high consumer debt is a precursor to a slowdown in consumption.

          Debt is future consumption denied…so what then is savings?
          High rates of saving was a good thing, not for the immediate gratification of markets, but for long term stability in the system. People living paycheck to paycheck is not a good society.
          The Fed is forcing people NOT to save, likely to pump markets and economic activity….but at what cost to the underlying health of the economy? Its all about forcing conduct to create better looking charts and investing behavior. But is it good in the long term? I say no. There will be a hangover and a headache.

        • Tk says:

          When money is “diverted into savings” what do you think happens with it? How does it get taken out if tge economy? Where else can it go?

        • RightNYer says:

          This is beyond silly. The “zero risk” investments influence all levels of the curve. When you pay negative real interest for “zero risk,” yield starved investors buying junk bonds at 4%. Even money deposited into FDIC insured accounts is not “in the economy,” as THOSE banks then lend it out. That lending then puts the money out into the economy where it is used.

          The idea that money disappears from the economy when it’s not invested in equities, real estate, or bitcoin is a joke.

          In any case, artificially depressing yields only encourages bad debt and misdirected investment. It might look good in the short run, but it always fails. Always.

        • RightNYer says:

          historicus, well said.

          I liken what we’re doing right now to driving with all of the engine warning lights on.

          Sure, you might get a free extra miles, but you’ll destroy your car in the process. Better to pull over, get the car towed to a service station and fixed, and then you’ll get far more many miles later.

        • Roger Pedactor says:

          Problem is the continued government spending.
          Can’t raise rates and print money.

          Rates should be above inflation because it keeps housing costs reasonable and allows for an actual savings rate for middle to low income earners for a safe haven for their money to grow. The problem is that the wealthy will pile into bonds because the stock market will tank and likewise the fed kills full employment because stock prices will plummet which will pummel zombie debt fueled companies.

          It’s why cryptos have been going up. Gold and silver paper prices are manipulated. If they even HINT at tapering asset purchases with a date the S&P will drop like a rock, which runs counter to the Fed’s stated mandates. There is no winning here. You lose horribly both ways. My guess is that tapering will last maybe a month and it will cause such a violent recession due to PEG ratios being so insanely high that the reality of the U.S.’s unproductive economy and society will smile with broken fangs and the Fed will immediately have to refire the printers.

        • paul holterhaus says:

          You are the MOST ignorant Man on Earth if You really believe Our Govt. can pay significently higher rates……..How..???……….By just printing more money..???………..Just what the World needs…….A few more ignorant People……..Paul

        • Wolf Richter says:

          paul holterhaus,

          Hahaha, no, turns out, “YOU are the MOST ignorant Man on Earth….” So let me explain this to you.

          The government can always issue more debt, and it does, as you have seen. Demand is huge for government debt, as seen by the super-low yields. So adding a little more to pay higher interest rates isn’t going to change much. You won’t even notice it.

          Higher rates only impact the new debt that is being issued, but doesn’t impact the $28.5 trillion in existing debt until it matures. A small part of it matures all the time, and needs to be replaced, but it takes a long time for higher rates to translate into visibly higher interest payments.

          What translates immediately into higher interest payments is the addition of $4 trillion in new debt since March 2020, and the trillions in new debt in prior years. That’s what you’re seeing when you look at the interest expense chart.

          There are many 10-year notes and 30-year bonds that were issued years ago. They won’t have to be replaced until their maturity date comes up. This takes time.

          Also, higher interest rates mean higher earnings for bond bondholders, savers, and other yield investors that then have to pay higher income taxes on those yields.

          Alone in savings: There are $11 trillion in savings deposits. If interest on savings rises to 3.1% (up by 3 percentage points from the current rate), it would mean an increase of $330 billion a year in additional taxable income just on interest from savings. If 15% on average is paid in taxes on this additional income, this increases government revenues by $50 billion a year… just from higher rates on savings! Lots of other yield investors will pay higher taxes as well.

      • sunny129 says:

        She also said that if needed, FED should be allowed buy equities via ETF, just like BOJ! She has forked tongue!

        Didn’t she say after GFC that this will be last financial crisis in her life time! OMG!

    • Fluxite says:

      Thanks for another great commentary

    • Moosy says:

      How do you know they cannot raise rates to 10%?

      They are already going to print $6T when you combine all those anything-but-infrastructure bills.

      Interest on $30T at 10%, that would only be $3T more to print this year.

      Only extra suggestion I have is to add 2 zeros to the Tubman bill they want to have replace the $20 Jackson

      • JGarbo says:

        So, we might just see a $1,000,000 greenback, which will buy a can of Diet Coke…

      • Augustus Frost says:

        Of course, there is no consequence to debasing the currency. History has proven this to be true, right? Or maybe “it’s different this time” because the United States is apparently exempt from the reality which applies to everyone else?

      • Old School says:

        They will be faced with a Hobson choice like French in late 1700’s. They will have to choose to keep printing or choose that the printing game is up and society has to deal with it.

        Be prepared to deal with both outcomes. There is a limit to how much you can print and maintain confidence.

      • Old School says:

        Having been around with collapse of S. Vietnam and going off the gold standard, I am reminded that this 50 years of fiat allowed US to fight every war and dole out every vote buying scheme while real wages went nowhere for blue collar worker. Maybe the failure in Afghanistan will be a fitting bookend to failed fiat system.

        • Auldyin says:

          The Taliban would like to thank Ole Joe for their new Airforce and for swapping all their old Hiluxs with guns welded on the bed for two a time low mileage one owner Humvs. They promise to look after all the stuff and only use it carefully. They’re trying to figure how to fly these darn drones.

        • Wolf Richter says:


          It was President Bush who started this fiasco. In the six years he was at creating this fiasco, he could have completed whatever job there was to do and pull out. But no. He handed this failed policy fiasco off to the next guy who handed it to the next guy and who handed it to Biden who was man enough to end it and take the heat, where the others had chickened out.

          Everyone has known for 20 years how this civil war would end when the US pulls out. There was no surprise. That’s why the prior presidents had chickened out, all of them.

        • Auldyin says:

          No argument from me.
          It was the folks that thought they could equip and train a proxy occupation army that screwed up and donated all the stuff necessary for an actual national army at the expense of the US tax payer but I’ll stick to moaning about UK’s involvement .

        • Swamp Creature says:

          Near the end of the Vietnam War I was on a test cruise on a destroyer (The USS Camp) which was shortly to be turned over to the S Vietnam’s Navy. The Nam sailors were all sleeping and loafing on the desk, not learning how to run the ship. They didn’t even use the restrooms and squatted and s$it over the side of the ship and stole all my food which I brought on there for my lunch. At the same time Nixon and Melvin Laird (Sec of Defense) were bragging about Vietnamization and well it was going. What a pile of bull s$it. I knew then that the War in Nam was lost. The same thing would happen and is happening in Afghanistan after we pulled out. History repeated almost exactly. What a bunch of liars, and morons we have had running our country.

    • NJB says:

      I agree with this. I think the messed up bond market is due to debt monetisation. The Fed has no choice but to monetise the federal government’s debt. They pretend they’re not doing this – much like the BOJ and ECB also pretend it’s all about inflation – but that is what is happening.

      • historicus says:

        “The Fed has no choice but to monetize the federal government’s debt.”
        The Fed’s job is NOT to facilitate profligate spending by politicians.
        The rates should be realistic, not fantastical …..(zero)…
        The REAL rates would tamp down this ridiculous spending and the pulling forward of future wealth to today to fluff the assets and stocks of the string pullers of the Fed.

        The THIRD unmentioned mandate of the Fed is “promote moderate long term interest rates.” Honoring this would prevent what we have seen for 12 years. This would mean a steeper yield curve, a balance between lender and borrower, and a restriction to massive long term debt creation.

        Every time you hear the phrase “dual mandate” you should ask, and ask yourself….what of the third mandate?

        This game of putting a small integer before the word Trillion is dangerous. 1.5, 3.5, Trillion….etc…
        One billion seconds is just under 32 years in time measure…
        One TRILLION seconds is 320 Centuries!!!
        It is tough to wrap one’s mind around how big a TRILLION is….
        Pelosi and the others should try….they don’t.

      • Eugenio Triana says:

        Debt monetisation is a meaningless term. It is all the government’s money. Borrowing from the central bank is purely an accounting mechanism but means nothing in real terms. And they are not “pretending” anything, the Fed buys the bonds the gov issues at a public auction as instructed.

        • NJB says:

          Debt monetisation effectively means that central banks will not sell the bonds they have been buying via QE. In other words, the increase in the money supply is permanent. It obviously isn’t meaningless.

        • Auldyin says:

          Milton Friedman just started revolving in his grave again at 3000rpm.
          It’s the “as instructed” by whom? that’s the problem. QE is claimed to be an arm’s length judgement by FOMC.

    • Aaron says:

      So long as the capital gains rate is higher than the rate to borrow, the US government receives more money for every dollar they borrow than they pay in interest.

      • Augustus Frost says:

        Another rationalization why debt and government spending levels do not matter. Somehow, the government can supposedly tax this imaginary “wealth” forever and increase spending in the real economy since there are no physical constraints.

    • stoneweapon says:

      Governments around the world are already talking about taking equity positions in homes for first time home buyers. This type of program could easily be expanded for those who have equity in their homes but cannot afford the higher interest rates on their mortgage. The central banks could provide liquidity to struggling home owners willing to give up some equity to soften the blow from inflation and prop up the housing market. If you have the license to control the money supply there are so many unorthodox tools that have yet to be implemented.

      • Augustus Frost says:

        The only thing this type of ridiculous policy guarantees is that the bubble will become even bigger and the collapse more spectacular with even more severe consequences when it ultimately happens. There is no free lunch in life.

  3. Moosy says:

    What is behind all this?

    The same reason as for what I just read:

    “ The official reportedly said that average monthly benefits, which were $121 per-person before the COVID pandemic, will increase by $36”

    The point here is not this program. The point is the 30% increase needed to counter the real inflation

    At the same time the government is stating inflation only 5% (and 14% of you use the same CPI calculation as in 1980)

    So what is behind all this:

    Lies lies and more lies.

    Bagdad Bob was honest compared to what the gov and Fed is saying.

    Csn I say that that helicopter image from Kabul today is just the icing on the cake on all the clowning around , what is going on and what is behind all this?

  4. 2banana says:

    Bond vigilantes can not compete with QE and the FED’s massive debt creation/purchasing machine.

    It will end when those in power want it to end and not by outside forces and certainly not by “fundamentals.”

    • WES says:

      There are no bond vigilantes, they all died when the bond market died. There is only the Fed now.

      • p coyle says:

        the fed can easily screw up. once they do, bond vigilantes will be crawling out of thee woodwork.

      • historicus says:

        If they didnt die then, they died when the 10 year went from 1.7% to 1.3% in the last few months.
        The Fed can make water RUN UPHILL …..and they do and they have.

        Bond vigilantes…speculators…..serve a very important function in a free market….they risk their money to anticipate price changes, to predict price based on free market fundamentals. This actually brings efficiency to the markets. A vigorous “financial argument” as to where price should be. The Fed has smothered this function with their own newly accrued, stolen, implemented unlimited powers.

        The Fed has short circuited the most basic free market fundamental…supply/demand price discovery, specifically in federal debt.

        • Jack says:


          Stop banging on about the F;)$&g Fed this, Fed that!

          It is your government, your congress,your representatives.

          Legislators are corrupt. Which lead to a corrupt system, corrupt supreme court, corrupt financial system, corrupt everything that the US touches.

          You’re well on your way to becoming a true banana republic, as suggested earlier by Mr. Moosy the $1000,000 dollar bill should see light of the day in Not too distance future.

          Then you can chill out with a can of Diet Coke, or snort of some sort!!!

          If you manage to sell all your T Bills quick enough.

          You’ve trashed this once strong country, by having too much ice cream photo ops.

        • RightNYer says:

          I agree, to a point. But the fact is, the Fed’s “purchases” are not nearly enough to control the bond markets on their own. The bonds markets are many times greater than central banks.

          It’s just that so many people worship the central banks, and thus try to front run them. So the Fed’s purchases only affect a small portion. The rest is then done by people who have confidence that the Fed has everything in control. If that confidence is lost, and the Fed loses control of interest rates, no amount of printing will have any effect.

        • Ron says:


  5. 2banana says:

    It’s “just a question of when…”

    Like Lucy and the football…

  6. Don says:

    Are there any historical examples were inflation spirals did go away on their own?

    • WES says:

      My guess is when people lose trust in a fiat currency and it becomes worthless.

      • historicus says:

        Cryptos are the ultimate criticism of central bankers….
        and the central bankers pretend …are deaf….to what is happening…an end run around their fiefdom of Monetary Dictatorship.
        No insider trading, no Davos or Jackson Hole secret meetings with Cryptos…

        • Tim SE says:

          So they outlaw cryptos – the moment they change from being investments to being money.

          This is the principle of seigneurage in action. No monetarily sovereign government can afford to tolerate a rival currency.

    • 2banana says:

      You really need to expand/define:

      “inflation spirals did go away on their own?”

      Like France 1790s? Germany 1920s? Russia 1980s?

      Mexico, Argentina Italy, Greece over multiple decades?

      • Cas127 says:

        It would probably be very worthwhile if Wolf would be kind enough to briefly step through the full histories of 3 or 4 devaluations/hyperinflations/debt monetarizations…they could be spread out over multiple posts over a periods of weeks/months.

        It is pretty clear at this point that DC has no plan and never had any plan to ever pay off Federal debts…so that leaves printing and FX restrictions.

        Weimar tends to attract everyone’s attention but I wonder if the late 40’s and 60’s devaluations of the pound might not end up being more relevant because they were the fall of another “world reserve currency” and that fact may have avoided Weimar (while still assuring the decades of UK decline and the 70’s decade of discontent).

        • Augustus Frost says:

          There is no similarity today between the USD and Weimar Germany, Zimbabwe or any other hyperinflation commonly cited.

          There will be no USD hyperinflation with the 10YR @1.3% and the DXY at 92 or anywhere near it. That’s what exists today.

        • RightNYer says:

          Augustus, hyperinflation happens very gradually, then suddenly. Without necessarily having a catalyst, people lose confidence in the currency and start getting rid of it by buying anything. The fact that the 10year is at 1.3% TODAY doesn’t mean anything for the future.

        • cas127 says:


          I value your comments a lot, but I think the both of us should spend more time trying to discern future leading indicators of accelerating collapse (junk bond companies hitting BK in increasing numbers, home sales prices soaring…but transaction volumes falling, SP 500 aggregate sales falling, etc ad infinitum) rather than engaging in endless, fruitless debates with people incredibly resistant to the idea that the US is a deeply, deeply troubled economy.

        • cas127 says:


          (And now I’m going to ignore my own advice…”just this once”)

          Citing low Treasury rates as “proof” as “all is well/no danger here” completely ignores the fact that the Fed (in practice, welded at hip/loin/brainpan with DC) can dramatically manipulate such rates by simply printing unbacked money in limitless amounts…and use it to buy Treasuries at tiny rates that no free mkt player would ever agree to (given enormous 100%+ alleged-GDP-to-Fed-debt-ratio).


          1) That ocean of unbacked fiat, used to fix “the debt problem/Treasury rates” does not create a single real asset…it simply spikes the ratio of USD to real assets. This is the *definition* of inflation. *And* that is *before* the multiple money expansion created by banks re-lending on the new Fed money injected into the system.

          2) “Fixing* otherwise spiking Treasury rates (thereby creating a thin veneer of “normalcy”) does not fix/normalize a goddamn thing…it simply converts a corrupt-DC debt problem into an innocent-citizen inflation problem. Just because Weimar levels haven’t been hit (yet…or maybe never, see my comment on degraded fate of UK pound) doesn’t mean that bad things aren’t going on…or that worse ones aren’t being invited in by DC.

          It just means that DC is capable of manipulating the sole metric you choose to represent the whole of the US economy.

    • roddy6667 says:

      In the end, gravity always prevails.

  7. Willy2 says:

    – The (US) 10 year & 30 year yields have behaved according to my expectations. And I wouldn’t be surprised to see both yields go down even more. E.g. the 10 year yield could easily go down to say 0.5% (again) and the 30 year yield could easily go under 1% once more. This will signal that A LOT OF investors will seek refuge in T-bonds.

  8. Citizen AllenM says:

    INFLATION SPIRALS? Are we kidding? Our labor market is in a very damaged condition, and wages have been moribund for three decades.

    Ridiculous to think we are going to 12% within a year, or even five years.

    The best part of this is going to be asset deflation, as financialization of our economy is not set for high interest rates for business. And consumers are already bifurcated- the top 25% can borrow at petty rates, but the bottom 75% can only borrow at rates that have no inflation component… aside from houses, who cares?

    Now, if you want an inflation spiral, I would expect to see no money available to the rich! Contemplate that the stable institutions that resulted from the Great Depression kept on making loans during the last inflation spiral, and they no longer really exist beyond fannie mae.

    So, who is going to face the reality that taming inflation will crush asset prices beyond what people can imagine in real terms, but hey inflation spirals!!

    Wolf’s comment is prescient regarding the highly leveraged positions, but the rich in America have mostly gone for yield and tall gears….

    What happens when money becomes scarce, and there are no zombie Savings and Loans to fund the great American dream….I remember the Money Store had plenty of loans available- for 15% per year!!!!

    • otishertz says:

      It spirals down too. Great comment. I remember your handle from way back.

      Eventually, there will be the inevitable deflation… some day.

    • Petunia says:

      I clearly see the inflation in certain segments like housing, but I also see that it’s an insiders game. All those RE agents talking up the markets are also investors, they admit it. The demand is not organic, it is insider trading, and front running. They are manipulating the markets and are restricting supply.

      The banks are not lending into this market because they know the real risks. They can see the demographics, the lousy job market, the disconnect between prices and ability to pay. If it doesn’t appraise, that should tell you everything you need to know. Why buy, why pay more, houses are far from rare. And the bank is probably already sitting on too many all ready bad loans as well.

      Stay out of the markets and see where prices go. Money doesn’t become scarce if you hold on to it.

      • Mad Puppy says:

        I left teaching in the early 80’s to try my hand at selling real estate in the Vancouver, BC area. Although my timing was horrible, I was an anomoly in the offices I worked. I was one of very few who had not engaged in “buying what they should have been selling”. Consequently, I didn’t experience the panic to unload their ” investments” as the market plummeted.I incurred the wrath of fellow realtors for being easygoing. I worked for 3 different realty firms in one year as, one by one, they failed. Realtors and the general public blamed the media for the collapse in a “shoot the messenger” scenario. Consequently, I expect the media to be somewhat more silent in the upcoming correction. Realtors became “real turds” to a lot of the hurting public in a surprisingly short period of time, and the number of active agents dropped significantly as the market dried up. A friend who had built a huge house on 5 acres and bought 4 or 5 investment properties made far too many trips upstairs at the bank, and eventually escaped the whole fiasco with only a down payment on a modest home. He left real estate to try building wealth the old fashion way, slowly and organically, and eventually succeeded. I returned to teaching after two years, a decision I haven’t regretted in retirement. I see other signs that mirror the turning point of the early 80’s, such as unsolicited requests to purchase my acreage by investment groups showing up in my mail box. Also, open houses are more prevalent lately. The real estate weekly features more multimillion dollar homes than ever, and I remember how much of my advertising dollars I wasted doing the same on overpriced listings. Finally, there are more listings with “sold” written across them than there are reasonably priced listings for homes, as realtors try to sell themselves rather than a good product. The market is beginning to unravel as it did when I was selling. I guess the only questions are the speed at which it will happen and the extent to which the change will occur. I concur that any interest rate uptick will accelerate the process precipitously. I and most people can’t “sit this one out”, and I will just gird my loins and keep my powder dry.

      • VintageVNvet says:

        GREAT summary P,,,
        Could not agree with you any more than 100%..
        Been there, done that, and only question is why you left out of FL as/when you have reported on here you did???
        Seems to me that beyond one of the NE states that still has the very lowest overall tax rates, and one or two of the states of the SE, FL has both the lower overall and long term tax rates, as well as the best or better overall ”economy” for anyone to get a job…
        Just wondering…
        And, thanks again for being one of the reliable commenters on Wolf’s wonderful website…

        • Petunia says:

          I love Florida but we were never able to make a good living there and it cost us everything we had. Now I’m too old, too tired, and too broke to deal with the yearly hurricane disruptions. A couple of weeks split between Miami and Palm Beach is enough for me now.

    • Sit23 says:

      In the early 1980s I worked for an NZ finance company. Highest borrowing rate, 24%. Highest lending out rate, 32-33%. The same company now lends at 7.5%. interest rates always follow what the market tells them to do. if the market is fixed crookedly, this is reflected in the rates.

  9. 3D Modeler says:

    Powell is a wet noodle. He will do a 180 deg turn on interest rates under political pressure to control inflation (in the lead-up to the 2022 midterm elections) just like he did under extreme pressure from T in ’18-’19 to lower rates. And the member banks of the Federal Reserve will love him for it because their net interest margin will finally be on the rise.

  10. DR DOOM says:

    The bond desk traders are all young and in diapers. Old coots with missing limbs ,scars and teeth marks are gone. What happens when the bond beast lives again that inflicted that kind of pain on the old coots ? They will realize something is up when the Fed stops changing their nappy. The Fed will be busy fighting for its political survival. Everything is political. The future shock of an actual bond market beast priced to reflect reality will be disturbing. The beast will start eating on the youngsters as it did the old coots. It will be entertainment at its best to see the beast of capitalism roaming the market looking for a fat behind to gnaw on.

    • historicus says:

      ‘The bond desk traders are all young and in diapers.”
      There are 34 year old stock brokers who have never seen a bear market (Covid crash excepted).
      They havent seen interest rates jump .5% in a week….or 2 or 3 % in a month….they have been coddled by the Fed, and have full faith in the central banking Plunge Protection Teams…..
      Nothing is bigger than the market itself…even the Fed, which is spinning plates with one hand and holding the beach ball under water with the other.

    • Petunia says:

      I wouldn’t touch any bond in this market. Except for one, one hundred year Argentine bond to frame on the wall and remind me not to buy any bonds.

    • Old School says:

      I don’t see Fed raising rates in my lifetime. They may not even get through the taper. Government unfunded liabilities will really start to accelerate this decade and so government funding will stay low.

      There is still a little life in monetary system with 10 and 20 year Treasury at positive nominal rates and utilities paying 3% plus, but eventually its going to be a phase change like 50 years ago with gold.

      Still think if you see gold spike to $3000 or so that is the tell that confidence is being lost.

      • Wolf Richter says:

        Old School,

        “I don’t see Fed raising rates in my lifetime.”

        That’s a depressing statement. How short do you expect your life to be?

        • Old School says:

          My life expectancy is about 20 years, but could drop dead tomorrow.

          Somehow there is going to have to be a change in monetary system I think as financial repression probably can’t go 20 years.

        • Artem says:

          I agree with Old School. I’m very young, and I still don’t see rates becoming sustainably positive (in real terms) in my life time. Even higher nominal rates are unlikely at this point.

          If you try to “force” higher rates by fiat and normalize, it’ll be like trying to re-peg dollar to gold in early 1900s.

        • Wolf Richter says:


          You just changed the topic from Old School’s “I don’t see Fed raising rates in my lifetime,” to your new topic, “I still don’t see rates becoming sustainably positive (in real terms) in my life time.”

          Those are two completely different measures.

      • Ron says:

        The fed doesn’t care about money when world bank will be global money

  11. Nathan Dumbrowski says:

    TIPS. Unfortunately I had ignored what these were with the alphabet soup in play. Treasury Inflation-Protected Securities (TIPS). So the FED is banking on these too? Trillions of interference

  12. John Doe says:

    Hi Wolf, many thanks for great commentary. I have become an avid follower of your blog.

    One question, you are saying ending QE will send long term rates higher. Will there be any effect on 30 yr mortgage rate? Currently avg mortgage rate is 3%. What will be your estimate of mortgage rate when QE ends?

    • Wolf Richter says:

      Yes, higher long-term rates, including mortgage rates, is the theory. But it doesn’t go in lockstep. There is still a huge amount of excess liquidity out there, $1 trillion of which was temporarily absorbed by the Fed’s reverse repos. Nothing is linear here.

      • Swamp Creature says:

        Just went to my credit union today and rolled over my 1 year maturing CD into a money market fund yielding 37 basis points. I’ve given up trying to make any money in this casino economy. Just preservation of capitol. I’m losing a few % to inflation but I can sleep at night.

  13. Tony says:

    Reverse repos spiking even higher now.
    Slightly off topic (sorry Wolf) but presumably relevant

  14. David Hall says:

    The use of excess stimulus might delay any potential housing crash. The eviction moratorium deprived people the use of the property they own and gave it to squatters. Workers got paid less than bums on extended unemployment. Shortages happened. Inflation happened.

    The stock market will not go to zero. It has intrinsic value in as much as it provided goods and services consumers demanded.

    The German 10 yr bund yield is negative.

    • Jon W says:

      Regarding the stock market, Equity = Assets – Liabilities. Now I agree with you that these firms have assets who’s values will not fall to zero, but perhaps you should take a closer look at what has happened to their liabilities during the corporate buyback splurge.

      Remember that equity holders are at the back of the queue.

      Perhaps the more pertinent point is that at least the value of your shares cannot fall below zero. See, there is still some benefit to being a stock holder!

      • Tim SE says:

        As a rule-of-thumb, ‘asset prices move inversely with the cost of money’.

        If the cost of money rises, and asset prices fall, the result is a massive impairment of collateral. That’s additional to the cascade of defaults triggered by higher debt service costs and counterparty failure.

        When assets are this overvalued, and liabilities are this excessive, the choice is between ‘hard’ default (repudiation, ‘can’t pay won’t pay’) or ‘soft’ default (inflation).

      • David Hall says:

        I noticed some companies borrowed money to buy back shares, others used earnings to buy back shares, pay down debt, acquire other businesses or expand existing operations.

        There may be trouble in big govt. borrowing, paying people to do nothing. SSI recipients payed for the right to sit in their chairs after 65. They are entitled to it.

        • RightNYer says:

          No, they’re not. They paid into Social Security to pay for then current retirees. No one is legally or morally entitled to Social Security.

        • historicus says:

          “SSI recipients payed for the right to sit in their chairs after 65. They are entitled to it.”
          Yep…those who paid in their entire working life are entitled in the best sense of the word.
          Those who came here at age 64 and are now collecting…not so much.

        • Petunia says:


          Workers pay into SS as an insurance product for retirement and disability coverage. The fact the govt can’t handle the money has nothing to do with the coverage.

        • Ron says:

          After 50 years of hard labor packing houses construction u say we’re not entitled to receive benefits we paid for u must be a millennial also can return your check

        • Old School says:

          I would say if government took 13% of every paycheck saying that it was for your retirement then you are at least morally owed it.

        • RightNYer says:

          In that case, I want off the Ponzi. My generation has resigned to the fact that we’ll never get anything from it. We’re tired of being oppressed so that the asset values of Boomers don’t take a hit.

        • Old School says:


          I would try to get off of it too. If you are serious it’s going to take some serious effort or money to understand how by using the tax code.

          Marc J. Koeler is a start and has free you tube tax attorney/CPA advice and ideas. Bottom line you got to have some side hustles, use S Corp and LLC’s and trusts, self directed IRA’s, HSAs.

          Being a W2 wage earner is an easy tax donkey (which I was). If you don’t like gov getting 40% you got to be proactive to keep them out as much as possible.

        • RightNYer says:

          Old School, my plan is to go full Galt at some point. Then the government really won’t get anything.

      • Old School says:

        Buffet is smart and is navigating this crisis by keeping enough t-bills on hand to pay off all company debt. I listened to the old guy that runs Barrick gold. He has got that company in the same shape with cash holdings enough to pay off debt.

        In an uncertain world, you have to try to make sure you stay solvent.

        • Petunia says:

          Interesting that he is holding on to cash and not gold to payoff debt. If gold was the better holding, he wouldn’t be selling it off for the cash. Just saying…

        • Old School says:

          Don’t know if he is right, but he believes when system locks up only cash and t-bills are money.

      • Augustus Frost says:

        Many companies, including some worth tens or hundreds of billions, are predominantly a bag of hot air. Much of their “assets” are intangibles that have little if any real value except in a bubble economy. A few have been profiled on this site.

    • Kurtismayfield says:

      “The eviction moratorium deprived people the use of the property they own and gave it to squatters. ”

      It also fueled an asset inflation of 20-30%.

      If you asked a landlord “Would you trade 1 year of rent for the value of your property to increase 20%?”

      Guess what they are going to say?

      • RightNYer says:

        I don’t think the two had anything to do with each other.

      • Paulo says:

        Good comment.

        I have a relative in the States who just bought an adjoining property to protect their view from a potential monster home builder. When the eviction ban was extended they decided not to rent to avoid being stuck in deadbeat hell. They are instead building some RV and boat storage sheds which will cover the mortgage payment while they renovate the potential rental.

    • Rcohn says:

      German 10 year rates at a negative rate mean two things
      Little to no growth in the future and an actual decrease in prices in the future

      • Old School says:

        Maybe even a third thing, central banks screwed up and let Europe get in too much debt. Negative rates are not naturally occurring.

      • Wolf Richter says:


        What is means is that the ECB has set is short-term policy rate at -0.75% and is buying all kinds of bonds to repress long-term yields. Negative yields in Germany don’t mean anything else. There is no real bond market.

    • Auldyin says:

      I think it was Max & Stace that reported German retail deposit accounts were face negative before the nice little inflation take away.
      Can’t figure who does that, if anybody.

  15. PNWGUY says:

    Great report. I couldn’t understand why mortgage rates have remained so low, with the Fed “only” buying $40B/month of MBS, a small portion of monthly issuance.

    Part of the answer is, the Fed has actually been buying $100B+ of MBS to maintain total assets! ​And I bet the rest of the demand is from international “rate refugees.”

    Anyway, current rates are so manipulated… when the Fed tapers, things could get very interesting.

  16. breamrod says:

    I agree with Wolf but the big question is when?2022 midterms may put it off but then what political party wants to own 6 % ( really 12%) inflation?

    • RightNYer says:

      Truthfully, if I was Biden’s advisers, I’d rather the tapering/raising rates and the inevitable recession that will follow to happen NOW, rather than later.

      At this point, it can be blamed on COVID, as a “double dip” recession. If inflation continues to spiral out of control over the next year, it’ll be a lot harder to blame it on COVID, when COVID finally burns itself out (my guess is, around October).

      • Augustus Frost says:

        Biden also better hope their bad misjudgment of the Afghanistan situation doesn’t lead to another hostage scenario. The collapse of the Afghan government is a humiliation to the Imperial State.

        • Wolf Richter says:

          Everyone knew for the past 20 years that as soon as the US pulls out of Afghanistan, the government would collapse and the Taliban would take over.

          Republican Bush got the US into this frigging war during his first term then deepened it during his second term. He started it and then refused to end it.

          Bush then handed the fiasco to Obama who tried to pull out but failed because the government would have collapsed, and so he did the “Surge” and handed the fiasco to Trump who got ready to pull out but then handed the fiasco to Biden, who FINALLY pulled the US out of it.

          Over 5,000 American military personnel and contractors died in this war that was started and deepened by a Republican and where a Democrat finally had the gumption to put an end to it.

          The outcome is exactly what it would have been all along, and everyone knew it. And it has been predicted many times. This was a civil war. The US should have never been in Afghanistan. It’s their country, let them figure out how to run it.

        • VintageVNvet says:

          Right on the political history of USA in Afghanistan Wolf.
          However, IMHO, Bush2 just a puppet for Cheney and the rest of the oligarchy at that time.
          The really really stupid part was their thinking that some how USA could do what the Russians and British and Alexander the Great could NOT do, eh?
          With all three of them very likely much more ready, willing, and able at their times to actually do what needs to be done to subdue a population, but still could not.
          WE the PEONS can at least hope that WE will NOT be getting into any more of these kinds of wars,,, EVA!!

        • sunny129 says:

          @Augustus Frost

          Read ‘The WAR on TRUTH” at WP in Oct of 2019. It was all predicted just like PENTAGON Papers on Vietnam

          All 4 prezs (both Dems & Repubs) captive to Military Industrial Complex – the same old story!

          Greenwald: The U.S. Government Lied For Two Decades About Afghanistan

        • Swamp Creature says:

          Agree that we should have never gotten into this nation building operation. But given this mistake, for a small footprint of 2,500 non combatant troops in Afghanistan, we could have prevented this fiasco. Agree that the Bush, Cheney, Obama escalated this commitment and left the mess for Trump and Biden, neither who handled it well. Note that we’ve been in Korea for 70 years and Germany for 60 years. Purpose is to prevent something bad from happening there. That footprint should be reduced dramatically. The cold War ended in 1989 and South Korea can defend itself.

    • 3D Modeler says:

      If the R’s are successful in pinning the blame for inflation on the D’s, they will win back both houses of Congress in 2022. That means two years of a lame duck presidency. You can bet there will be intense political pressure on the Fed to fulfill its mandate to control inflation ahead of the election. First taper, then quarter point rate hikes…like in 2018. Just enough to throw a few turds in the free money punch bowl.

    • Old School says:

      I don’t believe inflation is going to stick unless government keeps paying people not to work.

      Real earned income is down.,so inflation most likely would stabilize at under 2%. However, government transfer payments has ran total income up touch therefore inflation pressures.

      I am trying to wait to see what economy will look like after transfer payments subside (if ever).

      • RightNYer says:

        Yeah, but you’re forgetting that part of the reason printing trillions in the past didn’t seem to affect CPI is that the rich weren’t using the money to buy stuff in CPI. Now that they’re buying up housing and cars, I don’t know that will remain true.

      • 3D Modeler says:

        Old School, the problem is the average consumer now has a label to attach to the on-going price increases in Housing, Vehicles, Education and Heath Care, as well as the more recent price increases in a myriad of other goods and services. It’s a label that hasn’t been in the public consciousness since the ’70s/’80s. Skilled politicians will be able to exploit this fact.

  17. Swamp Creature says:

    We just appraised a property in a high crime area in the DC Swamp. The Vet was over 85 years old and in a wheelchair. He refinanced using a 30 year VA loan guaranteed by the taxpayer. He will be 125 years old by the time the loan is paid off.

    • Old School says:

      My Uncle who served his time in Marines and was a triple war vet WW2, Korea and Vietnam draws about $5500 per month and is 96. He went AWAL early so he never got above corporal. His sister is 94 (my mom) and was combo stay at home mom and worked some draws about $600 per month. Life is kind of strange.

  18. David says:

    One difference between now and 1980: In 1980, the Fed didn’t own people’s real estate. Is there a precedent for this? Socialism? Joseph in Egypt? It certainly feels like a vast shift away from private ownership and towards the government renting to everybody.

    • Wolf Richter says:


      The Fed doesn’t own “people’s real estate.” It owns government-guaranteed bonds (agency mortgage-backed securities) that are backed by mortgage loans that are backed by people’s homes. The people still own the homes. The Fed owns the debt.

  19. The Fed has to raise rates to solve the excess reserves problem. Summers complained that is pushing the Fed into shorter maturities, when they would prefer to sell 50yr bonds. First priority is stop the hemorrhaging of cash and back up the MM system. That would let them move out the curve out and remove any yield curve discussion. Govt owns 1/4 of the govt bond market which isn’t entirely heretical. The next project is controlling supply so even if yields rise their liability is limited and competition for product will help keep yields down but they need revenue, and inflation should push tax receipts. The Fed is never painted in a corner.

    • Old School says:

      Government is all the time screwing citizens over with messing with money. During French revolution you could get your head chopped off if government found out you accepted gold as payment.

      Whenever government money printing fails, gold retains it’s value and they tend to put the hammer on individuals to make it illegal. As they say, the true markets are the black markets.

  20. Rcohn says:

    The two pillars underlying the dollars reserve currency has been economic and military strength .

    Since 2020 the US government has spent far more as a % of gdp than any other developed country.The huge demand for containers combined with the congestion at West coast and Chinese ports highlights our dependency on China for goods . Economically the US has evolved from one of the “ cleaner shirts “to one of “ dirtier shirts” in the last 5 years.

    Our military adventures since 2000 have consistently resulted in propping up regimes , which can not survive on their own.
    In many areas of the world we are looked upon as country which is very willing to drone bomb innocent people , while at the same time running away with out tail between our legs when the going gets tough.
    We talk a tough talk with China and N. Korea. Are we willing to go to war with China over some sinking atolls in the South China Sea, let alone over Taiwan.
    Losing the Dollar status as the reserve currency has a number of very large negative implications . When the dollar starts to move lower , the FED will have no choice but to raise rates and raise them rapidly . Neither the stock market nor the bond market has factored in this fact .

    • Augustus Frost says:

      “When the dollar starts to move lower , the FED will have no choice but to raise rates and raise them rapidly . Neither the stock market nor the bond market has factored in this fact .”


      All inflationists ignore it, by assuming a world composed of robots instead of real human beings.

  21. Giacomo Cambiaso says:

    One of the best report ever Mr Woolf, thank you. Very interesting especially the historic part of bond vs inflation back in the 70s/80s. I still wonder if after they end the logistic mess (100% man made, the virus is just an excuse for it in my opinion) causing the inflation, we will not end having a massive debt deflation along with massive default like in 1929/33. This is what really scares the Fed rather than any unsocial rest for the inflation. They prefer a slow agony to the traumatic cleaning of a deep recession if not depression. Just a note, it is funny to hear a true hawk (I am too, 100% with you) like you calling “tapering” the end of QE! Sorry Sir but I thought tapering meant selling those securities, MBS and various junk rather than just stop buying it and/or increasing the interest rate of a few points! Well I suppose in the new normal even the word tapering has been revised, now tapering is “thinking about thinking about tapering” even for you!

    • Auldyin says:

      Great name!
      You don’t own a Maserati Cambiocorsa by any chance do you?
      All time favourite car ever!

  22. 2BFrank says:

    “The central bank is an institution of the most deadly hostility existing against the Principles and form of our Constitution. I am an Enemy to all banks discounting bills, or notes for anything but Coin. If the American People allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the People of all their Property until their Children will wake up homeless on the continent their Fathers conquered.” – Thomas Jefferson. (1743-1826).

    • Ron says:

      Won’t happen bear arms it’s our right

      • Old School says:

        I saw Taliban was already confiscating arms from citizens. When you give them up, you have to live with consequences. Everybody gets the government they tolerate.

  23. Yort says:

    “The Fed”…and it doesn’t really matter which human is chosen Dear Supreme leader of Fed…

    Per FT article:

    “Actually, it doesn’t matter who runs the Fed”

    Edward Price argues central bank independence is too theoretical for any appointment to make a difference.

    Never mind. None of this will last forever. To paraphrase Leon Trotsky, the dollar may not be interested in inflation, but inflation is certainly interested in the dollar. At some point in the 2020s, expect runaway prices, a fiscal roll back, swift interest rate hikes, a stock market implosion, a period of low growth and, whisper it, even international capital controls.

    Until then, the Great Accommodation will continue. Continue, that is, until one day the hawks swoop down and the doves scatter. Then, whoever runs the Fed may matter once again.

    • wkevinw says:

      Yort – “Edward Price argues central bank independence is too theoretical for any appointment to make a difference…the Great Accommodation will continue. Continue, that is, until one day the hawks swoop down and the doves scatter. Then, whoever runs the Fed may matter once again”

      This is what I have been thinking. There will be another time when the Fed takes the action like they did in the ’80’s. It won’t repeat itself, but it will rhyme, as they say.

      • Old School says:

        When confidence in printed money is lost, they will will get a central banker to put in sound money policy. Happens every time as far as I can tell.

  24. Swamp Creature says:

    Noticed in the latest MLS data that Condos under 500K in the Swamp Metro area now have a days on the market of 2.5 months. This is an indication that the Real Estate market is softening. In 2005/2006 days on the market were the first indicator that things were starting to shift from a sellers market to a buyers market. The other types of properties are still selling in 1 month or less but bidding wars are ending.

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