The Most Monstrously Overstimulated Economy & Markets Ever

The Fed will trim back its stimulus, but it’s already too late, and it’ll be too little and too slow.

By Wolf Richter. This is the transcript of my podcast of last Sunday, THE WOLF STREET REPORT.

It’s mind-boggling just how many layers of stimulus were thrown out there, one layer on top of the other, $5 trillion by the federal government and $4 trillion by the Federal Reserve, all of it with follow-on effect as the trillions of dollars ricochet through the economy and the financial markets. And some of it hasn’t circulated yet and is just sitting there for now, such as some of the money sent to states and municipalities that are now floating in cash and that have redone their budgets, and they’re going to spend it eventually.

There were the many billions of dollars that big companies received. The airlines alone got around $50 billion, much of it in grants. They were supposed to use this money to keep their employees on the payroll, and they couldn’t do layoffs if they wanted to keep this money. So they offered big buyout packages to their employees, and lots of employees took that money and ran. Those were counted as voluntary departures and not as layoffs, and those folks went out and spent some of this money, and it flooded into the economy, and now the airlines are struggling to hire back employees, and they have lots of open positions.

Then there were the PPP loans. They’re forgivable, if you follow the rules, and so these loans would turn into grants, and this money was supposed to be for small companies, but even large chain restaurants and other large companies with good bank connections got their hands on it, and then smaller companies got their hands on it, and then everyone got their hands on it. Politicians and their families got it, the self-employed working from home got it, foreign fraudsters got it, everyone got it.

Some small fintech outfits started specializing in processing PPP loans, and they advertised everywhere, from NPR on down, and even on my humble site WOLFSTREET.com those ads started being served up by the ad exchanges. These fintechs developed an automated process, gave out a huge amount of money, these tiny outfits, and they didn’t really care who they gave this money to.

And some of this money was used to keep employees on the payroll, and it kept some companies alive.

But some brave economists have checked into the matter and found that the PPP loans didn’t in fact save many jobs and that the money was often handed to businesses that would have been OK without them.

In total, about $800 billion dollars in PPP loans were handed out, in three waves. That’s a huge amount of money. And like all these hastily engineered free-money programs, it triggered a tsunami of fraud.

There were other emergency loan programs from the government for small companies and not so small companies.

Then there were massive programs for states and municipalities. And some of these programs are now being set up to fund past-due rents for people who haven’t paid rent in a year-and-a-half. The purpose is to make landlords whole.

And many of these tenants that haven’t had to pay rent due to the eviction moratoriums at the national level from the CDC and due to the state and local eviction moratoriums, well, many of these folks received  unemployment benefits, including last year the extra $600 a week from the federal government, on top of the state benefits, and this year the extra $300 a week from the federal government – a combo that caused many people to make more money and pay less in taxes than before the pandemic.

And there are the huge federal unemployment programs for gig workers and those that don’t qualify under other programs.

These weekly unemployment benefits and top-off benefits from the federal government on top of the state benefits, well, they were explicitly designed to allow people to pay rent and health care.

But then the eviction moratoriums set in, and people didn’t have to pay rent, and they were living essentially free of housing costs and getting the extra unemployment benefits, and suddenly they had a lot more money to spend on cars and consumer electronics and all kinds of other stuff than they had before.

And they used some of this money to pay down their credit cards, and they used some of the money to catch up with their auto loans, and they spent a lot of it, and they contributed to the historic spike in retail sales and consumer spending on durable goods and non-durable goods.

It was, and still is, a huge massive gravy train, and now the back-rents are going to get paid by taxpayers to make landlords whole and to get tenants off the hook, after they’d spent their state unemployment money and the federal top-off benefits on other stuff.

In addition, the unemployment benefits came with tax benefits and in many cases with free health insurance through special programs under Obamacare.

Then there are the forbearance programs. At one point, over 5 million households put their mortgage into a forbearance program where they didn’t have to make payments, and those programs were extended and re-extended, with the support from the government-sponsored enterprises, such as Fannie Mae and Freddie Mac, and government agencies such as Ginnie Mae and the VA and the FHA.

And investors in mortgage-backed securities and mortgage servicers were made whole on these mortgages. And now many of these mortgages are getting modified or refinanced over longer terms and with lower rates, and payments are lower than they were before. And these people too were able to spend the money that they didn’t spend on mortgage payments on other things, even while they were getting the state and federal unemployment benefits that were designed to allow them to make mortgage payments.

And this money not spent on mortgage payments also contributed to the massive spike in retail sales.

Oh, and student loans. They were automatically enrolled in forbearance, and forbearance has been extended and re-extended, and many of these people have been working for years, and have good incomes, and didn’t lose their jobs, and could have easily made their student loan payments. But now the entire idea of ever making payments on any student loans has been written off and pooh-poohed as an absurdity.

These layers of money on top of layers of money, in form of money received from the government and in form of money not spent on rent or mortgage payments or student loan payments, could be spent on other stuff.

This came on top of all the money businesses got, from large corporations to the smallest outfits.

And all this money that wasn’t spent on debt payments and rent payments and the money that people and companies got, these huge piles of money, these trillions of dollars started circulating.

And then there was the Fed with its $4 trillion in asset purchases in 16 months. The Fed was and still is a huge relentless buyer in the markets, with the purpose of driving up housing prices and housing costs, and the prices of stocks and bonds and other kinds of speculative instruments. The purpose was to make the asset holders – meaning the people who are already wealthy – a lot wealthier.

And the asset holders booked huge gains on their bets and they too started spending some of this money, well, maybe not actually spending their gains by selling the assets, but borrowing money against their inflated assets, and then spending those borrowed funds. And they bought all kinds of stuff, from fancy houses to high-end trucks, and there was a huge boom in prices of fancy houses and high-end trucks and other stuff. And since these folks didn’t really care how much they paid, because if was just easy-come money, they sent prices rocking and rolling.

The Fed thereby, very purposefully and with utmost precision, created the biggest wealth inequality ever. It made the wealthy a lot wealthier, but people who have to work for a living suddenly have to pay a whole lot more for stuff they want to buy.

And these huge amounts of money are circulating in thick layers, and businesses are floating in it and consumers are floating in it, and state and municipal governments are floating in it.

$5 trillion in money borrowed by the government and $4 trillion printed by the Fed, plus the follow-on effects of the inflated asset prices, and historic leverage taken out against these inflated assets – and suddenly all kinds of prices are spiking as this money is trying to find a place to go, from consumer prices, to home prices, to stocks and bonds and cryptos and what not.

And there is so much cash out there that markets no longer know what to do with it, and over $1 trillion of it has been mopped up by the Fed via its reverse repo operations.

This is the most ridiculously monstrously over-stimulated economy ever, and markets have gone nuts. And prices are going nuts. This over-stimulation still continues, even as inflation pressures are bouncing through the economy, with price-spikes backing off here only to pop up there.

No one before has ever seen an artificially pumped up monster like this before. And no one has any historical guidelines on how to deal with it. The Fed will trim back its stimulus, but it’s already too late, and it will be too little and too slow.

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  160 comments for “The Most Monstrously Overstimulated Economy & Markets Ever

  1. 2banana says:

    Shortages of everything and you will pay through the nose for what little is available.

    Greatest wealth transfer in the history of mankind.

    “No one before has ever seen an artificially pumped up monster like this before. And no one has any historical guidelines on how to deal with it. The Fed will trim back its stimulus, but it’s already too late, and it will be too little and too slow.”

    • gametv says:

      Stimulus of this kind is like a junkie. There are the problems caused by the drug and then there are the problems caused by coming down off the drug. The problems with the drug are over-stimulation, but the problem coming off the stimulus will be the adjustments down off the stimulus.

      Some say that the Fed and Government continues to stimulate the economy with spending and money printing, but I think both sides will have their hands tied and the money spigot gets turned off very quickly. That will be a harsh jolt.

      Treasury yields are building a base here, despite the fact that the markets were starved of new issuance as the Treasury used the money from the general account to pay bills for the last 6 months. Once the floodgates are opened to new issuance, to the tune of at least $400 billion per month to start, there are going to be alot of Treasury auctions where prices must rise in order to get a bid.

      Watch prices go higher.

      • BatHelix says:

        Yes, I believe it is …. it’s monetary heroin and we’ve been hooked on it for a long time. The problem though is that we have an unlimited supply of it and no desire to stop unless it stops us.

        I hate investing now because I know what the fundamentals are and what “should” happen. It’s just that they have completely destroyed the game and I don’t believe they will ever stop. I can see a 70% crash or a doubling of the S&P in two years. The one thing I am completely convinced of is that they will not “do the right thing”. They are completely committed to stimulus and will continue until they would be forced to stop. I wonder what that is, at first I thought covid would expose them all because it would be real money lost but now the market doubled as I sat on the sidelines thinking it had to fall 50%.

        I just think that they will pay a little lip service at some point here and then the market will fall 10-20% and they will come back with trillions more … and they will keep doing this forever unless they can’t for some reason….that’s the key but I don’t know what that will be…. maybe inflation but we haven’t really seen as much as we would have thought and I think tech has put real downward pressure on things so we may not get the Weimar ever. We’ll see.

        • jm says:

          Exactly.

        • TheFalcon says:

          “I can see a 70% crash or a doubling of the S&P in two years. ”

          How about both.

        • Billybob says:

          How about nobody knows what’s going to happen?!?

        • DJ says:

          Euphoria taking hold now. Some tech 35 year old saying it really is different this time and buy the dip. Corrections are for boomers only apparently.

          The Fed has your back ….until it shoots you in it.

    • Outwest says:

      No. Not shortage of everything.

      Don’t hipe the moment.

      • 2banana says:

        Please enlightening us on how things go back to normal in the near future…

      • Winston says:

        “No. Not shortage of everything.”

        But for some very important stuff used in so many things these days. I know for a fact that electronics manufacturers are having huge problems with major price increases (I’ve seen a case of a 10x price increase!) for some absolutely essential components like microcontrollers and even -incredibly- common but important components like capacitors and resistors costing just pennies in very large quantities are out of stock for certain values.

        • Masked Ghost says:

          Winston wrote….:” I know for a fact that electronics manufacturers are having huge problems with major price increases (I’ve seen a case of a 10x price increase!) for some absolutely essential components like….”

          Hmmmm…..let me guess. Is it stuff made overseas? Maybe shipping all that manufacturing overseas is coming home to roost.

        • jm says:

          You can be sure the purchasing agents are putting out multiple orders, ordering many times what they need, and that when supply finally catches up, the redundant orders will be canceled, and the suppliers who ramped up to try to fill those orders will be left with excess capacity and inventories up the wazoo.

        • Winston says:

          “Is it stuff made overseas?”

          The capacitors and resistors are primarily made in mainland China. For the more complex stuff like integrated circuits which include the microcontrollers I mentioned, much inventory also comes from Taiwan and South Korea.

          “Maybe shipping all that manufacturing overseas is coming home to roost.”

          No argument there. The Chinese have proved the great truth of the old Soviet adage, “A capitalist will sell you the rope you hang him with.”

          Encouragingly, Taiwan and SK producers are planning to greatly expand production in the US of A, but the factories required to do that cost billions each and take a while to build.

        • Winston says:

          SSD = Solid Sate (Hard) Drive

          “Western Digital has confirmed that it changed the NAND flash memory in one of its most popular M.2 NVMe SSD models, the WD Blue SN550, which crippled writing speeds according to several reports, leading to a 50% performance hit.

          Even though the company didn’t reveal the reason behind the change, a possible explanation is the ongoing global semiconductor chip shortage caused by the COVID-19 pandemic, which spread to impact almost 170 industry sectors.”

        • Winston says:

          A widespread shortage of liquid oxygen linked to the latest wave of the pandemic could affect SpaceX’s launch schedule, a company executive said Aug. 24.

          Speaking on a panel at the 36th Space Symposium here, Gwynne Shotwell, president and chief operating officer of SpaceX, cited difficulties in securing supplies of liquid oxygen as one of its biggest supply chain concerns.

          “We’re actually going to be impacted this year with the lack of liquid oxygen for launch,” she said. “We certainly are going to make sure the hospitals are going to have the oxygen that they need, but for anybody who has liquid oxygen to spare, send me an email.”

          Liquid oxygen is one of the most commonly used propellants in launch vehicles. It serves as an oxidizer in combination with fuels such as liquid hydrogen, kerosene and methane.

      • Depth Charge says:

        Of course there are shortages. Don’t be a dill weed. There are shortages of autos, cell phones, computers, certain building materials and fasteners, etc.

        • Harrold says:

          Free Market will take care of shortages.

          At least, thats what the text books taught me.

        • Auldyin says:

          @DC
          UK car production for July was the worst since 1956, at 50k+ units, that’s 40% down on height of pandemic last year.
          I’m guessing USA will turn out similar and I did say 1956.

        • economicminor says:

          I learned from the Roku Great Courses about the Black Death that during the course of that Pandemic around half of the population of Europe died before it had gone thru its cycles. The consequence was a huge labor shortage and the demise of the feudal system. The feudal lords ended up competing for labor rather than having an abundance. Lots of people went into business for themselves and sold their products to others who then had money to purchase them. It was a transformative time for Europe.

    • Djreef says:

      Accountability is the life blood of capital markets and the entire economic system that drives them. Without accountability we have nothing.

      • RepubAnon says:

        Tell that to the banks – the folks who routinely make speculative investments on the principle of “The banks keep any profits, and the government bails the banks out if there are any losses.”

        Plus, there are rumors that the big boys encouraged the state governments to slow-walk government programs to pay small landlords the back rent owed by the unemployed. This puts a squeeze on the small landlords, letting the big boys pick up investment properties at bargain prices… but perhaps they’re just rumors.

      • Catxman says:

        Accountability is about giving your word and adhering to it. The banks have a “trust rating” of about 26% when polling avg. people on it. I don’t think they’ll be running for Congress any time soon (which has a polling rating approx. the same).

        • David in Texas says:

          They don’t need to run for Congress. They already own it, and run it from the shadows.

    • topcat says:

      “Greatest wealth transfer in the history of mankind.” from whom to whom?

      • California Bob says:

        From you to them.

      • Old School says:

        From savers to speculators. From the working class in US to to working class in China. From labor to capital. From honest people to crooked people. From those without a pension to those with a pension.

        • Masked Ghost says:

          Old School. Here is a quote from the classical economist Adam Smith that you may like ?

          “The labour and time of the poor is in civilised countries sacrificed to the maintaining of the rich in ease and luxury. The Landlord is maintained in idleness and luxury by the labour of his tenants. The moneyed man is supported by his extractions from the industrious merchant and the needy who are obliged to support him in ease by a return for the use of his money. But every savage has the full fruits of his own labours; there are no landlords, no usurers and no tax gatherers.”

    • Wisdom Seeker says:

      This is too much financial mismanagement and injustice. In 2021 as in 2008, it is time to take action. The whole corrupt system needs a thorough housecleaning!

      As a Consumer, I am boycotting monopolistic corporate monsters. I have a “Corporate Hall of Shame” list which includes the megabanks, Google and Amazon, and most of the media (but not Wolf Street!) at the top of a long list.

      As an Investor, I am boycotting Congress – no Treasury bonds or Money Market funds except where it cannot be helped. I am boycotting the muni bonds of state and local governments in fiscally irresponsible states. I am boycotting corporate bond funds, which are principally all loans to the ethically bankrupt megabanks. I am boycotting S&P500 index funds and avoiding any investments in the corporate monopolies as best I can. Given the limited options in the 401K, this is tough, but it is time. Small cap funds, gold, and the bonds of fiscally solvent states appear to be the best remaining choices.

      As a Voter – it’s time to Throw the Bums Out. Again.

      We need leadership who will eliminate inflation and stop spending the nation into poverty, bring justice to tax law, restore proper Antitrust enforcement, and help get people producing again.

      • Old School says:

        I like it. I have been thinking along the same lines lately. Fed is trying alter our investing and spending behaviour. Be the change as much as possible.

  2. ru82 says:

    You nailed so much of not only the stimulus but all the non payment of debt is another stimulus.

    Just amazing. Retail, even if it has peaked, is still doing well. People are spending money.

    I just talked to an Uber driver today who was driving a brand new Cadillac CTS. She said she has been laid off twice by General Motors since the pandemic. 3 months at the beginning. Another 2 months later in the year. They just went back to work for a week and another layoff. She said it has been okay as the extra unemployment payments were good and she did not have to pay rent on her apartment. So no hardships for her.

    She drives the Cadillac just enough for Uber to write off the Cadillac as an expense.

  3. Diogenes says:

    So, Wolf, when will you go short?
    And what % of the portfolio?

    • Harry Houndstooth says:

      Well it appears the Russell 2000 has topped with enough overhead to short. SPACS have backed down. Jeremy Grantham notes historically the United States equity markets are likely to crash soon; even it they go higher the crash will just be bigger.

      So you should own no equities now; just cash as you start your short positions.

      • Harrold says:

        LOL!

      • Wisdom Seeker says:

        Timing on Harry’s Big Short is a nightmare. All of the critiques being made now were made since at least 5 years ago … and the markets have doubled since.

        P.S. Sitting on “cash” means lending to Congress or a big bank. No thanks. Sitting on gold might make sense…

  4. zr says:

    Where is Michael Gorback, Michael Engel, and nodecentrepublicansleft ? someone please find and bring them back. Thank you.

    • Michael Gorback says:

      I had to take a break. Wolf is an amazing guy with a vast store of knowledge but I felt he was getting kind of edgy and I took some time away from the blog. Maybe it was just me but I felt insulted at times. I don’t know. Everyone sees the world through their own lens. Wolf and I think in different patterns and we are both very strong willed individuals.

      Plus he made me eat an entire tiny fried fish when we dined in SF.

      I don’t know why the others disappeared, but if I lost several regulars I’d be doing some introspection.

      Although I forgive but don’t forget and holding grudges is a hobby, I’d give Wolf a kidney if he needed it.

      • Wolf Richter says:

        You’ll never forgive me about that fish. I understand that I have to come to grips with that :-]

        • Michael Gorback says:

          Yeah, that isn’t over. That was Lexington and Concord. ;-)

          But I am concerned. There are two main things that make Wolfstreet great. One is the sheer depth and breadth of information and the educational value. I have learned incredible amounts of info about the Fed’s plumbing, much of which scares me to death. The reverse repo discussion convinced me that they are throwing in their third-stringers in desperation.

          I have learned too much about the SF condo market. ;-P

          Secondly, your curation of the discussions makes this a (relatively) peaceful forum compared to other sites. I doubt many people here are aware of the daily time, energy, and emotional drain involved in behind the scenes management.

          I’m concerned it’s taking its toll. I don’t know what to say. This is a one-man show. You can’t step back without compromising what you’re doing. But please understand my concern that having known you since Testosterone Pit I can see the stress bubbling to the surface.

          In my medical practice I was also a one man show. If I took a week off or got sick there was no income generation. I had to scramble to get stopgap help for clinical problems that couldn’t wait. Healthcare has become greedcare and it is a snake pit. After 42 years of watching the deterioration of a once-noble profession I bailed, much of it due to what I called the fun/hassle ratio falling below 1.

          So I can relate, but I don’t think you’re ready to take the path I did. I listened to Joshua in “War Games”: “the only winning move is not to play.” Other than communicate my thoughts based on watching the evolution of Wolfstreet and what I perceive are the effects it’s having on you I’m afraid I have little else to offer.

          Just beware and take care.

      • Bobber says:

        There are a lot of people harboring internal rage about the financial atrocities occurring today – the arbitrary wealth transfers by non-elected officials, crony capitalism, money-printing, runaway home prices, and the general aimlessness of fiscal and monetary policies. It’s a rigged economy, or a very poorly managed economy to say the least.

        In that environment, I don’t get why you dislike “edgy” reporting, as long as it is accurate.

        • Michael Gorback says:

          You misunderstand. I don’t mind “edgy” reporting and I don’t think that happens here.

          I was referring to the nature of some of Wolf’s comments to others. Wolf and I have known each other a long time. I used to be a contributor on healthcare issues. I stopped doing that for my own personal reasons.

          What I was referring to is that IN MY OPINION sometimes Wolf comes down a little hard, impatient, or dismissive and that this seems to be be relatively new behavior. This has spilled over into our private communication as well. There are some places I’ve learned not to go.

          If it drives off a long-time fan and friend, that’s a possible warning signal. OTOH it could easily be argued that the problem is at my end.

          Although I continued to read without commenting, I felt the need to speak up when “zr” asked where some other regulars went. Maybe they voted with their feet. Maybe they were abducted by aliens or are trapped in Kabul.

          I simply felt the need to clear the air since zr’s comment tilted me toward the “perhaps it’s not just me” POV. I want Wolfstreet to thrive.

      • I’m also a a long-time reader if infrequent commenter. I’m in the gold and silver camp. Given the extremity of the central planners, speculators and financial engineers, not to mention conspiracy theorists on almost every topic, I find Wolf pretty level headed!

  5. zr says:

    I ran out of stimulus from the Feds, so I went ahead and did the stimulus-myself.

  6. MarketMissing says:

    Not sure what can hold all this up. The stimulus for the common folk isn’t sufficient to bridge the gap between the exploding cost of living and stagnating buying power of wages. Credit isn’t adequately filling that gap any longer. I get emails about healthcare exchange rates about this time of year.

    Average cost of a silver plan for late 30-40yr olds is $450-525 per month

    I started looking up median numbers

    Median individual income $36,000 per year
    Median utilities $2,060 per year
    Median rent $1,200 per month
    Median car insurance rate $139.50 per month
    Median individual grocery cost $220 per month

    Looks like half the population must be struggling just to cover really basic expenses. Asset prices and stocks are being stimulated but the folks that actually pay the bills on most of this stuff are seriously falling behind. Once rent moratoriums, child credits, unemployment and such end (can it end?) it seems a lot of stuff that derives valuation from steady payment streams might be in trouble.

    • ru82 says:

      I think the median income is a little higher? According to the U.S. Census Bureau:

      Median individual income in the United States was $43,206.00. It was up from $40,100.00 in 2019. Almost 8% increase in 2 years.

      The median household income in 2019 was $65,712.

      • Thomas Pained says:

        That is false. There is no way the median household income in 2019 was $65,712. I don’t have the exact info in front of me so I can’t quote you the number I am seeing. It would be about 35-40K. Look, just look at it with common sense. There are not any high paying jobs in America for most Americans. The trade deficit proves this; meaning most skill labor jobs have been shipped over seas long ago. 12.5 or so Americans on the government dole is another indicator of a struggling workforce. Plus, are we to trust data from the U.S. Census Bureau.

        This is a side note. I just priced out a new F250 Diesel from a ford dealership in Tucson, Arizona; $81,000. Plus tax at 8.5% it would be $87,885. Insane. Who can afford that type of vehicle; even if you made $65, 712. The other day my bug sprayer guy came buy and said he just went on a vacation with his F250 Diesel and 20 foot travel trailer to Colorado from Tucson. Now, he sprays cockroaches for a living. He, I believe, is another one living beyond his means; there is no way he makes above $45K.

        • Wolf Richter says:

          “That is false. There is no way the median household income in 2019 was $65,712.”

          I just googled it: median household income in 2019: $68,703.

          This is very different from individual income, since many households have two earners. Also, this is income from all sources, not just labor. It includes things like dividend & interest income, income from rents, Social Security, etc.

    • Djreef says:

      It sucks out there right now.

      • Bobber says:

        Sucks for some, but it’s like finding a gold mine for others. That’s what wealth concentration does to the population. It polarizes. Worse yet, the Federal Reserve drives this polarization with no clear aim, while sacrificing the long-term health of the economy and disregarding long-standing moral contracts.

        The basic problem here is that 60% of households own a home. These homeowners have watched home prices rise, and they are generally happy, despite the unfairness of it all. If and when home prices fall 20%, it will be a different story.

        • Swamp Creature says:

          A home is a roof over your head. The price going up is just a number on a piece of paper until you sell. In fact, usually price increases are mostly inflation and do you no good whatsoever.

          I’m really happy to pay higher taxes, higher maintenance, higher ins ect. to see that number on a piece of paper.

          You are starting to sound like that Lawrence Yun huckster from the NAR.

        • Old School says:

          We need an asset price correction very badly. Most young people start out with no assets, so inflating houses 2 – 3 times what they ought to be and stocks 3 – 4 times what they ought to be is immoral. It’s time to pull the band-aid off and normalize policy

    • wkevinw says:

      The “missing” wealth and income is in the globalized locations, not the US.

      Open borders for labor and capital are a problem when you don’t have the “level playing field” for costs: regulatory, environmental, health, safety, (not to mention “basic civil rights” such as no slave or near-slave labor).

      Between the welfare-state costs of immigrants and lower wages caused by globalized labor inside and outside the country, we have working class economic struggles (which by the way is not just the lower income, but all the way up to about 2/3 of Americans).

      • RightNYer says:

        Right, that’s the main point people are forgetting. The lower class in America has always struggled, but the “lower class” used to constitute 10-15% of the population. Now it more like 60%, as you said.

  7. Depth Charge says:

    These trillions will have lasting effects for years. The FED and .gov clown show went bigtime in the bigtop, with trollfaced Yellen driving the clown car and J-POW playing the head carnival barker.

    • COWG says:

      The visual image I have is the Shriners on their little motorcycles…

    • Keith says:

      An interesting rumor reported by Politico’s Morning Money is that Yellen may be looking to take back the Fed chair after Powell lobbying her removal so he could get it.

      • Wisdom Seeker says:

        Politico just got bought by a German media conglomerate so whatever credibility they might have had on “rumor” stories is now even more suspect than ever.

      • Old School says:

        You know I could see that happening. Yellen is an academic through and through and that seems more like a Fed chairman than a Treasury secretary.

  8. Depth Charge says:

    Making everything in the country exceedingly expensive leading to a soul-crushing cost of living under the guise of “helping the economy” will go down as the dumbest financial exercise in history. These central bankers and politicians are the worst we’ve ever had. They are a sinister, dare I say EVIL, bunch.

    • MarketMissing says:

      I keep wondering if the ‘labor shortages’ we keep hearing about are folks clearly seeing the impossible equation of high bills on insufficient income and just tapping out. It used to be possible to float a month or two on the credit card or wait for the year end bonus or do a cash out refi. It seemed possible to catch up in the future. Now the gap is just too large to have much hope.

      • Augustus Frost says:

        Many or most low income households have jobs that others who do not have it will never choose to have. It shouldn’t be surprising that people will choose to live at someone else’s expense under these circumstances.

        Then you have those who are just plain dishonest who don’t their obligations even when they can.

      • COWG says:

        Yessir!!! Write the check on Friday night knowing it wouldn’t clear til paycheck deposited Tuesday….

        Ahhhh… the good ole days…

      • RightNYer says:

        That it is it to a point, I think. The point of working is to eat and to be able to save up for a house and so forth. If working will never lead anywhere, I can see why people are disincentivized.

        • zr says:

          or why they turn socialist/communist and give up their freedoms for a government promised utopia.

    • historicus says:

      DP…
      1000+’s
      Penalizing people who work, earn and save with 5% inflation and zero interest rates is CRIMINAL. All to fluff the present.

      It is incumbent on every generation to pay its own debts. This Fed has allowed the pulling forward of future wealth with all this cheap debt creation…..crippling with debt the generations behind us.

      I will say again, the “dual mandate” game is by design…..for there is a THIRD mandate in the Fed’s mission statement that is carved out for a reason by these central bankers..
      “Promote Moderate Long Term Interest Rates”
      The wisdom of this purposely omitted mandate is to keep a balance between lender and borrower AND to prevent reckless long term debt creation with faked low interest rates. “Moderate” is the key word here…and moderate means NOT EXTREME…either way…too high or too low.
      4000 yr lows in long rates is extreme by any measure…and they have been abused for convenient debt creation. Shame.

      • Sams says:

        The flip side to pulling forward future wealth to today is that today’s tax/interests are postponed to be collected later.

        That is, if the system keeps running continuously. If there is a discontinuity no one will be abele to collect the future tax/interest, which may or may not be a bad thing. Mostly depending on who you are.

        The only real problem is if the wealth pulled forward have exhausted natural resources. That wealth is spent.

        • Matt says:

          We seem to be past the point of insolvency as far as natural resources go. See the relatively recent UN Environmental Program paper titled “Making Peace With Nature”.

      • topcat says:

        The government owes the money to itself. There is no debt to pass on to the next generation. It is all just an illusion created by the peopple with money to frighten the population into thinking that the country is broke so that no mone is available for schools, or hospitals or water systems or or or. There is always mone available for the military – trillions – always, no one ever asks where the money is coming from when the govt. increases the Pentagon’s budget by 1 trillion to foght some more forever wars.
        Wake up, smell the coffee.

        • Augustus Frost says:

          Complete nonsense

          “Printed” money and debt is not wealth and neither are the artificially inflated stock, bond and real estate markets.

          No society or economy can live beyond it’s means indefinitely which is exactly what you are implying. There is a day or reckoning in store for future American living standards. The majority of Americans are destined to become poorer or a lot poorer, regardless of what the government does including any attempts to tax away most of the inflated fake wealth of the rich. Same thing in any other country with similar policies.

          Your comparison between military and social spending is a red herring. Even before COVID, if all defense spending broadly defined was eliminated entirely, the budget would still be in deficit.

          The imperial state is a problem but the welfare state is a much bigger one economically. Even as they advocate open ended social entitlements, progressives love to point out that prior leading countries declined due to excessive military spending. What they conveniently leave out is that none of these prior examples had unsustainable bloated social programs. Most had none at all.

        • BatHelix says:

          Yes! The worst thing to me is imagining what we could have done to this country if we had spent the $2T from the Afghanistan war on needed things. We could be living like the Jetsons with free, modern healthcare, clean futuristic energy and infrastructure and the best education in the world in every town. It makes me sick and want to cry thinking of what could have been done instead.

        • COWG says:

          Yeah, but we showed those damn Russkies how to do it, didn’t we….

          We should have just put about a hundred WalMarts and a couple of Costco’s in there…

          Game over for the Taliban if they would have had to show a photo ID for ammo…

        • jm says:

          People need to read Graeber’s “Debt: The First 5,000 Years”.

        • Masked Ghost says:

          topcat write,,,,,,,”The government owes the money to itself. There is no debt to pass on to the next generation. It is all just an illusion created by the people with money to frighten the population into thinking that the country is broke so that no money is available for schools, or hospitals or water systems or or or. …”

          I think Topcat nailed it. The USA is all about socialism for the big corporations and the 1%. You average folks, not so much.

          I well remember a car ride fifty years back with our locally elected pol who told us that “the federal debt will never be paid back.” Just rolled over in perpetuity….and he was on team “R”.

          I think it was someone on Mises who said that “debts that can not be paid back will not be.” Plan accordingly.

        • Wisdom Seeker says:

          @topcat “The government owes the money to itself. There is no debt to pass on to the next generation.”

          Wrong. The government owes the money to the bondholders. Wolf has laid out who they are. The debt can only be rolled over if bondholders are willing to continue holding. They could spend their savings in other ways.

          Furthermore, the interest on the debt must always be paid one way or another, either by the taxpayers, by the users of the currency (as inflation), or by destroying the incentive to invest (zero- or negative-rate policies). There’s no way to avoid diminishing future prospects for all, but one can accelerate the decline by squandering the money that the government borrowed on nothing of long-term value.

        • RightNYer says:

          “There’s no way to avoid diminishing future prospects for all, but one can accelerate the decline by squandering the money that the government borrowed on nothing of long-term value.”

          Like giving people who didn’t lose income money to spend on flat screen TVs made in Asia?

  9. George W says:

    Amazon called me home with 4 packages to go…

    Package counts follow stimulus money to a tee.

    Things are tightening up at Amazon. The focus has shifted and all eyes are now on saving money. You never bring packages back, yet with 4 left of 293, I was told to drive straight back to the station.

    • Michael Gorback says:

      Interesting. I was just reading about “the last mile” this morning. Looks like there’s trouble along the last mile. I noticed that my Amazon delivery yesterday came in what was obviously a leased vehicle.

      Local storage and truck leases along with other supply chain expenses might be starting to bite painfully. What a surprise when you can order a 4-pack of batteries on Amazon and get next day delivery.

  10. Tbv3 says:

    Don’t forget:

    The higher-ed industrial complex received $77 billion in bailout money, according to the Wall Street Journal (Mar. 10, 2021):

    “In March 2020, the Coronavirus Aid, Relief, and Economic Security (Cares) Act established the Higher Education Emergency Relief Fund, and allocated about $14 billion for emergency higher education funding. In December [2020], higher education institutions received an additional $23 billion through the Coronavirus Response and Relief Supplemental Appropriations (CRRSA) Act. Now, institutions will receive about $40 billion. This amount is less than the $97 billion the American Council on Education estimated schools and students would need to recover from pandemic-related losses, but the higher education lobbying group praised the legislation.”

    • wkevinw says:

      TBv3- yep on the bailouts every time- crony capitalism (=corporate socialism). Nobody but the elites want this.

  11. Ian Brooks says:

    The over inflated prices in the real estate market is spiked by the fraudulent loans. Buyers don’t care if they get caught / reprimanded – they figure they can easily sell the house , return a portion of the money ( if they are under investigation ) and keep the profit ! I’m seeing it , the Los Angeles housing market is out of control and awash in cash – everyone has money and they are not afraid to spend it . Hopefully the government will investigate these loans and punish the perps. It’s insane – rates should go up and as the forbearance on the mortgages comes to an end , inventory ( over 900,000 delinquent mortgages ) should , must be called in – this may level the field , I have my doubts !

    • historicus says:

      So the government will say….we cant end the forbearance program
      Just as those who say the Fed cant raise interest rates….there is too much debt

      Where were these trains of thought during the decision making and machinations that has brought up to this point?

      The Fed lending money, long term … to the mortgage industry nearly 3% below inflation via their MBSs purchases is unheard of…irrational.
      The Fed has gone rogue and no one seems to admit it.

      • MiTurn says:

        “So the government will say….we cant end the forbearance program”

        Historicus, sounds like last days of the Rome Empire — “we can’t end the free bread.”

        • Sams says:

          The day people go hungry the revolt starts.

        • Saltcreep says:

          Interestingly it can be argued that Rome absorbed Egypt largely to secure reliable access to its rich grain supply. Today it’s Egypt cutting bread subsidies to its citizens after it has long since itself become completely dependent on imported grains, just as climate change threatens the ongoing dependability of agricultural output elsewhere too. A new ‘spring’ coming?

          Anyway, by the time the Cura Annonae ended, Rome’s population had already declined considerably from its peak, so there is also an argument to be made that the practice may no longer have been as necessary in order to maintain social order in the city of Rome. That is not a luxury we can count on anywhere today…

  12. James Charles says:

    “No one before has ever seen an artificially pumped up monster like this before. And no one has any historical guidelines on how to deal with it. The Fed will trim back its stimulus, but it’s already too late, and it will be too little and too slow.”
    And then?

  13. historicus says:

    A reminder..
    One billion seconds is just under 32 years.
    One TRILLION seconds is just under 320 CENTURIES.

  14. Richard H Caldwell says:

    I have been sitting in 100% Treasuries since 2015, flinching with pain and indecision every week as the Fed obliterated interest rates and massively, grotesquely inflated all asset classes beyond even the most insane historical comparisons. I could not agree more with your analysis of what has been happening, and can only imagine it all coming crashing down. The only real question is when? The deflation and collapse will make 1929-1954 look like a boom period. I’m probably going to be proved completely wrong, but that’s how it looks from where I sit.

    • Old School says:

      Yes. I feel your pain as I have been right with you except in short term treasuries since 2015.

      Stocks were expensive then and have only gone up to 3.5 price to sales. Long term normal value P/S is about 1. That fact right there tells you stock prices are divorced from real economy which is sales.

      To me it is nothing new for the world as it fits what the French found out in 1700s that printed money produced a short term improvement in economy that waned and had to be followed by larger volume of printing. Mises also stated that this ever increasing boom bust is the fate of the central bank debt based system.

      The problem is we have to invest in the “sinful” world that is, not the world as we wish it was. I honestly don’t know what to do except not spend down my savings, keep picking up a little precious meta. I don’t like keeping too much at home and so I am trying to buy a big miner at a decent price.

    • Augustus Frost says:

      No, you are not going to be proven wrong. Unfortunately, practically everyone is going to end up a financial loser. It’s mostly going to be relative.

      Additionally, it’s guaranteed that the financially irresponsible and those who failed to plan for the future will use the political system to steal from those who attempted to prepare properly. Virtually no one is accountable for anything anymore.

  15. Dave says:

    I work as an ICU RN. In total, I received $600 in Fed Magic Money.

    Inflation has taken that $600 and also stolen the value of my time and labor. A permanent F–king of me.

    I started closely following financial markets in 2004. I thought I had seen it all with the federal response to the Great Financial Crisis in 2008.

    The stolen wealth, the record bonuses for Wall St with taxpayer money, the flood of FED money institutional players used to speculate on commodities which then drove up consumer prices, the devaluation of our currency, wealth inequality, passage of laws which made protecting too big to fail corporations a permanent law of the land. I could go on, but what’s the point?

    What the FED is doing today is breathtakingly beyond reckless.

    • Turtle says:

      It’s unkind, to say the least.

      I sold a little side business after ten years for $250K with hopes of finally buying a home in my HCOL home state and within two years the homes jumped by $300K. I complain, but I’m not doing bad. I know many others are having a real hard time with the inflation / real estate issues (retired people on fixed incomes and young families cooped up in an apartment).

      It’s hard to win when the powers that be are playing their game.

  16. kk says:

    40% of US citizens cannot cover a sudden $400 expense according to the federal reserve and 10% of US households are millionaires. So who cares? If you are rich you don’t care what happens and if you are in the bottom 50% you have nothing to lose. Only the little people who have scraped a bit together through hard work and miserly and miserable living have both something to lose and lack the means to defend it. But hay, losers lose – it’s the American way, so get used to it.

  17. Jack says:

    The fed is not independent of the govt. it is a part of it. They all worked together to create this money bonanza. Fed will keep printing and purchasing because the govt has no money and wants to keep the bonanza going. It’s really that simple. Elected officials have always wanted to spend to get re-elected. The only difference is now they want to go above and beyond their limits because they believe there are no limits and they can print and spend as much as they want without consequence. A trillion here and a trillion there has no meaning anymore. The only thing that will make them stop is Weimar style hyperinflation and people taking to the streets because of it. Until that happens, buy any asset you can because they are hell bent on turning your money into trash

  18. John Beech says:

    I’m a stupid schmuck. Sure, my little business received the offers. We were doing OK so I didn’t feel we needed it. I even remember thinking, ‘No way there’s going to be enough to help everybody, better leave it for someone who really needs it.’ and so I never applied. Even my back manager called to ask why I hadn’t followed up with their loan manager. The money was there. News it was forgivable was out there. Maybe I was too stupid to open the palm of my hand.

    And by the way, when the mortgage crisis hit, and I could reduce my loan to 15 years, I didn’t take any of that handout, either. Our home is now paid off. We left the mortgage assistance for those who needed it.

    Look, I don’t feel bad about the mortgage money, or not taking PPP (although reading Mike Richards, the Executive Producer at Sony who tried to award himself Alex Trebek’s hosting gig also took PPP money makes me sick to my stomach).

    Grifters gotta grift, I get it, but how Sony keeps him on the payroll is beyond me. Anyway, after maybe 30 years we’re done with the show because of the whole debacle. Was in Best Buy yesterday looking at televisions. Skipped over Sony to LG. Actions have consequences up and down the line.

    Anyway, if you fly model airplanes or drive RC trucks, my company offers up pretty good servos and we never took a dime.

    • VintageVNvet says:

      Good comment JB, and in our case, very similar:
      According to what I could find on various websites, my sole proprietor biz, in biz since early 1980s, was fully qualified for some of, if not all of, the various and sundry loans that would become grants.
      WE did not need it,,, and did not apply to any of it,,, and now we are very glad to not have any GUV MINT folks ”breathing down our necks” ( how some ever ya want to label that kind of stuff these days…)
      WE are still doing OK, saving every month, no bills except for the GUV MINT type that is basically saying,, WE are renting from them and failing to pay them means they will take our home/casa/ homestead,,, no matter what our situation may become going forward…
      The only thing WE the Peons can HOPE for is that our SS and other, very clearly earned ,,, retirement pensions, etc., will at least come close to keeping up with the increases in the GUV MINT taxes, ”fees”, and all other mandated local, state, and Federal GUV MINT costs…
      Doesn’t seem likely at this point,,, eh

    • Citizen says:

      I have friends like you and I think it’s admirable … but also that you’re just doing yourself a disservice and it’s only worth it if it makes you feel good. If we had an honest system that everyone wasn’t taking advantage of then it should be done like you’re doing it … but as it stands it’s just all the honest people not using it and the dishonest ones gaining the most and that’s unfair. It’s kind of like being the only one not cheating at the game and the you always lose. It’s just sad that it is this way.

      It’s the same with all the handouts and programs. I’m for it because we give everything to the corporations now so yeah, give some things to people too. If we had a real capitalist society with personal responsibility all over then sure, everyone fend for yourself….but since it’s all stacked against us and we funnel millions to the rich then yeah, I think we should get some education, healthcare etc for our taxes, we still pay them so why shouldn’t we get something too!? Let me know when corporations pay their share and we stop showering millitary contractors with trillions and we can talk about scaling them back a bit. As it stands we just pay taxes and it all goes to corporate America instead of the people.

  19. Beardawg says:

    Great podcast / article Wolf.

    I reading comments, there is (justified) anger and disbelief.

    2009-13 QE / Stim inflated everything and was still inflating everything until the Rona hit. 2020-21+ will double that effect.

    No one will fight the Fed so you may as well get “fed” with inflated assets. Buy any index you want, or real estate. It may flatten, but if 2009-today is any indication, you will be closer to the 1% than the 99% no matter what you buy for years to come.

    • MiTurn says:

      “Great podcast / article Wolf.”

      Yes, thanks Wolf for making the extra effort to transcribe your podcasts. Helps us hard-of-hearing folks!

  20. Lone Coyote says:

    I guess according to modern society I’m an idiot for continuing to pay rent and pay student loans the past year. (I refinanced my loans to private a few years ago to shave a couple percent off the interest rate.)

    America in 2021 sure is something.

    • Old School says:

      This is what happens when fiat is doled out by politics and not merit. They need money borrowed and spent to fulfil their economic model. Who gets the money and why is not that important to them.

      I am happy that I made my first purchase of one of the big gold miners today. Just $10,000, but it’s just a vote of no confidence in central banks. Who ever heard of buying a stock to reduce portfolio risk?

      • Kevin Bryan Connors says:

        Sorry, could you please explain how doing exactly what the Fed wants you to do is a vote of no confidence? On the contrary, you buying up assets gives me confidence that the global central bank cartel has us right where they want us.

        • Old School says:

          I don’t own real estate and had only 3% of assets in stocks (non USA). Most everything else in money market or short term treasuries.

          I have bought a little gold, silver, and platinum in last 12 months but only about 1% of my portfolio. I bought some GOLD to give me exposure to gold price in case Fed makes a big policy mistake and not have to keep too much at home.

  21. MiTurn says:

    “This is the most ridiculously monstrously over-stimulated economy ever, and markets have gone nuts. And prices are going nuts.”

    I’m feeling it (increased prices), and it’s beginning to hurt. Crazy sauce!

    • topcat says:

      Prices are coming back down – if food is more expensive then it is because there is less of it available and not because demand has gone up. People do not start eating twice as much as they did before just because they have more money (unless they were starving before). Price increases due to shortages of stuff is not financial inflation, it is the consequence of many people wanting to eat and there being not enough food.

      • Sams says:

        Prices rices due to production cost too.
        Part of that can be financial, the monetary inflation make the money worth less.

      • Petunia says:

        Canned food was being hoarded. Prepping is a real thing with people investing in the things they use, expecting shortages and price increases.

        I see a flattening of grocery prices, after the huge run up over the last few years. People are just hitting their limits. I no longer buy four boxes of pasta, now I buy 2, if they are available. We are having smaller meals and simpler too. Substituting to cheaper generic or store brands if they are not terrible. Cutting back on the snack food too.

        • Harrold says:

          I loved that tv show “Preppers” on the History channel!

        • topcat says:

          prepping would imply a one-off demand shock as people filled their basements with tins, but that would then stop. Inflation is a permanent increase in prices year after year and that is not what is happening.

        • Petunia says:

          topcat,

          Arbitraging food and supplies is very much a part of prepping. These people stock up at every sale, as much as they can afford, and as much as they can store. It’s not just a doomsday preparation.

      • Saltcreep says:

        Although I agree with you that we face a very scary food supply situation going forward, topcat, in the present we’re seeing inflation materialising in stuff like rents and services and wages.

        That is possibly the beginning of an inevitable spiral (that we, in the absence of a devastating crash event, must face sooner or later due to our past excesses…) that we now have few ways in which to address outside of accelerated monetary degradation, due to us expanding and consuming any natural and financial equity that we perhaps could otherwise have fallen back on.

        • 91B20 1stCav (AUS) says:

          Salt-have always wondered at the seeming inability of so many ‘intelligent’ people to consider, then subsequently ignore/discount ‘natural equity’ (highly admire your use of the term, here). Can only sumrise that personal metaphysics or misanthropy (YOLO) are a major component, here…

          may we all find a better day.

        • Saltcreep says:

          Hi 91, my belief is that the disregard for our natural capital stems from the more or less complete absence of the context of the physical world and natural environment in which we reside in any form of economic communication. The broader population and people trained in the field of economics are essentially taught to ignore real limits and the laws of physics, and follow a faith based system instead.

          I sort of don’t even find it strange, though, as the field lends itself so readily to being used to further political agendas, and any mainstream political platform that I’m aware of with any chance of implementing aspects of its agenda requires continuously pushing expansion and consumption to ever greater heights.

          And on the personal level, as you note, it’s very uncomfortable for us to come to terms with a hard reality, so it’s easier for people to maintain the blinkers in place and follow belief systems rather than science.

        • 91B20 1stCav (AUS) says:

          Salt-good insight, highly appreciated as always. Recalls Heinlein’s aphorism: “…self-deception is the root of all evil…”, or, perhaps, cultural entropy.

          may we all find a better day.

    • David Hall says:

      In 2009 Warren Buffett observed the huge deficits and bailouts might turn America into a banana republic.

      More body bags for the infected anti-vaccine crowd who did not think COVID is bad, but rebelled against the government trying mandate vaccinations.

      I expect the value of my property might rise. Maybe not overnight, but someday. In 1867 the US bought Alaska from Russia for $7.2 million. The value of the White House presidential mansion was appraised at about $397 million in 2017.

  22. Swamp Creature says:

    J Powell is preparing to to speak at Jackson Hole Friday. Everyone is on the edge of their seats.

  23. NoPrep says:

    Many poorer nations that don’t have the reserves to disseminate such stimulus are really struggling badly. South America, not just Venezuela, is struggling badly. A friend from Peru texted me recently – conditions there are just very bad and she want to leave, even though she loves her city (Lima). Vaccines starting to show up there – she just got one.

    The hope seems to be that vaccinations will lead to a solid return of the tourism that countries like Peru and Colombia depend so much on. I’m not very optimistic. But it isn’t like everyone has to be vaccinated to bring back tourism – only global travellers are or will need to be no matter where they go Flyers will always be a very small minority of humans, as they always have been since aviation began. Personally, I may never fly again. I’m at peace with that probability.

    • topcat says:

      well, Venezuela and other south American countries are suffering badly due to US sanctions which no one in the US seems to want to hear or talk about. Same old same old.

      • FluffyGato says:

        Chavez and Maduro did an admirable job of wrecking Venezuela’s economy and society long before any US sanctions. Which is why no one in the US wants to hear or talk about it.

  24. Harry Houndstooth says:

    Well it appears the Russell 2000 has topped with enough overhead to short. SPACS have backed down. Jeremy Grantham notes historically the United States equity markets are likely to crash soon; even it they go higher the crash will just be bigger.

    So you should own no equities now; just cash as you start your short positions.

    • Harrold says:

      LOL!

    • Beardawg says:

      “Historically” is the past 12 years since QE to infinity began. Yes, there have been minor corrections, but crashes are no more. Assets (equities and real estate) will continue to go up with the devaluation of the USD. Holding USD in hopes of a crash (vs correction) is a low percentage probability.

    • Seen it all before, Bob says:

      There’s the rub.

      1) Lose 5%/year slowly with inflation with cash? A slow train wreck.

      Or

      2) Lose 40-50% in a few days like in 2008? Quick and painful and then it is over.

      I’d recommend both.

      Diversify!

      How to diversify and when is the biggest question.

      My crystal ball fell off the shelf and broke in the 1994 Northridge quake.

  25. A says:

    I honestly don’t mind all the programs and money, I mind that it’s gone on for so long.

    Eviction moratorium while the hospitals are overflowing and there’s no vaccine? Sure, ok, I get that. Eviction moratorium 1 year later when we all know how to get vaccinated, wear masks, etc.? Why? There’s no longer a critical public health reason, it’s just a government-mandated free housing giveaway.

    The stimulus did everything it was supposed to so to get us through 2020 and it should have stopped after 2020. The last 8 months have just been creating inflation and bubbles.

  26. historicus says:

    5% inflation and the Fed doesnt lift a finger to deal with it…

    I guess you dont expect the arsonist to reach for the firehose….

    The greatest THEFT in history…..5% inflation…brought to you by the Fed

    ZERO interest rates brought to you by the Fed

    Who wins, who loses? Seems the friends of the Fed win, and the American working and saving families lose.

    This BREAKS the financial history of this nation in which Fed Funds equaled or exceeded the inflation rate for 7 decades.

    and by the approval of what body? Congress? When, where did the Fed become a different animal? 2009…and it began with a GREAT LIE….”QE will be temporary” Ben Bernanke, WSJ July 2009

    This is obviously a departure from the history of the Federal Reserve and their PREVIOUS adherence to the agreements/instructions/mandates that ALLOW THEIR EXISTENCE and SPECIAL POWERS.

    • Auldyin says:

      @h
      “Who wins, who loses? Seems the friends of the Fed win, and the American working and saving families lose.”
      There’s a way round this.
      The Fed is printing $120bn per month, that’s roughly $500 per adult by my count. If you’re not getting $500 per month, you are being screwed, so go down to your basement and forge what you’re short by. Back-date to 2008 if you are really sore.
      When you’re case comes up, your defence is, the Fed does it, why can’t I when I’m not getting my fair share?
      Any honest jury in the world would find for you.

  27. Citizen AllenM says:

    Shortages of what? I was in the Alhambra Costco last night and the shelves were fine, plenty of TP. And booze, and luxury foods. So you must live in some benighted blighted food deserts. Prices were up, but there were no protests, just the sounds of buying at the usual furious pace….

    The Fed is going to taper, because they have to, and the canaries of gold and silver are reacting like that is a done deal. Guess what, I think the Fed will defend the dollar, and a brutal recession will be the ultimate result… But it’s going to take years to work through it.

    • Wolf Richter says:

      Citizen AllenM,

      The shortages are not at Costco. The shortages are on car dealer lots – new and used vehicles – they’re in different types of equipment and appliances. There are container shortages, and all kinds of stuff that you cannot see at Costco.

      There is even a WOLF STREET beer mug shortage. The company that makes the blank mug halted production because it’s a special low-volume model, and there are some shortages in that industry, and they’re prioritizing the fastest selling SKUs. At first, production was to restart in November; now it has been pushed out to January. They suggested I use a different mug model that they are producing, but that would change the mug entirely, and I said I’ll wait till they make our iconic mug again. Thankfully, I still have a few mugs, but I’m going to run out.

      When supply gets tight, everyone is prioritizing who gets what. Supply of apparel is tight, and Nordstrom for example just said that the brands it sells were prioritizing selling directly to consumers, and have cut deliveries to Nordstrom.

      Rental car companies have complained about this for months, that they cannot get enough vehicles from automakers because automakers, given the chip shortage, are prioritizing the more profitable retail channels.

      But grocery stores are doing alright on inventory, as I pointed out here (though they too complain about running out of some weird items here and there):
      https://wolfstreet.com/2021/08/18/shortages-in-charts-new-used-vehicle-inventories-collapsed-supply-at-clothing-stores-gets-tight-grocery-stores-back-to-normal/

      • roddy6667 says:

        I was at the local Home Depot lately, buying hose clamps. They had none under 4 inch. I went to Lowe’s. They only had four smaller hose clamps. I bought two.
        Hose clamp shortage?

        • Harrold says:

          People were complaining on here not too long a go about how America had too much retail and American bought way too much stuff.

          And two dollar stores just opened up in my neighborhood. I wonder if they are full of products for a dollar? I may have to stop by and check them out.

        • Richard Landwirth says:

          That’s why the internet was invented–just buy them on amazon-quit running around the county….I remember doing that for certain items until the internet came along

          TICONN 60PCS Hose Clamp Set – 1/4”–1-1/2” 304 Stainless Steel Worm Gear Hose Clamps for Pipe, Intercooler, Plumbing, Tube and Fuel Line—60 piece kit $16.99. prime

          XRPAOWA Hose Clamp, 304 Stainless Steel Clamps, 10 pcs/Pack, SAE 32 Worm Gear Hose Clamps, 1-9/16-Inch-2-1/2-Inch(40-63mm) (SAE 32) $9.99. prime

      • VintageVNvet says:

        Wolf,
        I have said this before, and will keep on trying:
        WE NEED, at least, 24 OZ Wolfstreet .com mugs…
        AT least 24 OZ,,, and, if you had/have YOUR ”base” ”genetic” mug/stein size correct, you would know that what WE really need is a ”liter” mug…
        Please get to work on this,,, as I am thinking I may not send my usual biannual contribution unless/until WE can get some larger/lager mugs!!!!!!!
        OK, just kidding about holding out on the biannual, etc.

        • Putter says:

          Agreed, a 24 oz. coffee mug would increase my donation. Don’t drink liquor.

        • Swamp Creature says:

          Wolf,

          Don’t listen to these alcoholics.

          Keep the mugs you got. I don’t want to become an alcoholic like them. With my Bud light beers these mugs serve me well.

      • Seen it all before, Bob says:

        Did I hear “Wolf Street beer mug shortage”?

        If I put my mug for sale on E-Bay, how much do you think I’d get? :-)

        Will I get people bidding 100% over asking?

        Even though it is well-used?

        Thanks for funding my retirement, Wolf!

  28. Bobber says:

    Read an article yesterday about a former Amazon and Microsoft executive who sought several million in fraudulent PPP loans. He lives in one of the highest priced areas of Seattle. The government caught him somehow.

    Received two years in prison, which I assume will be reduced. Why not 10 years?

    If spending six months under home arrest is the worst downside, PPP loan fraud looks like a great bet, does it not?

    • roddy6667 says:

      PPP loan fraud should be a major in college. Maybe it’s part of an MBA now. I dunno.

      • VintageVNvet says:

        Good one R2/3:
        Only time in over 50 years in biz that someone appeared to ”deliberately” set me up and did me bad was from an MBA:::
        Apparently, from what his brother, a very good long term client, told me, his little brother learned that kind of behaviour at UCLA Business School while getting his MBA…

    • MonkeyBusiness says:

      He got two years for his sloppiness in hiding the crime, not for the crime itself. I mean if the government really cares about white collar crime, why not take a real SERIOUS look at Tether, Binance, etc.

      • 91B20 1stCav (AUS) says:

        Monkey-sadly, it goes to show that failure to observe and keep holy the Eleventh Commandment may be the only universal crime (and events of the last few decades probably invalidate even that old verity…).

        may we all find a better day.

  29. Seems they have used all this stimulus to prevent a recession or a depression. By the way there was a recession and it is now over. Did you miss that? It only shows up on Fred Graphs. In other words giving massive doses of chemotherapy to a healthy patient to prevent cancer, probably has the same outcome. The more you hear about money jammed up at various places, the more a liquidity trap is possible. It’s like you write a bunch of checks at Xmas to your relatives, they stuff them in their drawer and don’t cash them until March, when your account is a bit thin.

    • RightNYer says:

      The problem with the term “recession” is that it just means two quarters of negative GDP growth. Since we now include government borrowing money and handing it to people to spend in GDP, there’s no reason we should ever have a recession again. The government can get whatever GDP numbers it wants just by borrowing and printing money.

      The contraction we had last year only really lasted a few weeks, because while travel and restaurants were obviously decimated, people made up for it and more with splurging on durable goods.

      But that just illustrates how not all GDP dollars are created equal. If a restaurant lost a $100 meal, someone instead buying $100 of foreign made stuff from Amazon doesn’t do anything for the restaurateur, even if it’s a wash for GDP as a whole

  30. SocalJim says:

    When it comes to banking and finance, the big news is Montag is out … he is a big big hitter.

    Another exec went out on the same time.

    What is going on here and what does it mean?

  31. Auldyin says:

    The mistake old folks, like me make, is to think we live in a rational world, when we don’t. We live in an MSM and Social Media narrative where ‘truth’ is a conspiracy theory and ‘reality’ is fake news. Kafka and Orwell would be fully at home in this world.
    It’s very dodgy to say anything at all about the economy, covid, global warming, electric cars, green energy, Afganistan, China, Russia, Iran. Venezuala, Cuba, etc, etc, without being in fear of a punch in the face. Fortunately I’m too old to care so it can all go it’s own way as far as I’m concerned.
    They massively printed their way out of a huge collapse in 2008. They are super-massively printing their way out of an even bigger collapse now, so why would any rational being think they can, or will, do anything different in future??
    If China and Russia don’t take the printing route, it will be an interesting future for all of us in the West and the Global cabal.
    Tiny slice of reality — S Korea hiked by 25 basis points today, a 50% increase on 0.5%. Let’s see what their market does.

  32. MCH says:

    Wolf,

    you know, you’d think someone is paying attention to all this stuff, but it’s definitely not on the news anywhere. Given all of the other distractions currently going on, I wonder how many people will even pay attention to JP and Jackson Hole.

    The funny thing is that with everything going on, what the Fed and the government is doing is probably the most consequential thing to the existence of the country, and nobody is really even paying attention to it. At least, nobody with a sufficiently big megaphone.

    I think the only time attention will be paid is when things start to truly go south. Like when the S&P drops 50% from where it is now. (I figure that’ll get the attention of the talking heads, because suddenly their portfolio is taking a beating). Otherwise, almost nobody on the mainstream media even talks about the problems of overstimulus, inflation, etc.

  33. MonkeyBusiness says:

    California stimulus checks going out end of the month.

  34. TheFalcon says:

    Fallible human beings created this monster. Fallible human beings will blow it up. Never underestimate the ability of those at the controls to drive the bus into a ditch. Never underestimate the financial recklessness of the Great American Consumer, especially during times when by pure luck they find themselves to be Investing Geniuses.

    The Great Humbling will eventually be upon us.

  35. wkevinw says:

    On home ownership rates: ~60% own their home.

    The important stat is the equity. That’s part of net worth. Down payments are a lot smaller and mortgage balances a lot larger than they used to be.

    This chart shows the net worth of households over the past 30 years. Only the top 10% (or a bit lower %ile) in net worth have added any in that time. The bottom ~75% is about flat.

    https://cdn.dqydj.com/wp-content/uploads/2020/10/net-worth-1989-2019-inflation-adjusted.png

  36. Keepcalmeverythingisfine says:

    Stimmies don’t matter any more. I did not like the market action today. Ugly S&P500 chart. I’m slowly backing out and taking profits. I don’t like what I am seeing on the global stage right now. We are heading into a seasonally weak period with very high uncertainty in the world. Things are changing day to day. Caution flags are flying. Take some profits and hunker down for a bit.

    • Turtle says:

      The problem is caution flags have been flying for years now.

      I don’t see how a correction won’t be significant this far into the game.

    • Beautiful S&P chart. If there is a plan this is it. Introduce UBI in various forms, the Fed wants an open REPO window, same thing for fiscal needies. If they don’t give it to you they loan it to you. So maybe the payments are pittance, then the great reset, assets worth half of what they were once worth, and they leave those payments untouched, incl SSN, and everyone can live decently on the dole. The crisis is one day Yellen says after the dollar drops 20%, we will support the dollar at X, say 75 when the dollar is 85. That allows for controlled deflation. Competitive devaluation goes through the fx, and the F(e)DR nationalizes all crypto assets.

  37. Sound of the Suburbs says:

    What could possibly go wrong with free markets?
    The same as last time.

    Free market beliefs were at a low ebb in the 1930s and there were just two bastions of free market thinking left.
    1) The University of Chicago economics department
    2) The LSE

    “Stocks have reached what looks like a permanently high plateau.” Irving Fisher 1929.
    This 1920’s neoclassical economist that believed in free markets knew this was a stable equilibrium.
    He became a laughing stock.
    The pressure was really on in the US as their free market thinkers had made fools of themselves. They needed to find out where they had gone wrong.
    They eventually worked out there were two factors at work, which had artificially inflated the market.
    1) Share buybacks
    2) The use of bank credit for margin lending.

    Henry Simons was a founder member of the Chicago School of Economics and he had worked out what was wrong with his beliefs in free markets in the 1930s.
    Banks can inflate asset prices with the money they create from bank loans.

    Henry Simons and Irving Fisher supported the Chicago Plan to take away the bankers ability to create money.
    “Simons envisioned banks that would have a choice of two types of holdings: long-term bonds and cash. Simultaneously, they would hold increased reserves, up to 100%. Simons saw this as beneficial in that its ultimate consequences would be the prevention of “bank-financed inflation of securities and real estate” through the leveraged creation of secondary forms of money.”

    They had worked out where they went wrong, but by this stage everyone else had moved on with the New Deal, and no one was particularly interested in their findings.
    They had missed the boat.

    Hayek was at the LSE, and seems to have been totally oblivious to the Wall Street Crash, and it never even occurred to him that there might be something to learn from it.
    He just ploughed on as if nothing had happened.
    In the 1940s, Hayek put together his theories of the markets being a mechanism for transmitting the collective wisdom of market participants around the world through pricing.
    It was never going to get into the mainstream until nearly everyone had forgotten what happened last time they believed in the markets, i.e. the 1980s.

    Unfortunately, Hayek won out and the lessons of 1929 were forgotten.

    What lifted US stocks to 1929 levels in 1929?
    Margin lending and share buybacks.
    What lifted US stocks to 1929 levels in 2019?
    Margin lending and share buybacks.

    A former US congressman has been looking at the data.

    The Americans are going to re-learn those lessons the hard way.
    It’s a pity they didn’t stick with their own free market thinkers who worked this out after last time.
    They’ll be cursing Hayek soon.

    • 91B20 1stCav (AUS) says:

      Sound-you don’t really mean to say it ISN’T different this time, do you???

      may we all find a better day.

  38. Michael Gorback says:

    If you bought individual bonds in 2015 and held them you should have seen a return on the price at least.

    I accumulated bonds until the 10 year fell below 2%. Then I held. Now I’ve been slowly divesting and going into REITs. I won’t disclose specific companies because I don’t want to look like a tout, but you need to look beyond the residential and retail REITs.

    There are REITs that own cell towers and fiberoptic lines. They will benefit from 5G. This is overlooked by many because they are classified as real estate so if you search for 5G plays they don’t show up. You get tech stocks.

    There are REITs that rent out data storage centers. The “cloud” is actually a bunch of fancy electronic boxes in buildings.

    There are REITs that own industrial properties including distribution facilities (see my comment about “the last mile”).

    Then there are the picks and shovels stocks (not REITs per se) such as lenders that specialize in real estate loans, and real estate management technology (basically operating systems for real estate).

    I’ll never be a billionaire but these companies have been my own little fleet of rocket ships in 2021. I do own one residential REIT and two CRE REITs. I don’t think I’m giving out any secrets that one is SPG based on my shopping mall post.

    The residential company is just because it’s the place to be right now and I like the yield. End of story.

    The other CRE company does triple-net leases to single entities in defensive industries (eg 7-Eleven, Walgreens). They took a hit during the lockdown like everyone else but most of their tenants are in “essential” businesses that stayed open and blunted the pain. It’s not a price performer but it pays nice monthly dividends, with over 25 consecutive years of dividend increases.

    Personally I’m avoiding healthcare real estate. It’s tempting to buy into nursing homes or assisted living because they’re still still making lots of old people but your primary payer will be Medicaid. They set what they pay. It’s not negotiable. Regs are horrible.

    I don’t like physician office space REITs because independent practices are dying off. When doctors work for a hospital or corporation they’re going to be on-campus in offices owned by their employers. I don’t see a future there.

    You can try the re-opening REITs that own entertainment venues (theaters, casinos, etc) but I’m not risking money betting against covid.

    Shop around and think outside the box. There’s a ton of dividend payers out there that could serve as bond substitutes for income (plus price appreciation) and they’re not all in multifamily, SFH, or retail. Also look for the one-offs like specialized lenders and service providers.

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