The Fed will trim back its stimulus, but it’s already too late, and it’ll be too little and too slow. (You can also download the WOLF STREET REPORT wherever you get your podcasts).
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Here I confess commenting before ‘reading’ because I prefer to read. (I’m constantly muting stuff) and I eagerly await the text.
The Fed is going to have to face the fact that if it takes the obvious appropriate action, it is going to be very unpopular with a lot of people. Many of them have been covered on WS: ‘AMC selling more shares than tickets…stock up 1000% while losing a hundred million; etc. etc.
One good thing about the last admin, by now Powell should be used to abuse, he got lots from T for thinking about thinking about tapering.
But now time is up. The Fed failed to take away the punch bowl, spiked it instead and now a bunch of drunk teenagers are wrecking the house at 2 AM. It’s time to channel Volcker and grow a pair. Reagan stuck with Volcker, but that was back then when the Fed retained a semblance of independence.
Powell, et al, have a decision to make: do they seek political popularity or professional integrity? The Fed has poured a lot of fuel on the fire and lo! it’s got too big. With inflation at 5% + in one month, the US is looking at late 70’s double- digit annual inflation.
It is too late to have a soft landing, not with half the investment rated bonds rated one notch above junk, meaning many are junk but the rating agency wants the fees.
As in the old aviation saying: ‘a good landing is one you walk away from’. No one in the US will starve in a recession. The alternative is stagflation.
nick
I agree. But the ilk that has occupied the Fed since 2009 has no “professional integrity”. They opening violate the second mandate (stable prices) and the THIRD MOST IMPORTANT and intentionally carved out of the the discussions with the dual mandate game…..”Moderate Long Term Interest Rates.”
Moderate means “not extreme” and 4000 year lows are extreme by any measure. Moderate long rates PREVENT the emptying out of future generations by burdening them with heaps of debt in order to “pull forward” wealth to the present and thus the immediate gratification and fluffing of assets and markets.
5% inflation is a tax on current earnings and any past earnings saved. Americans should be torch and pitchfork marching on the Fed.
It can’t be expected to have the arsonists reach for the fire hose.
Only elected officials have the ability to tax, Congress, and they must eventually answer to voters. Their power to tax can not be delegated to the Fed….an unelected body.
Low interest rates not only rob wealth from future generations of workers and entreprenuers, it migrates the economy to an autocratic form, where financial activity and wealth distribution is dictated by unelected powers.
It also disincentives innovation. For example, what if I come up with an idea that would take away some of Amazon’s dominance in a particular area? All they would have to do is issue more stock or borrow more cheap money and they could essentially crowd me out, just by running losses with the “free” money until I go out of business myself.
How can a new startup burrito chain compete with public companies like Chipotle that can raise billions of almost free money on the capital markets?
RightNYer is onto something big.
Small businesses which face a high cost of borrowing cannot grow as fast as corporate chains that issue stock or borrow nearly for free.
So organically grown, individual enterprises get squeezed out in favor of corporate chains.
There’s some value in enabling a Good Idea to spread nationwide, but when the underlying ecosystem which generates New Ideas gets throttled, everyone suffers.
“migrates the economy to an autocratic form, where financial activity and wealth distribution is dictated by unelected powers”
Pretty much the literal, political definition of MMT “fixes”.
The G directs unlimited spending to whatever ally/crony it chooses, then causes the Fed to buy up resultant Treasury debt at interest rates far, far below what any free citizen buyer would pay (given G’s already huge accumulated debt).
Fed must do huge unbacked money print to buy G’s Treasury debt surge (proceeds of which used to buy influence and paper over G’s f ups). Result – citizen inflation.
In sum,
The G uses the Fed to heavily dilute buying power of citizen savings (via money print), in order to transfer that buying power to the G (via huge Treasury debt issuance, paid for with Fed money print).
The G uses the Fed as a sock puppet to convert citizen wealth into DC wealth, thereby avoiding politically explosive explicit tax increases.
YORK/SAN FRANCISCO/WASHINGTON (Reuters) – U.S. President Donald Trump accused Federal Reserve Chairman Jerome Powell on Wednesday of doing a “bad job” and “out to prove how tough he is,” but any move to oust him would likely touch off a legal fight with big repercussions in financial markets as well.
That’s your elected ‘official’. He is criticizing Powell in 2019 for NOT cutting rates, already the lowest rates in centuries. I’m not going to say more about the author of the quote, except that ‘to prove how tough he is’ is pretty good example of ‘transference’.
There is a reason the Fed Chair is a 7 yr appointment, and despite T’s usual wondering whether he might fire Powell, the Pres can’t.
The reason is precisely to keep the Bank out of the hands of politicians.
Can you imagine politicians presiding over the Volcker hikes to 20%?
I had to look up some of this, because the Volcker medicine was unpopular and I wondered why Reagan didn’t fire him. He couldn’t, but he didn’t have to reappoint him, but he did.
BTW; when T was giving Powell hell for not lowering rates, did you hear a roar of objection from the GOP senators? This WAS the party of fiscal responsibility and hard money.
Also. H, since we agree that money is too loose, etc. have you noticed that the left wing of the party in power is pretty much an MMT group ?
I think the best route forward is a FED independent of politicians not one controlled by them.
Which is why Trump was a complete failure.
At the same time, since stocks are viewed as the economy’s thermometer, there is no way to raise rates. Ever.
The politicians will lose their mind.
This entire global economic system is in tatters. China is just biding time playing pretend until they just say they don’t care anymore and default without any effect on their central government which is tightening control on any of this corpo feudalistic crony capitalist charade that they pretended to play to seize IP.
Nick
No government in their right mind – DT or JB – would allow a truly independent FED. In an era of chronic deficit spending wherein you need the Fed to monetize some of those bonds you have to issue, they need to exert as much control as possible. It’s unfortunate but every outrageous pressure hold DT deployed to lower interest rates and engage in deficit spending have come back in spades with this Admin.
Nick Kelly said: “I think the best route forward is a FED independent of politicians not one controlled by them.”
_____________________________________________
The FED seems corrupt with or without the politicians. Do you not think it is the same vested wealth interests that is buying both the FED and the politicians?
Based on the job the FED has done ………
Why not just End The FED?
> 5% inflation is a tax on current earnings and any past earnings saved. Americans should be torch and pitchfork marching on the Fed.
If most of your earnings go into a property that increases in value by more than 5% then you may be happy enough with the status quo. The generation inflated out of joining the housing market are the ones who should soon be reaching for the pitchforks.
no because inflation has peaked.. CPI both core & headline will be between 0.0 – 0.3 increase each month for rest of 2021 (and 2022 as well)
LOL. We are still hearing from retailers and builders about material prices going up. What is your basis for saying this?
They want to squash a big increase to the SS COLA. What does reality have to do with anything?
Haha, fair enough. Perhaps reported CPI will have peaked. Not in the real world if the Fed continues its deranged printing.
Well having no crystal ball, I’m not sure. But I am sure of very tight ag commodities, including wheat, barley, oats and lentils at least in Canada’s prairie grain belt. Had some first hand reporting from Northern Alberta,( Manning) which is not as drought prone as the southern Palliser area. Very bad. The big savior is crop insurance, but this doesn’t make more grain.
Trivia: a lot of insured guys wouldn’t bother harvesting even though the crop is good enough for fodder. So they’ll let you harvest, but you have to leave a 10 ft wide strip every 40 acres to prove how lousy yr crop was so u can collect.
Next year works for crops but not for cattle. Hay looking very tight.
Hay looking about 1/4th of average this year here in SE US, as well.
The value of money keeps getting debased by government. Rome eventually took all the silver out of money as they tried to keep empire going.
We have had several big milestones. FDR calling in gold and then revaluing. Nixon severing gold standard.
At one time borrowing was backed by real savings. The Fed thought they could do better and overdid it. Now money is backed by future earning capacity of USA which if you use Schiller PE and inflation rate is in itself rolling over to a negative number.
Maybe not that different than Mississippi stock bubble where stock value was high, but earning potential was not.
Far worse than the Mississippi River scheme or South Sea Bubble. Both of those were relatively isolated. This mania is global, has lasted far longer, and runs across the major asset classes. It’s the same mania as the one in 2007 prior to the GFC, the dot.com bubble in 2000…you get the idea. It’s the episode of overvaluation, leverage, and the economic distortion.
Most of the earning potential is the result of the fake economy, not sound economic fundamentals. Try to even “normalize” (never mind fully reverse) US deficits back to pre-GFC along with the FRB balance sheet and the whole house of cards collapses.
Even in a bubble economy, trillions in market value still has virtually zero earnings or consists of cash burn machines with no end in sight. In 1720, there was one fraudulent IPO for 5000 GBP titled “An undertaking of great advantage but no one to know what it is”. Now, we have hundreds of billions in SPACs along with the other companies I mentioned which should be worth zero or basically nothing.
“no one to know what it is”.
All time favorite prospectus write up.
Was therefore gobsmacked when SPACs came along.
And sold!
In large numbers!
Re: Powell, et al, have a decision to make: do they seek political popularity or professional integrity?
Not in the USSA they don’t.
There is no action the Fed can take, the Fed is inside a rather extended random walk. If they raise rates inflation might just as well rise, if they taper QE, the stock market might just as well go higher. The controls on the aircraft are broken. If by chance they do something which produces the desired result it is luck not acumen. The good news is there the tsunami of money will carry all these markets a long distance, the bad news is you are at the waves mercy. The Fed PUT is over, the Fed is over. They still serve as the bank of the US government but they no longer run the economy. So there is no landing, there is no aircraft. They may at grasp at straws, crypto currency, etc, but fiscal policy ruined the Fed, and with it control of the dollar, which is now a matter for the kindness of strangers. So goes the dollar so goes the US.
Ambrose Bierce
‘The Fed PUT is over, the Fed is over’.
NO!
They have already bought Corporate bonds besides on going purchase MBSs & Treasuries. Yellen is already on record saying that in times of crisis, the Fed should be allowed to buy Stocks via ETFs just like what BOJ has done.
The Standing Repo Facility (SRF) is the stand by instrument where Fed can keep buting equity assets after creating money out of thin air, guranteed!
Who is going to object?
Rentiers reduce productivity. The lower productivity is, the lower rates go.
Enabling rentiers is a political choice. Squishing them is also a political choice.
It will end when they say it does. Where “they” are the establishment, who select the politicians and the Fed chair.
@ Georgist –
The Rentiers are the ones guiding the political choices and they will never choose to squish themselves.
Once the Treasury is cleared to issue more debt, they will run out and try to sell treasuries and that is when the markets will balk and interest rates start to move higher very rapidly. With inflation so high, The Fed simply cannot go in and buy those Treasuries, so they will need to find a real buyer. As auctions are underbought, it will become apparent to Treasury buyers that there is no more support for the market and the market will sell off very rapidly. This is the start of the new financial crisis – the debt crisis.
If they talk hawk at Jackson Hole this week it’ll be interesting to see the ensuing reaction. With the usual central bank penchant for mistiming, we should perhaps see in coming months that, just as the booster reaction from the huge stimulus peaks and retreats, and the tightening starts and amplifies the effect, they’ll quite likely soon enough be backtracking on their tightening plans.
Great points but the difficulty in comparing to Volcker is two fold: (1) The amount of Debt to GDP is not even close to comparable so the servicing of the Debt was not a major factor, and (2) There will never be another Paul Volcker allowed to run the FED RES….He was not politically motivated.
We have dug a hole that is deep and the only thing that can possibly save us is the fact that the other Central Banks globally have dug themselves as deep.
I agree, save one little thing. It is my understanding that Powell wishes to be re-appointed to his present job. I think the question of his re-appointment is February, 2022.
Can confirm, friend of mine owns construction company and got 400k in PPP loans. He didnt need the money and told me business was never better than during the pandemic, in his own opinion was a gift. He bought real estate with it. The hysteria and overreaction over the covid been beyond imagination.
Construction was the industry that got the most PPP loans, 13% of total dollar amounts.
“PPP loans”
______________________
Were they loans or gifts?
Never conflate the two less you be accused of FED speak. A horrible accusation.
They were loans. Interest would accrue after a certain period. But the borrower could apply for loan forgiveness after a period. If granted, the PPP Loan was forgiven and thus turned into a gift, as you said. This gift part, when it kicked in, is where the government funds were used to pay back the banks.
I thought using the PPP for other than payroll was illegal.
No?
It is, but the administration and enforcement are written in a way that makes it very easy to pocket the cash.
You can’t pocket the money they give you, but you can pocket the money you didn’t spend on payroll because PPP picked up the tab. So same thing.
guys – that isnt the way it works. let’s say a business took out a PPP loan for 400K, which was based on their payroll expenses. so they for the following months they paid out 400K in salaries and then qualified for the loan to be forgiven. so they essentially “used” the money to pay for salaries.
but if that business is still generating revenues at the same level and with the same profit margins then that 400K was money they would have paid out anyway. so it is essentially double payment for salaries – from the business and from the government loan.
there was no requirement from businesses to prove that they had lost any revenues in the first PPP.
while some businesses that lost money during COVID might have used the money to just pay employees and keep them on payroll and survive, in many cases, the money was just free money to the business owners.
stupid is as stupid does. US government is the land of the incredibly stupid and our poor kids will get stuck with the bill. but the kids bear some blame because they are so fixated on identity issues that they wont spend the time to understand that they are getting screwed by older generations. where are the protests from young people about the debt burden they will inherit? why do the young people overwhelmingly vote for economically liberal politicians who are wracking up the debt?
Candidate in CA 50 last election took a PPP on his business the next day loaned his campaign fund the same amount. Took out vicious attack ads on his opponent and won. Same guy who bankrolled the first Governors recall election by the way. This guy was head of house ethics for a time.
I have a number of friends in various businesses – dental office/construction/janitorial / and everyone has the same story – business boomed during pandemic and they used their ppp money for the purchase of third or fourth beach/mountain houses-added to their vrbo rental properties – purchased more luxury items ( 3 got Tesla’s) –
Random
Yes, correct. Only in a devastated business like the airlines, wherein the revenues were cut 50-70% did these PPP make sense. If your were an LTL trucking company, you could simply pocket the cash because no material affect on revenues.
You could use a percentage (I think 25%) on rent and utilities. But of course, money is fungible. So if you didn’t lose revenue, it was extra money.
You could use for select other payroll BUT those funds were not forgivable
Politicians telling businesses that it was only for payroll was the “vote buying” part of it. Of course it is unenforceable!
More smoke and mirrors…
In Congress’ defense (and I don’t do that often), they probably didn’t think that people were going to take the opportunity to go to splurge on boats, home renovations, jewelry, fancy cars, and all sorts of other things. They thought people would tighten their belts and reduce spending, and the PPP loans to construction companies would keep people employed rather than using it as an excuse to do layoffs.
Extremely generous of you to think that way RightNYer ;)
Haha, I mean, in previous recessions, everyone, from the top to the bottom of the wealth scale, reduced their spending, and drastically.
This is the first “recession” I’ve ever seen where the government dumped trillions into the economy such that people splurged on luxuries.
Congress either didn’t think about the likely results of throwing $5 trillion into the air or intentionally wanted to cause a national spending spree. I’m not certain which of these explanations is worse for the country.
Confused, I’m referring to the initial stimulus from the CARES Act, in March of 2020. I’m on record saying that the other $3 trillion, the December 2020 and March 2021 bills, were outrageous and inexcusable.
Get ready for negative rates, for next round!
Rates already are negative effectively due to inflation?
Not, once they see the market is loosing steam, then they will bring more fuel for the fire. If the hand outs are not enough then the negative rates will be next step, they experimented it in Europe and Japan, so they now how to use it to inflate the Home prices more and makes it hard to create a house hold, as Wolf said.
You’re way off the mark here. Real rates are negative, this is all that matters. The Fed has a reverse repo facility and now a standing repo facility to ensure control over the short end of the yield curve/prevent it from going negative.
as long as inflation remains high, the Fed will be unable to do anything to prop up the markets.
Wolf has talked about how the Treasury balances were used for the past 6 months to pay for deficit spending. once the debt ceiling is raised, then the Treasury needs to sell a ton of debt and the Fed cannot raise purchases or risk more inflation.
right now, interest rates are being repressed by a lack of supply from the Treasury due to the debt ceiling. remove that ceiling and the supply spigot will be turned on, and interest rates will adjust really quickly.
notice that interest rates are putting in a bottom right now. the uncertainty of the debt ceiling issue will keep interest rates low.
once the Treasury is able to issue more Treasuries, it will also draw money from the equities bubble, as stock prices get discounted with a higher interest rate in the denominator.
You could be right, but for some reason people say Fed is opposed to it. The way I see it they can still work on the long end of the curve and take that down to sub 1%.
Although a 2 x 4 x 8″ stud is not likely to be found in the CPI it is as common as eggs and butter and is now at 3.98 as compared to 9.98 about 2-3 months ago.
Housing prices are starting to lower in the states I have been watching (Idaho, Tennessee, & Texas). It seems there is some impact on prices for the good due to stimulus ending…..
Nothing seems to follow any pattern except that every day is a new world….
I see the possibility that any stimulus will only create inflation to the extreme again and as a retiree that is scary. My hope is I will get to benefit from those in construction who have been charging and getting insane prices. Being a general contractor I never pay retail and soon I think it will be the right time to take my refi money to get work done like I had to do cheap when times got tough.
These turgid waters are making for atypical behavior that is getting harder to predict.
a lack of supply means that housing prices in my area are as high as ever. I think the housing prices will turn down in less desireable areas first, and then feed their way to the more desireable areas.
it really is a very big bubble, ready to pop.
get ready for powell to make excuses about how they didnt see this coming.
But per Wolf’s podcast, if there is still tons of liquidity in the economy, won’t that continue to prop up asset prices at least for a while longer?
What would precipitate a flight away from assets and into cash if everyone is awash in cash already?
As credit is paid back “money” is destroyed.
Credit issuance is down.
Sky high still where I am too, although supply has started to very gradually recover. Just this past weekend(8/21), a realtor friend in Clearwater FL sold one of her local listings for $100k over asking, cash. I will let u know when I hear our real estate bubble burst. For now, it’s all champagne bottle popping for my friend.
Where I live, housing prices seem to have risen noticeably in areas I consider some of the least desirable. Not slums but not where most people want to live.
If these people now have noticeable equity, it will enable them to move to more desirable areas, if they can qualify.
This is just shameful. We have the worst politicians in history.
DP
“We have the worst politicians in history.”
and….
the worst Fed people….they care not for the citizens….promote inflation..
what of the working families of this nation??
they pretend zero rates spur employment as we have zero rates and record job openings….which may actually point to the opposite reaction to zero rates.
Regarding:
what of the working families of this nation??
Those in influence are so far removed from people who actually work for a living they cannot begin to understand workers reality and struggle to prosper. Or their families.
For those like Krugman or Stephen Moore, workers are an abstract.
For politicians we can’t name here, they are dupes to be fleeced.
And now many people no longer even read, much less consider alternatives or issues. Add in ‘too busy’, Delta, personal debt, culture divisions, it’s easy enough to sympathise with the young couple hunched over their phones while their kids spill syrup at IHOP. Distractions save lives….for a while.
I read this morning that Laureen Boebert, self proclaimed champion of the common Colorado man, her husband raked in 1 million these past two years through her company….courtesy of a Texas energy company she helps oversee on committee. And railing against the FED is shelved by media just to the right of mask and vaccine protest articles.
I think this sucker is going down. Most readers say that on WS, but inflation is relentless despite ignoring it. Add in supply and transport interruptions, crop failing climate change, a pandemic, and distracted leadership…..we’re screwed.
I wish people would stop expecting the fed to care about them. The fed’s mandate is to take care of their member banks, not the people.
we need massive reform of the financial system, but not the kind proposed by the “squad” and the liberals. we need reforms that bring back solid monetary principles where money actually means something.
That’s too much to ask, gametv. It means people would have to be responsible, delay gratification and make sacrifices again. That kind of lifestyle, even if it means greater stability and wealth in the long-run, clearly cannot be accepted by our society.
Yes, but J. Powell tells us healthy banks helps us little people. How are we going to finance our ride or our I-phone without healthy banks?
Petunia,
Thank you. Your comments are always well thought out. I may not always agree with them, but I respect them.
The Federal Reserve is a private bank, doing exactly what it is supposed to do. It is not Republican or Democrat.
Stop acting like the Federal Reserve Bank, part of the United States government, it isn’t.
It is time for you people to “get woke, fo’ real.”
TYPO ALERT
“Stop acting like the Federal Reserve Bank, part of the United States government, it isn’t.”
Should read–
People, stop acting like the Federal Reserve Bank is part of the United States government, it isn’t.
The Federal Reserve Bank is an agency of the U.S. government. Its chairman is appointed by the President and confirmed by the Senate. It answers to Congress, no one else. If Congress is abdicating its responsibilities, that’s another issue.
Because we got also the worst voters in history.
Menticide A Killing of the Mind
We have the government we deserve.
Lifted from the best essay I’ve read this year “Farewell to Bourgeois Kings”
“The bell has well and truly tolled for mankind’s belief in their ability to do anything else than enrich themselves and ruin things for everyone else. “
Im curious as to what extent the new foriegn repurchase facility mechanism will dump more dollars into US markets and real estate. Overseas commercial banks that qualify now dont have to sell their t-bills. They can be leveraged for cash inflows. Will this negate US reverse-repo facility efforts to remove some cash from the system?
The fed took over the repo market, now they are aiming for the fx market, the biggest in the world.
Crypto is the biggest. Even tiny El Salvador is a player. Some irony there.
Ambrose,
Crypto is nothing in the fx market.
Petunia, there is no fx, after crypto
Petunia – Interesting thought.
The logistics and mechanics of such an undertaking would be complicated and challenging at best though. Would likely require the coordination of every other G20 central bank as well.
Fluffy,
When they weren’t repo’ing treasuries for USD and expanding their FX swaps with the ECB, it might have been seen as far fetched. But now they are the main source of USD in the Eurozone, and that’s a big slice of the FX market.
I expect the rest will want to come to the party too.
There isn’t much we can do but except call Senators Manchin & Sinema’s offices expressing grave concern over inflation, and tying it specifically to misguided monetary policy coming top-down from Powell, Brainard & their fellow doves.
I’ve done it a couple of times; their offices don’t check if you’re from West Virginia or Arizona. One person won’t make a difference, but if everyone here joins in, it will. I’m normally apathetic about politics but this has been the most painful burst of inflation in my lifetime, yet the Biden admin & FOMC remain completely tone-deaf.
Manchin: WV 304-342-5855 / DC 202-224-3954
Sinema: AZ (602) 598-7327 / DC (202) 224-4521
Their office staff will take down your message & forward it to the senators, likely in aggregated form (i.e. with similar messages grouped together, but weighted by frequency – which is why more calls are crucial.)
As soon as a home is listed in my neighborhood, it is usually under contract within two weeks. The money supply increased.
This year I bought two vacant lots as a hedge against inflation. I avoided flood zone property. Rental vacancies decreased in the last govt. report.
I remember a high school teacher talking about the Weimar Republic and hyperinflation. The money supply increased.
Balancing the budget might lessen the threat of inflation.
When r the chickens coming home to roost??
Its been 30+ years for Japan…
Japan has not been engaged in overseas adventures and they certainly have a higher social cohesion. Japan is our best scenario.
awesome question- I love wolf and have been following for a couple of years – learned a lot from wolf and posters – I agree with the sentiment that the markets are insane- meanwhile my son has had his portfolio increase over 7 figures in the last 5 years – me not so much – he is all about hi-tech and some crypto – so there is that !
The top may be in because I tried to purchase two stocks today to lower my risk of QE forever. I wasn’t successful as they both were up today. I was 97% in cash so tried to get that down to about 90%.
One was a big gold miner that pays a 2% plus dividend. Second was on-line Pet Pharma that has no debt and pays 4.5% dividend.
Fed ought be happy that they are making holding cash so painful. Holding cash is the new short.
Look a kinder morgan
Similar situation here. Real estate here has been on fire for the past two years, meaning realtors are swamped. A nice parcel sat on the market with no takers, reason being the for sale sign had fallen over and was overgrown with weeds. Called the agent and offered 75% of asking price, stipulating I wouldn’t go a dime higher. Property owner accepted and we passed papers a month later. In normal times the agent would have driven around checking the for sale signs, or the owner would have noticed the missing sign, but lives away.
To quote you “…no one has ever seen an artificially pumped up monster like this before. No one has any historical guidelines on how to deal with it. The FED will trim back it’s stimulus but it’s already too late…”
great reporting. Enjoyable and quick audio. Amazing ending. This beast has left the station and is making it’s own path. We are in un charted territory. Best case is well honestly thinking about it I don’t even know how this can turn out alright for the average American at this point. Hold on we are not in Kansas anymore
The current extent of massive easy money stimulation to the economy (by QE etc.) may be unique, but not unprecedented. After WW1, the strategy of American oligarchs (dominated by J.P. Morgan) was to replace UK as the world financial imperium (enabling US military and industrial hegemony). To do this, having accumulated a dominant share on world monetary gold, American oligarchs tried to force global return to the gold standard with New York being the center of the system. What ensued was a Ponzi scheme of unsecured American oligarch loans to European countries (to balloon profits and establish control of world finance). From 1924 to 1931 a total of $40 billion in loans and costs of war had flowed into Europe.
When the American oligarch’s Ponzi loan scheme started to collapse, Benjamin Strong (J.P. Morgan banker and President of the Federal Reserve) implemented easy money policies (e.g., 1927 rate cut), to stabilize the British pound and prevent UK default and going off the gold standard (which eventually had domino effect on other countries). Few voices opposed Strong’s policies when they appeared to create unbounded prosperity, rising incomes, booming stock prices and economic growth.
“America’s conspicuous consumption during the ‘Roaring Twenties’ was based on an illusion of rising household wealth for the majority of its citizens. This severely distorted, debt-driven consumption created the nation’s illusory wealth… by 1929 fully 60% of all cars and 80% of home radios were bought on installment credit. People bought on credit as most Americans earned a comparatively low income during the 1920s. (Gods of Money, p. 106). Kindle Edition.
drift-“…everything old is new, again…or perhaps never changed at all…”
may we all find a better day.
Wolf,
Look what Ed Yardeni says about markets. He discuss about market that earnings will continue to grow, fundamentals will drive markets higher.
What fundamentals he talks about, can anyone explain?
He is talking his book.
The fake ones from excessive government spending and FRB “printing”.
If someone is ignorant or dishonest enough to pretend both are real, it’s easy enough to believe the fundamentals look great.
FED is a criminal enterprise
Congress is complicit. They should hold the Fed to its mandates, but instead feast on the free money.
Quis custodiet ipsos custodes?
Who watches the watchers?
Yes it is. As soon as Powell, the first time, he conceded that the inflation is a bit high, Bloomberg reported that a real estate investment company called a realtor ( Assuming they use exclusively) and said get rid of 35 properties. Then Powell recovered next time around and come up with NON-SENSE EXCUSES and a new explanation “TRANSITORY” and then back again commenting it’s just temporary. Seems like get rid of pumped-up over inflated properties before he’ll raise the rates and most likely very fast like trigger happy like B.Bernanke did, BTW, Granted bad loan programs back then, Bernanke help the first real estate MELTDOWN by trapping tons of teaser rates. 2022 we’ll see Powell destroy the economy once his elite friends and his own interest DUMP their trillions of over valued properties.
5 trillion borrow by the government and 4 trillion printed by the fed.
If instead of making up programs on top of programs on top of programs, all with their own shortcomings and administrative costs that turned the economy into a best-at-filing-paperwork-for-government-benefits-wins frenzy, we could have written a check to every person in the US (including children) for $27,000.
Sometimes I think of how much better the this place would look if we took that approach.
This did happen somewhat, through the stimulus checks.
Is the stimulus really flowing thru the economy? I have my doubts. It seems to have mostly flowed into the hands of the wealthy.
Working people and savers, along with the 25% of pensioners who try to get by on less than $1,000 month, are being screwed.
Instead of using reverse repos to mop up a trillion dollars every day, maybe the government should tax back from the wealthy the money that they don’t know what to do with?
you do know that you live in the USA right? “Tax back from the wealthy” you some sort of commie boy?
These comments are really annoying. He’s not a “commie” for suggesting that the wealthy pay their fair share. Why are you so adamant that the rich get all the advantages and just keep getting to take advantage of the system more than everyone else!? If the rich were paying anything close to an equal share or corporations were also I would not be saying to do this but people like you just completely ignore the fact that the contributions of corporations and the rich has drastically gone down over the last 50 years. We’re not asking to “loot the rich”. Let me ask you this…. if corporations and the rich had a 5% tax rate would you still feel this way? No!? Well why do you now!? It’s not as extreme as this but everything is stacked in their favor and they have gotten steadily more advantages over the last decades! They should be taxed much more than they are and loopholes eliminated! The corporate rate should be a minimum 15% on revenue no matter what and maybe 30% regular rate. Or make some ratios so that they can’t pay the executives any more than some multiple of the average salaries, maybe can only spend as much on buybacks as they do on raises for the bottom half or something. We need to have them pay their share also and that a perfectly reasonable thing to do! Yeah, it might knock the stock market down 50%, so what!? After that it will be better all around and we would actually have money for real things to make all our lives better.
BatHelix,
I read topcat’s comment as sarcasm.
The rich already pay a disproportionate share of the income taxes.
To provide an indication what an awful economic arrangement US citizenship and residency is for the really wealthy, years ago I read that Switzerland offered private tax treaties for a flat payment of 50,000 CHF per year.
Why do or did they do it? Because they make approximately a 100% marginal profit each time. Where else can a “low cost” provider make essentially a 100% margin yet undercut the competition by over 99%?
The idea that citizenship is an extension of family is fiction. That’s the basis of the social welfare state implied in your comments. It’s bogus kinship.
The majority of the citizenry is required to place the purported welfare of complete strangers over their true family while the government substantially wastes economic resources and the beneficiaries of these programs aren’t accountable to anyone.
The sentiments expressed in your comments may mostly work in a relatively homogenous society (like a Denmark or Switzerland where the population is somewhat close to the city I live) where there is a sense of civic duty and accountability. This doesn’t remotely exist in the United States, especially with the federal government in charge of anything. It’s a divided Balkanized society where the divisions are only getting worse.
yes, pure sarcasm. Taxing the rich is an excellent aim.
Mr. Frost-i haven’t found a sense of ‘family’ from the ‘American’ oligarchy since they sent me to SE Asia to keep their money machines safely running at home. With the development of the slaughterbots, they will soon no longer have to deal with the inconvenience of who they’ll get to do their fighting for them, either.
may we all find a better day.
If I read that wrong I apologize topcat, those suspenders / bowtie wearing types like on CNBC that keep espousing this nonsense about capitalism solving everything just are tiring and I see it so often. If we had a truly capitalistic system maybe they would have a point but things are still more complicated in reality anyway…but we don’t, we have a system that has steadily given every advantage away to the rich and corporations.
It’s like the people that would say don’t do this or that because it would send the stock market down. They never ask if the stock market deserves to be where it is in the first place. If the Republicans cut taxes by 50% and let corporations do anything they want well guess what..the stock market will go up…. but then the Democrats have to be the adults in the room and do the harder, responsible things. It’s like taking the heroin away from the 8th grade party…sure it will stop the fun but it’s the right thing to do and necessary for everyone’s well being. We’ve just let everything get so out of control because we just keep giving everyone things they want without the responsibilities that should be tied to it… goes for both parties there just in different aspects.
You willing to give up half your pension also
Masked Ghost,
Well, ultimately, all stimulus ends up with the wealthy. If you get $1,000 stimulus check and spend it, it starts making its journey toward the asset holders.
THIS is what is broken in the system as a whole.
Money is supposed to circulate, be spent, and spent again, making everyone properous through trading the goods and services they produce. It’s not meant to be siphoned into the pockets of a few, who then buy everything up and make life miserable for everyone else.
Land monopoly is not only monopoly, but it is by far the greatest of monopolies; it is a perpetual monopoly, and it is the mother of all other forms of monopoly. – Winston Churchill
Landlords grow rich in their sleep without working, risking or economizing. The increase in the value of land, arising as it does from the efforts of an entire community, should belong to the community and not to the individual who might hold title. – John Stuart Mill
The annual produce of the land and labour of the society, the real wealth and revenue of the great body of the people, might be the same after such a tax as before. Ground-rents and the ordinary rent of land are, therefore, perhaps, the species of revenue which can best bear to have a peculiar tax imposed upon them. – Adam Smith – Wealth of Nations
Search out every problem, look into these questions thoroughly, and the more thoroughly you look into them you will find that the land is at the root of most of them. – David Lloyd George
So the question is, which are the least bad taxes? In my opinion the least bad tax is the property tax on the unimproved value of land, the Henry George argument of many, many years ago. – Milton Friedman
Men like Henry George are rare unfortunately. One cannot imagine a more beautiful combination of intellectual keenness, artistic form and fervent love of justice – Albert Einstein
—
However I believe from others who post here that Adam Smith, Churchill, Friedman and Einstein are wrong. In spite of nearly every single poster thinking they generally agree with Friedman and Smith. I’m sure they are classical liberals and that the founding fathers would, could they hear the amazing reasoning on here, discard Adam Smith and have a few here critique the constitution prior to signing it!
The problem with that idea is that increased taxes will not be used to pay down the debt, it will just be used to create more government programs that enslave the people to the government. We are creating a marxist/socialist country very quickly.
We first need a balanced budget amendment and to force cuts to every government program.
You dont reward a bad kid by giving them more things. You take away their toys. Take away the ability to spend from the politicians and that is the way to punish them.
You could cut 50% of the Federal Government here in the Swamp and no one would bat an eyelash. This is what we should be talking about. Not more taxes and spending.
I disagree. I would prefer just a flat tax with no charitable donations and hedge fund carry exemption. Rich can get around taxes with 70,000 page tax code.
Until the attorneys for the special interest lobbyists stop writing the laws, we’ll get more of the same.
CPI increases are being driven my energy, food and used vehicles. I would argue that all of these things are much cheaper in the US than anywhere else in the industrialised world. Perhaps there is just going to be a rebalancing such that the unreasonably low cost of these things in the USA comes to an end.
Who has the cheapest food in the world?
compared to other countries, there’s no other place on the planet that has cheaper food than the U.S. The 5.5% of disposable income that Americans spend on food at home is less than half the amount of income spent by Germans (11.4%), the French (13.6%), the Italians (14.4%), and less than one-third the amount of income …18.04.2012
In 2010, Americans spent on food slightly more than 9 percent of their income (5.5 for home food and 3.9 percent for the rest). This is the lowest percentage in recent decades, in the early 1960s this figure was slightly more than 17 percent, in 1930 it was 24 percent.
Yeah, but how much of that is the fact that Americans are content to eat a lot more crap than Europeans?
I could eat very cheaply if I lived off bulk bought Hot Pockets, Bagel Bites, processed cheese, and such.
Love me some Hot Pockets!
I don’t believe your stats for a minute. Food is our second biggest expense every month and a lot more that 5%, multiples actually.
Also, I think Wolf left out the increases to SNAP benefits. They just got two increases this month, one $375 emergency one time payment, and a $36 a month increase. I don’t know if these increases are per person or per household, but long overdue.
Biden admin put on a 25% increase in benefits.
“On average, SNAP recipients will see their monthly benefits increase from an average of $121 per person to $157 per person.”
$157! That’s a lot hot pockets!!
re: “… compared to other countries, there’s no other place on the planet that has cheaper food than the U.S.”
Maybe not for long. The western drought will ‘fix’ this; California provides 30% of the country’s fresh fruits and vegetables, and upwards of 90% of nuts (almonds, walnuts, pistachios, etc.). No water means no crops, so scarcity followed by inflated prices is very likely. Also, much of the nation’s beef and dairy comes from California, and the alfalfa feed is very thirsty (ranchers are already drawing down their herds).
Yes, this is what I was referring to. Cheap food in the USA is basically the result of massive over-exploitation of resources like water and soil, the use of pesticides and roundup-resistant GMOs, terrible animal welfare and cheap illegal Mexican workers. This has been the case for maybe 40 years, but perhaps the game is over.
This is misleading as you only use food consumed at home:
In 2020, U.S. consumers spent an average of 8.6 percent of their disposable personal income on food—divided between food at home (5.0 percent) and food away from home (3.6 percent).
Germans spend 13.8% on. food, beverages, and tobacco, (I couldn’t find just food)
-This doesn’t take into account quality either as RightNYer referenced
Germans spend 4% on healthcare while US spends 7.4%
Germans spend .8% on education while US spends 2.5%
Germans spend 13.6% on transportation US spends about 16%
The point i’m trying to make is you can pick and choose certain statistics to validate your point but it does not tell the whole story. For example, Germans work less hours on average as well which affects disposable income etc.
With 60% of Americans overweight, and 25% morbedly so, maybe spending a little less on food would be a good thing.
It may be an unprecedented time in the financial realm, but we have a good idea of how it’s going to be for Joe average: the 1930s all over.
It’s not a good time to let oneself be spoiled and more dependant on the government, best not to be loaded with debt. I suspect there may be a time when assets freeze in bank accounts unexpectedly even if money is worth nothing. Just saying, it can happen. Who are you going to call, Jamie Dimond personally?
As we have seen already with supply chains, many things may not be available even if we have the means to pay. I don’t want to be caught needing essential tools, materials, and non-perishable items or paying exorbitant prices when things may be acquired now, just in case.
I don’t know, but some precious metal might not be bad to have. Silver has come down a bit in premium cost. You can buy oz silver Britannias, maple leafs, rounds, etc for under $30 at the moment. Maybe not too much downside for your cash, maybe some good upside if inflation pounds the paper too bad.
Intensities in tent cities.
The politicians have completely ignored the tent cities which are a direct result of the rapacious greed of the FED and their cronies.
We’re making new highs and that is always a reason to make more new highs
These graphs from Fred tell an interesting story:
M1 money supply:
https://fred.stlouisfed.org/series/M1NS
M1 money velocity:
https://fred.stlouisfed.org/series/M1V
Huge amount of M1 increase. Velocity going to zilch. They tell a story of huge amount of money being held as wealth, not being spent.
I doubt the shoppers at Walmart are getting any of this money.
The Fed has some puzzling excuse about “bank regulation change” to explain the strangeness. I don’t buy it.
Looks very scary to me.
Ralph Hiesey,
The “velocity” chart has become meaningless over the decades, as you can tell by looking at it. Its methodology is outdated. Too many things in payment technologies have changed over the past two decades. It needs to be retired for good. It says NOTHING about consumer or corporate spending — zero, nada, zilch. People need to quit posting it. It’s a dead chart.
Hi Wolf:
I know a lot of people on the web are confused by the meaning of velocity. Here’s why I believe it is useful and informative
Of course its definition is GDP divided by total money stock.
Assuming total money has some reasonable meaning, then it just represents the average rate at which each dollar produces GDP.
Essentially it tells us whether money is being used mainly for useful GDP producing transactions compared to money being held purely as a way of storing wealth, not being transacted.
Low velocity tells us that a huge amount of money is just being stored, unused except as wealth. It shows us that cash the Fed has added has gone mainly to places where questionable bonds used to be that were held as someone’s perceived wealth.
When the Fed buys a bond with magic money from someone who is relieved that someone will pay him for his trashy bond, that money is likely to be held in substitute for the formerly even more questionable value, that adds non transactional money held only as wealth which reduces that person’s money velocity.
The reason velocity is useful is that it shows that MOST of the money the Fed has added is not being used for spending–it mainly taken the place of a lot of trashy paper that the Fed has purchased to prevent widespread market panic to sell the trashy stuff. Which explains why we’ve had to little inflation since 2010 despite all the money printing.
The Fed seems to be doing this because if many people started to simultaneously panic about their rotten wealth, there could be a huge movement to sell a lot of trashy paper, which, let’s say, would make the Fed and others quite panicky! But they are now putting their finger in the hole in the dike, in a terrible trap where they can’t stop…and when they do, watch out!
One of your best pod-casts Mr. Richter!
What a mess!!
I cannot contribute to any “solutions” because all the decent, logical, and usable economic parameters have been violated.
And, the country seems to be very divided between civil issues that also seem unsolvable…..possibly coupled with the financial mess leading to much more violence.
Seems to me, we have a trifurcated world today vs bifurcated previously…
IMHO, I think the top 10% own the bottom 60%. The middle 30% will be able to do reasonably well…
It’s all about equity…
The bottom for the most part has had their equity in everything stolen from them or they gave it away gladly “ chasing the dream”…
The financial sector has been stealing in plain sight since the S&L debacle, the Carter Admin (I think) allowing IBM to use their protected pension money for operations, Reagans garbage with tax cuts and putting govt employees pension in the financial markets, Jack Welch burning GE in hell, leasing cars to buy a payment, on and on and on… don’t really feel sorry for a whole bunch of them…if you spent as much time learning how the world really works instead of watching cat videos, and adjusting your behavior appropriately, you might not be where you are today…however, most I see don’t want help or advice, they want a handout… one of my many sayings is that when you give someone who knows how to handle money, it gets used… when you give someone poor a bunch of money, it gets spent… and then it’s gone…exactly what the Fed wants because they know this group of people will not use the money (i.e.,to build wealth or equity) but spend it instead… generating more equity for the top… and here we are…
My view… others opinions are welcome… I am here to learn…
In defense of Reagan, who I seldom defend, his administration introduced the Thrift Savings Plan, a 401(k) for government employees. For the employees at that time, there was no matching but still it was a pretty good deal. Matching came along later. There were several investment vehicles available, including the C Fund, which is the S&P 500 index. There was also the F Fund, bonds, the I Fund, international stocks, the S Fund, small companies, and the G Fund, short-term government securities. The G Fund would not have kept pace with inflation. Some employees did very well and became millionaires with their investments. This, the TSP, was also to encourage employees to fund their own retirements, thereby saving taxpayer money. I did well, even with no matching and even though there were years that I did not contribute. I invested mainly in the C Fund. I did not try to time the market, but others did.
if you give a poor person money they spend it all because they have to. This is just a grown up version of the marshmallow child test.
That’s not always true. There are some poor people that are tight as a church mouse and still squirrel away 10% of their earnings. It’s mainly depends on what you were taught growing up
And then there are poor people who took their stimulus checks and immediately splurged on new TVs or iPhones. It’s really bizarre.
Reference Wolf’s PPP and employment datas…
A couple of local anecdotes ( hi georgist ! )…
Local 3rd gen roofing contractor copped 2 mil PPP…bought a million $ house and a 700k catamaran… used fake employees… got caught and now has a 3 year vacation at Club Fed in AL…
Saw a commercial a few weeks ago… local HVAC company advertising for employees… experienced or WILL train you… I wish I could remember who it was to call and find out how it worked out… will train you, seriously… that’s usually a tech school grad, 60k a year job down here…
The ones who didn’t need the loans and didn’t need to “fake employees” did the same thing, and that was perfectly “legal.” Tell me how that’s fair?
Anecdotes are fine when used appropriately.
Appropriate – you have something you want to share that adds colour to the post Wolf wrote.
Inappropriate – Wolf writes 5 pages on house prices being insane, complete with graphs, someone writes that it’s all wrong because his son/brother/cousin bought a house (no region, no clue if they got parental money, no year, no clue), so it can be done etc.
It’s a combination of college level common sense and high school math. Your anecdote was appropriate.
The more I contemplate all of this, the more I am disgusted by the PPP “loans” (gifts). Almost a trillion dollars of free money to the very people who least needed it, and under the guise of saving jobs when there is no evidence they even did that. I am hearing more and more anecdotal stories of this money going into new trucks, boats, real estate, etc. Sickening.
That shows you the power of business lobbies. If you aren’t at the table, you get scraps. Workers aren’t represented at the table when decisions are made. They are told wonderful stories at election time.
Absolutely true, there, Bobber… nobody, but, nobody, busted the a$$ of the Midwestern teamsters retirement fund… these clowns ran the fund insolvent and tried to cry the govt for bailout or they were going to dump it on the PBGC… IIRC, UPS, the box toters, had to pony up $3.2 billion to bail out the UPS portion or their worker would get peanuts or less…
Delta Airlines declared BK, quit paying the pension obligations, put that money into the restructuring, then dumped the retirement obligations on the PBGC… retirees got 1/3 of promised….
CNBC calls these people great business minds for creating “ shareholder and worker value” …I call them thugs and criminals…
And all the rent payments that couldn’t be made were really bank and landlord bailouts.
Can’t pay the rent? Then the landlord can’t pay the bank. Pretty soon some rich guy is going to be missing out!
Great podcast!
S&P 10K, here we come!!!
I’d like the asset markets to show their real valuations but I believe this is not going to happen.
We should take any misconception if there is any in our mind that FED cares about normal Joe.
The valuations are super high and can remains high for decades to come.
FED is not going to do any significant tapering or hike rates which would impact asset markets in any adverse ways.
We don’t have any control in all of the above but we should think how can we make money during these crazy times.
Dow 50k by the midterm elections.
The Fed has a reverse repo facility and now a standing repo facility to ensure control over the short end of the yield curve/prevent it from going negative.
They have already bought Corporate bonds besides on going purchase MBSs & Treasuries. Yellen is already on record saying that in times of crisis, the Fed should be allowed to buy Stocks via ETFs just like what BOJ has done.
The Standing Repo Facility (SRF) is the stand by instrument where Fed can keep buting equity assets after creating money out of thin air, guranteed! Who is object for this? Congress? regulators? Wall St? investors? Tax payers -bottom 90% have become irrelevant.
This is oneof the main reasons, those waiting for bear, may be dissapointed. We are in surreal global financial world, stranger thasn Alice’s wonderland!
Fed is the Market and nothing else matters!
I work in tech and I’m seeing some really crazy stuff on wage demands (I am also responsible for regional hiring).
The wage demands in India, Canada and the USA in tech are really going up. Recruiter activity is way up (contacts on linkedin). CV activity is way down (job applications). Resignations are pretty high (turnover up). In India people we hire don’t even show up on the start date as they found other higher paying jobs between the offer and the start date.
This is just anecdata, but given my position I see quite a broad sample across a few continents, albeit only one sector.
I am generally leaning towards deflation, however it’s clear there are big shortages in the labour market. And none of these people are sat on stimulus checks as they are all too well paid to be arbitraging their wages vs stimmy. So the coming benefit cuts won’t effect this imbalance in any way.
Interesting time to be in tech.
“The Fed will trim back its stimulus, but it’s already too late, and it’ll be too little and too slow.”
For who? The Fed could very well invite and enjoy this inflation and therefore and most likely intentionally drag their feet to address it.