Wolf Richter with Jim Goddard on HoweStreet.com
With widespread, massive, and entrenched inflation, there is no soft landing.
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If politicians get in charge like in Turkey today there is no stoping. in that case people are going to demand inflation.
America’s real yields are just as deeply negative as turkey’s, yet the dollar dominates while the Lira languishes. Our political system is about as sound as theirs as well.
I just bid on asset with REAL WORLD YIELD OF 6.5%
have 50/50 chance at it
If it sounds too good to be true…
“Our political system is about as sound as theirs (Turkey) as well.”
Well, not quite— but we are gaining!’
The Dollar’s status as the World Reserve Currency is/was ultimately backed by the ability of the US financial/economic system and the US Military to dominate all the weaker nations and entities in it’s sphere. It’s kind of hard to maintain that illusion after so much of the actual US productivity has been off-shored to cheaper labor markets with potentially higher profit margins leaving the US economy resting upon a bankrupt middle class, a labor force of illegal immigrants, and tent cities of despair living (and dying) from fentanyl.
The only area of world domination where the US still remains supreme is that of Medical Totalitarianism, and that area of control is coming under massive attack by resistance movements in places like Belgium or is totally discredited by the actual experiences of areas like Utter Pradesh, India.
And as for the world dominance of the US military system only a blind and totally senile Neocon and NATO leadership could still believe in that fiction. Not after a rag tag Taliban army sent the US forces running from their country with their tails between their legs, leaving behind enough weapons to outfit the 7th most well equipped army in the world. Or in the face of a country (Russia) that was destitute 25 years ago and now has achieved technical dominance in the area of hypersonic weaponry against which the US and NATO are totally defenseless. (While operating upon a military budget 1/10 that of the US.) Russia now has the ability to draw lines in the sand (“Never again will we fight a war on Russian soil”) while the senile US leadership only elicits fear of their incompetent behavior– not respect in the world.
Not to forget that the sphere of US dominance no longer includes China, the Russian Oligarchs that it cultivated following the collapse of the Soviet Union, most of the Middle East, much of Africa, and much of Latin America.
LMAO its much worse. What other country on the planet is in debt like we are. A debt that will never be payed back. Not one dime that we have borrowed has ever been paid back. We borrow more money to pay off old debt and interest. This country has been bankrupt since the 60’s. Its all a illusion smoke and mirrors. And it’s now at the end of the cycle. Inflation has always been here since we left the gold standard. Just because the FED says inflation is so and so don’t make it true. And its all by design, dont think for a minute there not gonna intentionally crash the dollar. Crypto is the next currency. Do you really believe some anonymous person invented bitcoin? It was a test. Inflation has yet begun, you havent seen nothing yet. Get your wheelbarrow out, because thats what its gonna take to buy a loaf of bread soon a wheelbarrow full of money.
Inflation will benefit the rich and harm most Americans, so I doubt it. Most Americans’ wages, savings, and purchasing power will be harmed by inflation. Only the rich, whose businesses allow them to pass through all inflation, would enjoy inflation because it reduces the real value of their debts and of the wages that they pay their workers.
Admittedly, some highly indebted Americans may enjoy having their debts reduced also.
While watching daily +2% soaring of stocks, with bear markets lasting no longer than 2 days, one may get the impression that stock markets already reached the Moon…
Absolutely not.
DJIA:
YTD +12.98%
YOY +15.38%
On par with REAL inflation.Or even less.
What is the point of all this QE BS ?
I am so not amused that I am switching to Latin:
Parturiunt montes, nascetur ridiculus mus…
Like the quote.
Translation: The mountains labored, and a ridiculous mouse was born.
This inflation is enough to drive one crazy.
Futures seem to fork just ahead. Go one way, suffer one fate. Go another, suffer a different fate. There appear to be no good ways out of this bind.
This is the great dilemma of capitalism. It is an engine that is prone to sputter and start again. Everyone agrees there is no alternative, but only one has been tried: Communism in its different forms. Perhaps someday a better economic system will rise on the horizon and work more smoothly than capitalism has.
The US hasn’t had capitalism for quite some time. CPI used to swing wildly both bositive and negative from year to year. All that has been “managed” since around 1960, and now CPI almost exclusively increases from year to year.
https://cms.zerohedge.com/s3/files/inline-images/CPI-Inflation-1774-Present-Ann-ROC-112221.png
It’s not capitalism that’s the problem. It’s the banking system. Throughout history it’s almost always been a monetary problem.
Nothing to do with the 3 or 4 companies that control almost every industry, esp. banking?
Banks control way more than you seem to be aware of.
If you mean hedge funds like Blackrock or Citadel control almost all major companies through controlling share, spot on. Banks provide lending to hedge funds, and whoever else participates in the repo market.
Doesn’t capitalism require actual markets. Not sure we have capitalism or at least it’s crony capitalism.
By definition crony capitalism is not true capitalism. Otherwise you wouldn’t need the word “crony” to distinguish it.
All economies exist somewhere on a continuum between pure capitalism and pure socialism. What we have now Matt Stoller calls “counterfeit capitalism.” If you’re connected, you’ve got access to unlimited “free capital” even if all you can do with it is ripoff shareholders by subsidizing taxi rides and subletting office space but if you’re a working stiff you’re paying 20% on your plastique and subsidizing the banks with overdraft fees.
Capitalism as a theory was destroyed by the lack of antimonopoly enforcement.
So true can’t charge a thief when you are the thief jp
In free markets, consumer is free to choose. Consumer can do business with a dominant player or a minor player. Antimonopoly enforcement is unnecessary.
Monopoly exists where it exists due to regulations which create a high barrier for competition or which eliminate competition altogether.
And duopolies: When H. Bush nominated Bork to be a Supreme Court Justice, Bork said that if there are as few as 2 companies competing in an entire industry, there’s no monopoly.
Yes. Classic free market capitalism assumes consumers have “perfect knowledge of all facts relevant to a purchasing decision, and there are an infinite number of suppliers. This means that advertising doesn’t work, and monopolies and con artists can’t exist.
To correct for these and other market imperfections, government regulations that are actually enforced are needed. Otherwise, one can’t tell whether one is buying fresh milk, or milk treated with borax to make it taste fresh. (Check Victorian era health hazards for that one, and many other hazards of an unregulated market.)
Actually, it was also destroyed by the taxpayer sponsored bailouts out of corporations that deserved to go bankrupt, thereby eliminating that essential Darwinian effect of capitalism and creating moral hazard.
So, it was not only destroyed by a lack of anti-monopoly enforcement, it was also destroyed by monopoly encouragement.
Why? BOUGHT GOVERNMENT and the desire of pols to always take the easy way out, enabled by central banks and absolutely garbage economic theory “justifying” it.
“When buying and selling are controlled by legislation, the first things to be bought and sold are legislators.” – P.J. O’Rourke
RepubAnon,
Let me throw this back at you.
Monopoly enforcement by the government assumes the “perfect knowledge of all facts relevant to a purchasing decision in advance”. The government just doesn’t have that ability. It’s no fairy with pixie dust.
For free market to work, consumer doesn’t need to have perfect knowledge beforehand. S/he just needs the freedom to walk away from the con and to a competitor.
If your electric company is causing wildfires or overcharging, freedom to get electricity from someplace else. If you don’t have that freedom, you have a monopoly.
Brand names are built based on consumer trust and preservation of that trust is more effective than government control. And as Winston said, when buying and selling are controlled by regulations, first things bought are the regulators.
Nacho Bigly Libre – let me throw this back at you.
“ The government just doesn’t have that ability. ” referring to perfect knowledge wrt Monopoly enforcement.
“ he just needs the freedom to walk away from the con and to a competitor” – you just said the government can’t enforce anticompetitive practices.
Speaking of magic pixie dust, how does your magic pixie dust work here? Consumer trust, like through a third party like Yelp or Google reviews?
How’s that working out for you so far?
RockHard, Good question. Glad you asked.
It’s working out great for me and it’s been working great for you too, realize it or not.
Brand names are worth a lot for the companies. It gets established and reinforced with word of mouth, online reviews and own experiences.
There are tons of regulations around food safety, none of them could prevent Chipotle customers from getting Salmonella. Once there were outbreaks, customers stopped going there. The company then enforced stricter food safety protocols and turned the reputation around.
Same goes in all categories. Barber shops, coffee shops, banks, online stores.
Monopolies don’t last forever in the free market. When a better option comes around, consumers vote with their wallets, ‘monopoly’ crumbles. Sears, IBM, intel, GM, RadioShack, and countless more.
Monopolies continue to thrive only when there are mandates or high regulatory barriers.
The unelected cartel acting too smart for their own good and wrecking everyone’s lives with it.. that’s what this is.
Nordic countries managed it pretty well. Speaking from experience.
These countries have had a common culture with presumably a social consensus.
It’s one thing to have such a society with a cohesive culture and a population the size of a (moderately). large city
It’s another entirely in a country like the US with a population of 330 million on the path to full-on Balkanization where many of the leaders are intentionally trying to destroy it.
That lack of ANY social and cultural cohesion on a national level, and the negative effects of quasi-Balkanization, is one of the things that is on my mind a lot.
No national zeitgeist except maybe sports, consumerism, and extreme individualist nihilism.
There are psychological as well as practical benefits to living in a culture where there is still a national feeling of unity, like in Thailand where I presently reside.
Let’s say the US had undergone a split into 9 regions or so based on shared culture. Would COVID have been handled better in most of these regions? Would the Dixie region have done better than the New England region or vice versa?
The Chinese are now openly challenging the USA’s path and system on its imbalances in the direction of incoherence (and related unmanageability, and bad externalities thereof, social, environmental, financial, etc). While I shudder at the CCP model, there is a point there. This place is ungovernable, which some would cheer. The government’s money printing is an attempt to impose a coherence where there is growing fragmentation. Will it stop and reverse? The Depression and WW2 were the last time it did.
Yeats:
Turning and turning in the widening gyre
The falcon cannot hear the falconer;
Things fall apart; the centre cannot hold;
Mere anarchy is loosed upon the world,
The blood-dimmed tide is loosed, and everywhere
The ceremony of innocence is drowned;
The best lack all conviction, while the worst
Are full of passionate intensity. ….
Phleep, the Yeats poem could stand some editing and updating: ‘”…the tide of utter selfishness is loosed” and “… the GOP lacks all conviction…” (I used to be Republican).
strife and unrest is baked into the diversity cake.
drifterprof: Spot on. Regional differences and cultural conflicts abound. In one Arizona small town, the people there complain about “Californians” moving in and ruining things.
When it comes to Nordic examples it’s always debatable whether they are successful because they managed their economic system well or simply their wealth. Sweden and Denmark were pretty rich countries to begin with, not to mention the oil-billionaire Norway. They can afford to live in whatever system and ideology they wish.
It seems like that historic wealth effect may be a better predictor of well-being than market regulations or social factors. The Soviet Union did not fail primarily because of communism*, but simply because it was a collection of very poor countries, while France and the UK can keep on rocking for hundreds of years to come due to the wealth accumulated during the colonial era despite having giant cracks in their societies.
*BTW there are tons of interesting litreature on the flawed economic system of ex-socialist countries: one should not imagine it as solely a government-controlled regime – even though it was the main fault of its design. Hugely recommended reading is Kornai’s anti-equilibrium theory and the effects of shortages: also applies to the contemporary capitalist situation in 2021!
Professor:
“it’s always debatable whether they are successful because they managed their economic system well or simply their wealth”
Finland have never been a super wealthy country. Still, the way it’s managed is excellent. No wonder it was ranked #1 as the happiest country (I lived there for 10+ years and can attest). BTW, all the Nordic countries are in top 7 (USA is 19).
The wealth effect can be transferred across borders both in actual money or in the form of human capital. Up until the early 2000s there was huge a huge Finnish immigrant population living in Sweden. For example people who worked at companies like Ericcson and then moved home and transformed the local industrial conglomerate into a world-conquering mobile company.
Of course I’m not debating that the Finns wouldn’t be wonderful people – but out of all the Nordic countries they are possibly also the most conservative and least socialist, so it’s also not a good example of market regulation changing the economic landscape.
Why is the Fed allowed to COMPLETELY IGNORE two of their three mandates. (some say three)
*Mandate #1 The Fed is supposed to promote maximum employment yet what they do with rates has had the OPPOSITE EFFECT. The free money to promote inflation is borrowed by the federal government and paid out in a fashion that discourages employment. Fail.
*Mandate #2 The Fed is supposed to promote stable prices, yet they promote just the opposite, INFLATION, which is now running circa 6%. Fail
Mandate #3 The Fed is supposed to promote moderate (not extreme) long term rates, but we have near record lows, 30yrs almost 3% below inflation. Those rates are IMMODERATE and EXTREMELY low. Fail.
*What should be done when it becomes clear the Fed is answering to another voice than their mandates/agreements/instructions under which they are allowed to operate?
*What should be done with Fed Governors front running Fed policy and likely tipping off others (hedge fund managers and friends)?
One of the worst things Congress ever did was expand the Fed mandates to such an extent that now they have the mandate to manipulate the financial markets every single day.
Inflation running at 6% ? You sure about that, because I’m not
Based on reported measures, I’m sure that it is at least 6%. Do you think the real value is higher or lower? I’m judging my COLA increase on 6%.
“Perhaps someday a better economic system will rise on the horizon and work more smoothly than capitalism has.”
Vulture Capitalism FIFY
There was almost no inflation during the Industrial Revolution in the UK, 100 years or so, and little in North America up to the 70’s. Those ‘picker’ where guys buy old vending machines…the price on many is cast into the metal. A bottle of coke was 10 cents for 50 years. I can remember the first time it took more than one coin to buy a coke it was 74 and it took a quarter plus a dime. That was after the 73-74 ME war. Before that oil was under 5 a barrel and always had been.
There are lots of grounds to fault unregulated classic capitalism, inflation is not one.
Unrelated comment: The head of Canada’s CMHC, the gov agency which provides mortgage insurance says he ‘does not see present factors culminating in a housing bubble’
Which should give the Opposition some ammo come Question Period.
Paper fiat backed by nada except the threat of violence.
Full faith and credit of a nation is nothing to sneeze at, but how tenable is it once the money printer is activated?
The mortgage guy in Canada doesn’t see the melt up in housing because Chinese money is pouring in and paying cash. The local population can’t qualify for mortgages, especially if they have been furloughed due to not taking the jab.
5 oz Coke was a nickle,,, $0.05,,, five cents,,, when I was a kid,,,
Pepsi’s main sales slogan was, ”Twice as much for a nickle too,,, Pepsi Cola’s the one for you!” and that ran for many years…
RC Cola and it’s various sub categories of 12 oz sodas were 10 cents for some years between later? ’50s and ’70s, but if you look really close, it appears to me they are a lot cheaper in ”real money” than they were in the ’50s???
It was a satisfying clunk when you pushed the handle to rotate the 5 oz bottle to the opening. And it was cane sugar, not corn, a crisper taste. But good point about relative cost. A nickel was a big deal for a kid.
Trivia re: Canadian nickel coin. A magnet won’t pick up ninety three or earlier year cuz it’s nickel. Newer ones are nickel plated steel and magnetic. It would cost well over face to make a nickel of nickel.
Needless to say the ‘copper’ or penny was no longer copper long before we killed it off.
This isnt capitalism lol. This is tyranny.
“Sic semper tyrranis”
John Wilkes Booth
The Fed has many regulatory tools to tamp down access to credit, yet they aren’t using any of them. Access to credit is what directly determines inflation. QE and interest rates are indirect mechanisms. Access to credit is a door that can be slammed shut for “bad” borrowers.
PS Is the FHFA decision to raise the conforming loan limit by 18% in one year tamping down on inflation? What government is saying about “inflation concerns” and what they are actually doing are two different things.
And ask yourself this: is Build Back Better anti-inflationary or pro-inflationary? To me, most of what that bill does is to provide subsidies to hide the inflation that it directly produces.
The bill is pork and welfare, not “investment”.
Mortgage guarantees are subsidies (welfare) to loan originators and MBS buyers, employees in the mortgage business who have jobs that otherwise would not exist, any shareholders who own stocks in a company in this line of business, and home debt slaves (aka, homeowners). It’s all at the future expense of taxpayers when a future “black swan” leads to a “fat tail” event when the system blows up. Fake stability disguised by distortions created through more government moral hazard, like the GFC but only worse.
Since forever there has been talk of the black swan event.
Yet now that it has arrived it seems invisible to most.
Black swan event ?
That would be…..The Pandemic.
Very person who coined the term “black swan” (Taleb) denies the pandemic is a black swan event – he calls it a white swan event – one that was predictable and expected.
You can read or watch that interview.
Augustus
Agree. The geo political tinder boxes all over the world will likely create a Black Swan. Then what does the Fed do?
They have abandoned free market concepts, rely on their own decision making, and now have all the happy buttons pushed.
I suspect this magical wealth will be melted away as the feeble attempts to raise rates and halt stimulus will be enough to temper stock enthusiasm, but will also be woefully short of any real effect on inflation. A couple of 1/4pt raises does nothing.
The magical wealth creation will eventually melt, due to inflation and stock prices that do not rise enough to cover.
AF: no one (except for the very wealthy) would have talked of “moral hazard” when the government introduced the GI bill which probably created the “golden age” of our economic system. The idea was to create a middle class with home ownership as a centerpiece, that and free higher education to propel employment for returning vets. Unfortunately, it’s morphed into something else. But… don’t forget the popularity of these “subsidies” when they were first created. And in case you’re not aware of this, the GI bill did not apply to African American vets who fought in the war. They were intentionally left out.
For OTB:
Pandemic(s) are only grey swans at their darkest these days, unlike the Great Plagues, etc.,!!!
THE Black Swan event eventually coming with almost certainty is a coronal mass ejection, CME, AKA ”Carrington Event” similar to ones that clearly already have happened to our world.
Until then, we are just puttering along publicly pretending to have some sort of democratic capitalism, while in fact having just about the same level of oligarchic corrupt control of economy, etc., as per the last thousand years.
After that, we will have an entirely new world; what that world will look like and live like is entirely speculation at this time,,, though very intriguing potentialities certainly appear possible.
COVID is definitely not a “black swan”. Love or hate the policy response, the economic damage was mostly self-inflicted.
As for the GI bill and moral hazard, the only connection I see is that once society allows government to provide “free” benefits, the wealthy will inevitably win that unequal horse race, yet the populists continue to believe otherwise.
It’s my opinion that the GI bill was created not to repay servicemembers for their war service, but because the consensus at the time was that the US economy was at risk of relapsing into a depression and leadership considered it dangerous to have millions of unemployed but militarily trained men to have no means to support themselves or their families.
It seems obvious that the government used the covid crisis as an opportunity to generate high levels of financial repression. I think that is going to be the game. Fed will be ok to let inflation run at 4% for a few years and keep rates down at 1% or so. Or maybe better yet let it run at 8% with interest rate at 4%. They want to 1) have a substantial negative real rate and 2) get off the zero bound
That gets them nowhere. They’ll have a violent revolution if they do that. Those policies have brought us to where we are – a place where no young person has any hope of ever even affording shelter. Yet the FED’s going to continue? I’ll show you some heads on pikes if that’s the case.
Depth Charge is right. The one thing they have no stats on whatsoever is the working homeless. This is a population that does not want to be known at all- let alone counted. If people are homeless and have a job the majority of them know that if their employer finds out then they will be the first let off. Tomorrow if not yesterday. Homelessness is a real economic indicater that we know very little about. It increases each time real estate prices increase.
There is an recent excellent article defining the process by which many towns are loosing workers because of lack of housing “how to save a ski town”. It has NOTHING to do with skiing. It describes the entire state of California and many other places- not just resort towns, but also main urban centers and job centers like Dallas. Portland Or. has tent cities full of people who are working full time. Other places have workers quietly living in their vehicles or in state and national parks.
All this is causing scattered, angry and desperate migrations. As stimulus to the unemployed and rent moratoriums disappear it will make for an extremely volatile and dangerous population. Formally organized or more targeted crime and violence. Like we see with flash-mob robberies. Either way is not pretty. I think they know that.
I’m not sure even the fed wants a large percentage of the population to have to hire armed home guards or to have elementary school teachers kidnapped and held for ransom.
If you slam the door on credit you will eventually fix the problem. However, in this case the solution to the problem creates other problems, like unemployment and recession. There’s no exit except through the door marked “more pain, just different”.
And how would you distinguish bad borrowers from good ones? Are the bad ones the people with low FICO scores who are a credit risk, or greedy rich psychopaths like Mitt Romney and Michael Milken who borrow in order to destroy businesses for millions in profit?
The bad borrower is anyone who would either never be able to borrow at all or anywhere near the same terms in an undistorted market.
Without government guarantees and other distortions creating similar moral hazard, no one would lend their own money at anywhere near current rates on such ridiculously inflated collateral on such lenient terms to what are actually disproportionately marginal borrowers.
That’s all anyone needs to know to conclude that we have a fake mortage market in this country, one of many fake components in this economy and financial system.
To know what an undistorted mortgage market looks like, look at credit standards prior to the 1930’s. 40% down for five years with a balloon payment. The 30-YR fixed doesn’t exist in most countries either.
With computer technology, I can see somewhat more lenient standards versus pre-Great Depression but nothing close to what exists now, if the government didn’t distort the mortage market.
This is not about lending or borrowing, where money goes from one pocket to another.
It’s about fractional reserve credits, where the integral over demand acct balances increases, and you pay your creditor for money that did not exist until you signed and your credit was approved.
And if the reserve was 5%, don’t forget to multiply the nominal interest you’re being quoted by a factor of 20 to get the real interest rate. Your creditor only committed 5% in reserve, but you’re paying interest on the full face value entered as “credited”.
Visa MasterCard easy don’t borrow
3% down payment equals no skin in game hasn’t worked in40 years stupid
What happened to 20 % down worked perfect
Creditors don’t create money out of thin air, only central banks and governments do.
Like the federal government.
The Fed doesn’t need to ‘do’ anything. It needs to stop doing something: supplying virtually unlimited credit at negative real interest rates.
It is the cost of credit that would rise without the Fed’s intervention. The problem is Fed intervention in pricing credit. If real estate is rising at 10% and the Fed, via buying mortgage bonds, supplies mortgages at 3%, the speculator just keeps buying.
That’s a pretty bleak, but accurate look ahead I’m afraid. The slow quarter-point interest rate increases will probably not rein in the inflation that has wrapped a tight squeeze around the purchasing power of the dollar.
I know I am not alone in wanting to have stable prices and a return of 4% on medium term Treasury Notes.
It would be nice to be able to park some money in a safe place and generate a modest income for living expenses. Is that asking too much of the Fed? (Answer: Of course it is.)
Dan,
Check out Gov Series I bonds paying currently 7.12% with two inflation adjustments per year.
You have to buy between this year and April 2022.
Google this without quotes:
How to Buy I Bonds (Series I Savings Bonds): Soup to Nuts
I don’t know if it was you who mentioned that before on this forum. Anyway, thanks for you or the other person that provided the info. I opened my old TreasuryDirect account (which I had decided, in disgust, to ignore) and bought $10,000 of the I Bond.
Can’t buy the potential $5,000 more (total $15,000 limit) because can only get that through tax return.
Drifter,
I wrote to the author of a MarketWatch article and you can put in 65k in it.
It’s a bit complex, but here it is.
Just set up a revocable living trust for yourself and for your wife. It takes about five minutes each, just one paragraph saying you are putting your shoelaces (or anything) into it.
If you are single then the total is 35K annually since you can only set up 3 accounts instead of 6.
$10,000 in Person A’s personal account with Person B as the second owner
$10,000 in Person B’s personal account with Person A as the second owner
$10,000 in an account for Person A’s trust
$10,000 in an account for Person B’s trust
$10,000 in an account for Person A’s business
$10,000 in an account for Person B’s business
$5,000 using money from their tax refund
Martok
Thx – will try it
Some of my I bonds are paying 10.85%. Pretty sweet deal for the world’s safest investment.
JeffD,
Agreed, and I saw a percentage history of those I-Bonds, and sure looks good to me, and got as much as I could this year, and will next year.
At this point in time they are much better looking than the “rigged casino stock market” that is absolutely insane to me!
And only to be outdone by Crypto’s, NFT’s, SPAC’s – where everybody is a winner (extreme sarcasm here)
And when the levee breaks, these mistakes will be very ugly.
“And only to be outdone by Crypto’s, NFT’s, SPAC’s – where everybody is a winner (extreme sarcasm here)
And when the levee breaks, these mistakes will be very ugly.”
Everything is BTFD right now. Just look at what happened with crypto – an absolute wipeout followed by a bunch of chuckleheads screaming that they BTFD. Even El Salvador’s President was on Twitter or something, bragging. We are living in Clown World. It’s absolutely disgusting. Hard work is not rewarded, only reckless gambling.
The FED should be deeply ashamed of what they have turned the US into. How do these pigs look in the mirror? One thing I have always admired about the Japanese culture is their sense of dignity, pride and honor. If Powell, Yellen and Bernanke shared the same, they would do society a favor and perform seppuku.
Depth Charge,
Well said my friend and absolutely right.
BTFD has been in full force that it so reminds me of the days before the 2000 crash, but this time it’s worse where the younger retail investors are the chuckleheads that will be devastated when the “big boys” of WS start selling, as we see taking place already.
I foresee all those binary crypto BS currencies backed by nothing crash diving, and possibly accelerating this coming crash like we have never seen before.
The Fed won’t be able to stop it.
Until government goes bankrupt
Ron, if that happens, everyone is screwed, not just folks holding Ibonds.
And not just the United States.
Thanks for the tip!! I’ve been holding some of those I-bonds bought at the last moment when they paid interest (late 2001) and they have been good steady earners, around 4% on average. I didn’t realize the Treasury had opened the gate again.
Polistra,
Yeah it was just announced in Nov 2021, and open till Apr 2022.
I believe they will do good during this inflationary period.
Been looking at some TIPS, Muni, etf funds too paying similar rates.
polistra,
Understand that I-Bonds come with two types of rates, and what you bought in 2001 doesn’t exist anymore:
1. The base rate, which is near short-term T-bill yields when the bond is issued but remains fixed for the life of the bond. This rate on new bonds issued today is close to 0% and will remain at 0% for the life of the bond.
2. The CPI-adjusted variable rate. It is this variable rate that has now been raised to over 7%. When CPI goes down to 1% in a few years (god willing), those bonds that you bought today with a base rate of 0% and variable rate of 7% will pay interest of about 1%.
Also, current generation I-Bonds mature in 10 years, but you can roll them over for another 5 years (I believe). If I read your statement correctly, you have I-Bonds from 2001 that you still hold. Maybe they were based on a prior set of maturities. Or maybe they matured and stopped paying interest years ago. So you may want to check if those bonds are still paying interest. If they’re still paying interest, it should be the base rate of 2001 plus today’s variable rate.
The 2000’s I bonds pay interest for 30 years. They were a great investment, and Greenspan made a comment when they were released implying they were giveaways that only a fool would not grab.
But the most important part “you left out ? ” you can only Buy $10,000 worth so basicly worthless ?
You expect to live on interest from only $10,000 ? how are you going to pay tax’s live in a tent then ?
End the Fed
You can buy $10,000 per calendar year. $20 K if your wife opens an account. Also, overpay income taxes by $5,000, then you can request the $5 K as a paper bond sent to you.
This is all better than 0.05% at your bank. And better than a bond fund.
Everyone in your family can have one, so a family of four can buy 40K. One wag proposed taking a 3% REFI on the family home, and buying Ibonds.
Thank you very much for the info! I am new to this. Just for clarification, does the 7.12% variable interest reset for everyone starting May 1st or does it last 6 months from bond purchase?
In our system with elastic money the Fed can conjure savings out of thin air and also they can devalue your savings with financial repression. When country is over indebted thanks to the Fed, I don’t know that they have too many other options.
Fed’s got a tough decision to make. Dividend yield on stocks and treasuries are highly negative in real terms which means to invest for income doesn’t pay and that means stock and bond will collapse once you can get 1% – 2% on a t-bills.
Greatest party ever champagne cocaine whores next day worst hangover in history repeat of 1929 gonna happen
What makes me an outstanding commenter? I listen to the podcasts. I am sure half of people here post comments without reading the content. Other half not even the title.
1. There is a reason for the U turn. He forget to pick up the fuel to add to the fire.
2. Increase in 3% of the rates is a dream. Lets see if it goes up to 1% in 2022. Even an increase of 2% will be damaging
3. “Consumers are smart” Nope. Good psychologists work for the sales and marketing department. They know how to market stuff. They make you buy refrigerator in artic.
The way Volcker handled it was not by his famous rate hikes. It was his contraction of the money supply.
He changed “easy credit” into “expensive credit.” The prime lending rate exceeded 21 percent. My first mortgage was 13% in 1984.
Consequences of Volcker’s contraction of money supply and increased price of money:
Unemployment reached double digits. The dollar depreciated significantly. We had two recessions before prices finally stabilized.
I’ve been saying for years now that there is no graceful exit to this situation. It’s like fixing a broken nose by re-breaking it. Still gonna hurt and look ugly.
Von Mises explains a “crack-up boom”:
“The first stage of the inflationary process may last for many years. While it lasts, the prices of many goods and services are not yet adjusted to the altered money relation. There are still people in the country who have not yet become aware of the fact that they are confronted with a price revolution which will finally result in a considerable rise of all prices, although the extent of this rise will not be the same in the various commodities and services. These people still believe that prices one day will drop. Waiting for this day, they restrict their purchases and alongside increase their cash holdings. As long as such ideas are still held by public opinion, it is not yet too late for the government to abandon its inflationary policy.”
The current state of the boiled frog. Early on you can’t tell if the dollar in your wallet came from a kid buying school supplies or asset inflation from a recently sold Van Gogh.
The SHTF when people finally wake up to the destruction of their money. Money then becomes a hot potato that you spend as soon as you get it. That’s hyperinflation.
As Mises said,
“There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.”
I really wish it had come a lot sooner. I think it might have except when Draghi gave his “Whatever it takes” speech we we were back to the races with the “Draghi put”. Without that final (unscripted) sentence we would have seen the collapse before it became this monstrosity. The past decade they’ve been putting bandaids on a brain tumor.
The dollar soared from 1978 to 1985 versus other currencies.
This quote by von Mises is as ambiguous as “the second coming”. It’ll be here, eventually, but it could be sooner, or later, or sometime in between.
The “boom” collapse is inevitable later, or sooner, or maybe later, or a “total collapse” later, or sooner than later… He didn’t really say anything. “Total collapse” may not happen, unless we’re talking about when the sun, inevitably, expands and envelopes the entire solar system. We didn’t have a total collapse in ’29, in ’82, in 2000, or in ’08. There is plenty to worry about, global warming being the first, but even a massive correction, contraction, devaluation, or even a bout of high inflation may not be the financial doomsday that most commenters are obsessing over. How about giving the conspiracy theories the night off.
HowNow
How about giving the conspiracy theories the night off.
and yet you talk about the biggest one, man made global warming as if it were science.
only a simple child will not go into the past and check if what they say is true and you clearly have not checked…..
oh fear, fear, fear…. our temperatures have risen by 1.2C since the start of the Industrial Revolution in 1760…utter tosh…our temperatures have risen 1.3C since the year 1700 as we started to come out of a mini ice-age….temperatures started to rise well before the industrial revolution…but,but it would mean looking into history, something people rarely do…(apart from Mr Wolf who does it all the time) I can even mention USA history from 1776 and Valley Forge…where they complained that the ground was frozen 3 foot deep…… Ice ages are cold, even if they are mini ones. When you measure from the coldest point in the last 2000 years and don’t ask if it was a “normal” temperature then that is cheating and boy do they cheat….
You are assuming temperature readings from 1700s are reliable. Also, you rely on scientists to understand history of temps, yet you don’t listen to those same scientists now? Seems inconsistent.
Anthony thanks for my 1st good laugh of the day, – gotta a bridge in NYC to sell ya.
Those hippies at the Pentagon have given climate change their highest priority and are preparing for it.
Here is a excerpt from their published report from Oct 2021.
“To keep the nation secure, we must tackle the existential threat of climate change. The unprecedented scale of wildfires, floods, droughts, typhoons, and other extreme weather events of recent months and years have damaged our installations and bases, constrained force readiness and operations, and contributed to instability around the world.
Climate change touches most of what this Department does, and this threat will continue to have worsening implications for U.S. national security. To meet this complex challenge, the Department of Defense (DoD) is integrating climate change considerations at all levels, including in our risk analyses, strategy development, planning, modeling, simulation, and war gaming.
The DoD Climate Risk Analysis (DCRA) is a critical step for incorporating climate change security implications at a strategic level. As the global and cross-cutting consequences of climate change increase the demands on the Department, the DCRA provides a starting point for a shared understanding of the mission risks of climate change— and lays out a path forward.
For example, climate considerations will be included in key DoD documents, such as the forthcoming National Defense Strategy, which guides the ways that DoD meets national security challenges. Coupled with the Climate Adaptation Plan, which will help the Department operate under changing climate conditions, the DCRA reflects the
Department’s focus on confronting climate change.
Climate change presents serious risks, but DoD, along with the entire U.S. government, as well as our allies and partners, is determined to address this common threat. The Department will work to prevent, mitigate, and respond to the defense and security risks associated with climate change. By doing so, we will ensure that we continue to fulfill our mission of defending the United States.”
I can supply the link to the PDF, – being educated with the facts is wonderful thing!
the dod follows the political will of the party in power. not the rank and file, but the flag officers and all civilian leaders.
if you actually think modern day climate change science is not political, you’re deluding yourself.
Meteorologists can predict the weather in advance for what? One week? Maybe two?
Models do not equal science. It’s the old principle of garbage in = garbage out. If ‘s based upon assumptions. The idea that scientists can forecast what they claim decades into the future with any precision is idiotic when they can’t even predict the weather any distance into the future. Reality is far too complicated for that.
Pentagon doing “something” doesn’t prove anything, except that they have been given money to waste by the politicians.
Everybody believing that 1+1 = 3 doesn’t make it true, even if they are “experts” or scientists.
There is a difference between actual science and what the scientific consensus claims or believes.
Global warming, aka climate change is a quasi-religion. Having failed to impose socialism through the front door, it’s an attempt to scare people into accepting it through the back one.
Back in the late 60’s or early 70’s to my recollection, it was fear of a (mini) ice age.
So, to sum it up, I don’t believe the politically motivated scientific priesthood because that’s what they are in making these claims. Anyone else is free to believe otherwise.
Anthony, Agreed.
Martok, Those hippies at the Pentagon are just as corrupt as the Fed.
Jake W – listen up, this report has spanned both Rep and Dem admins, that’s if you read.
Put up the facts or STFU
SCIENCE IS NOT POLITICAL!
RockyCreek – my message to Jake W applies to you too
Augustus Frost – ROFL
It’s not just climate change. We need to worry about nature and wildlife for future generations. It’s not OK to level forests so people today can make a short term profit. It’s rather selfish, and mindless. Just in the past 20 years I’ve seen huge growth of commerce and industrialization. Saw a guy shooting a coon out of a tree yesterday, slowly with a pellet gun, because the coon was looking for food on his property, food that he set out for birds. Senseless.
We’re supposed to be officially out of the dark ages. You know where there is actual science to support beliefs. It’s a known fact that the concentration of CO2 (among several heat trapping gases) in the atmosphere is a predominant determinant of how much solar heat is retained in the biosphere. It’s not speculation or opinion.
The same people who argue against this will often claim that our climate is “always changing” often referring to global ice ages and “snowball Earth” because they’ve read about these episodes. How does science know these conditions from the past? They study the chemistry of heat trapping gases in rocks, ice samples, etc. That’s putting it simply and there is a bit more to it but it’s all basic chemistry. So the deniers cherry pick what information they need to support their belief. And why they need to cling to these beliefs is the core issue,
Global warming as a result of heat trapping gases accumulating in the atmosphere is a “global” phenomenon. Virtually every government in the world recognizes it. So how in the world is this some kind of “left wing conspiracy” to tax you into poverty?
How can anyone who thinks clearly recognize this as a political issue? Everyone has access to reading materials where you can learn the basic science of this.
And the DoD has been baking in climate change in their defense posturing for more than 20 years. They understand and even illustrate how it will play out in places like the middle east and Africa. How it will create climate refugees and global strife that will threaten our way of living as it collides with our little part of the world. It has nothing to do who the POTUS is.
I get it. It will cost you. Major investment arms are integrating predicted climate change effects into their decisions. Insurance are baking the models into their risk appetite. Comfort will become much more expensive.
Yes climate changes dramatically but over vast periods of time (compared to a human life span or even that of all of humanity) but this is sudden and abrupt. Just look at what’s happening in Western Canada & Southern Africa & the Middle East. The climate has already changed dramatically in the last 40 years. And it’s just starting.
MarkinSF,
Excellent post, and is the absolute truth.
I’m astonished that so many were unaware and unread of the DoD plans to deal with climate change to protect this country as their highest priority, and their duty, that I posted, – I’m doubtful if it be comprehended or believed by them.
So many want to turn such a serious problem into a political football game, with talking points without facts at the 3rd grade level, or less, of discussion.
There are 195 countries who have agreed to the climate change initiative, and the auto companies have set dates to produce only EV, Saudi Arabia moving towards renewable energies, and this list of unmandated initiatives goes on and on, and far too many to list.
However the ignorant are unaware and believe this is a conspiracy. This is so childish, ignorant, and stupid, because their facts consist of a “handful of nothing”.
Bobber, not senseless at all. Raccoon is best in a stew as it’s a bit greasy – like lamb. Also good barbecued.
Seems like pretty simple algebra. If nominal economy grows at 4% and debt grows at a faster rate than that for a long period of time, then the debt service is unsustainable unless you can control the real interest rate of money. Don’t think we can have real interest rates positive other than maybe for a few months until system changes.
Current system means politicians and Fed officials have to be dishonest or at least forecast the most optimistic scenario as being honest with current financial situation would trigger the reset.
“How about giving the conspiracy theories the night off.”
While citing “global warming”.
Cinched as theory by cementing the Religious indictment of “climate denier”.
Destructive inflation is exacerbated by Central Banks gifting money to their gluttonous friends who inflate existing assets while producing nothing.
There is a MASSIVE gap between “conspiracy theories” and “scientific consensus”.
Even if one doesn’t accept the consensus of scientists, it seems to me that we ought to take Pascal’s wager on climate change…
If we take appropriate measures and there is no climate change, we simply end up with a cleaner environment. On the other hand, if we do nothing and climate change is real we are royally screwing our progeny.
“Tragedy of the commons” is a nasty anti-pattern in which humanity seems to specialize. Add to this the “tyranny of the minority” and we are probably going to be royally screwed long term.
Seriously I think you guys are arguing about the wrong stuff. I don’t think there are very many people at all who don’t think the climate is changing. What people and scientists don’t agree on is what percentage is caused by humans and what percentage is a natural cycle and what percentage is some unknown-as-yet variable.. With a polarized audience that question isn’t even addressed. People are too busy fighting.
Science is a practice that assesses and accounts for variables and patterns to give probability estimates. Yes, the probability of a large percentage being caused by human activity is very high. We don’t really know how high. There are things to do about that. But pop science kind of turns probabilities into a rigid religion, especially if one political party demonizes the other.
Some days I wonder if the phrasing of “climate change” and “global warming” is a neat distraction from what *almost everyone* from any walk of life was against in the first place; pollution. If you want more unity use the word “pollution” more. Almost nobody likes it.
What’s most aggravating is how the deniers will use “science” in every activity in their lives – health, mobility, the textiles they wear, the water they drink – yet when “global warming” is mentioned, their blood boils: “hippies in the pentagon” or “the political taxing conspiracy”, the scientific fraudsters that just happen to be at the major universities of the country, and, oh yeah, their “peer reviewers” are conspiring too. “It’s all about getting money out of our pockets, dammit”. Scientists can identify the atmosphere, surface geology, cloud behavior & consistency – surface storms, speed of rotation of orbiting moons on Jupiter, but when it comes to “global warming” on earth, well they don’t know a damn thing!
Michael
“the prices of many goods and services are not yet adjusted”
Wait till after Jan 1.
There will be a cavalcade of price increases. General Mills says up to 20%.
The people that run around and say. “The Fed cant raise rates because of the debt service” are detached from reality.
How can the condition of easy credit which created our problem, also be the Solution? There must be a REAL COST to debt creation……and the word TRILLION, once never mentioned in legislation, is now tossed around casually.
The FED cant raise rates because of debt service!!!
I think the part your missing is… we all know the can, of course they can, but the debt service on government debt and mortgage debt will blow up everything. We who say they can’t raise don’t think keeping rates low is working.
But they can’t raise rates now!!!
10 years ago, yes
In the old days FDR called in gold and then changed value of savings over the weekend in hopes of having the funds for government spending us out of depression. President Biden can try to be an FDR by spending and having Powell monetize the debt with QE and revalue your savings with financial repression over a few years. History tells us government stomping around in the real economy destroys it in the long term.
JH:
How will the higher interest on mortgage debt “blow up everything”? Most mortgages are at a fixed interest rate. The Fed can go to 18% and it won’t impact anyone other than those who have an adjustable (ARM) or those attempting to purchase a home. Home prices will moderate, helping household formation and reduce reliance on vulture capitalist rental communities for housing.
Credit cards are already near usurious. Not much impact there.
Auto loan rates will also skyrocket, taking the pressure off vehicle prices – unless the manufacturers buy down the rates (which they have done for decades, albeit then at a higher incentive cost to do so).
Canadian real estate has doubled, or tripled in the past year.
Tripled East Toronto. We just sold and moved into a bigger place East Ontario. Cut our mortgage in half doing so: payments now for mortgage are 400 monthly. Much better cashflow now.
The only iffy part about move is that Toronto is poised to keep gaining in valuation… We’ll see I guess…
Rent is over $1,500 a month in the middle of Justin Bieber’s home town. Mortgages are cheap if it’s $400.
I love you Cobalt: I don’t have time for the podcasts: I just read the comments on these… Still love you though. : ) Best
Good Post
With this Cost of Energy spiking to levels unheard of (up46% YOY), I wonder to what extent this is not inflationary but rather deflationary. Example, some working class dude who has to commute 50 miles each way to their job near the city now has to fill up their tank and pay sometimes over $100 twice a week just to get to work. That is on top of higher utility bills etc. That leaves less disposable income for discretionary spending on goods and services. This cut in demand may in effect lead to deflation in the price in many goods and services.
At least someone else is seeing it too.
Discretionary spending is going to crash.
Isn’t inflation always highest right before the cycle end?
Consumers drive the economy, and without money to spend the economy will stall, as it does time and again, despite interventions.
I don’t know that anyone knows what is going to happen because the decisions are going to be made in DC or on Wall Street. I am sceptical that treasuries are a worst investment than stocks if you are buying next week and holding for 10 years. Stock investors with a buy and hold mentality were nearly certain to get a good 10 year return buying when SP500 was sub 1000 about 12 years ago, but today it’s hard to imagine that we have not just seen the blow off top in stocks and housing.
Economy on balancing beam raise interest rates screw stock market continue QE screw American people easy to figure out I’m tired of getting bent over as are 50% of population they better be careful could end worse than politicians think
Imagine if you knew…..
The Fed would promote inflation
The Fed would not lift a finger to stop it
The Fed would pump the money supply 30% in 18 months
The Fed would create the greatest gap between savings rate return and inflation
Imagine if you knew this for certain. A person could have made a ton in the markets, never fearing the Fed would “stand to their duties” and do what they have historically done in the past….keep Fed Funds at or near the inflation rate.
Who knew? Who had these guarantees? Who has hijacked the Fed? And why is the Fed not held to their mandates/instructions/agreements under which they are ALLOWED to exist?
And these same people know when the Fed is going to have to take away the punchbowl, and they will profit from that action as well.
Unless Congress starts feeling the heat from the electorate about inflation Powell is going to keep doing nothing but talk. Neither Powell nor Congress and the connected that en-riches them gives a shit about inflation. inflation does not affect them. Inflation affects the majority of the electorate which can be distracted and divided by bullshit which is inflation proof .
Cars used to be a discretionary purchase when they were:
1. Reliable
2. Repairable
3. Plentiful
Only one of those conditions holds now.
The national fleet has never been older, but this has not increased the supply of used cars because new car production has not grown at the same rate as the population. A decade ago, young people solved this problem by moving to urban centers, eschewing cars. Starting last year, however, those who could move, did. And if they had the resources to move, they had the resources to buy a car at whatever it cost.
Tesla pioneered a lot of things. One of those things was building a car only the manufacturer was authorized to repair. Other manufacturers quickly mimicked this practice, with the added detail that it had to be a dealer. It’s extremely difficult to get a proper repair done at an independent shop for a late model car. If you begin having problems, it’s easier to trade it.
I agree that psychology has shifted. One now boasts of being the special person that got in line first and paid whatever, instead of boasting of their superior negotiating skills at the dealer.
But the change in psychology is a result of underlying shifts in the market, not the other way around.
Idiot go to autozone will plug in tell u what’s wrong sell u part fix yourself must be a millennial no common sense
Were people from your generation, whatever that is, not taught to write coherently?
I ran a European car repair business. Good luck diagnosing which of your 12 computer modules has failed at autozone. Some of these cars take 5-10 hours of diagnostic time to sort out modern electrical issues.
It’s taken 6 weeks to diagnose our 2007 nodule issue. At a good repair shop .We are told will cost 1900 to replace. Going to look for one in the junk yard first as that’s about 25 percent worth of the car
@Jon:
Apparently, I had said good luck diagnosing my car at Autozone. Figured out what it was, checked info online, took car to dealership for a repair under warranty (injectors defective at manufacture – active TSB). The dealer gave me all the hokey pokey about charging a $170 diagnostic fee…. I told him the car did the work (emissions light on) and I confirmed it with an OBD II reader.
There’s a lot you can do yourself…. or you can be just like many of the present crop of technicians (no longer mechanics) and throw parts at it until you finally solve the problem (or bankrupt the owner).
Eurotrash will bleed everybody but the wealthy dry. There are proprietary scantools that only dealers and independent shops willing to fork over major moolah have which you need to diagnose certain electrical component failures.
A family member used to have a VW Jetta. With less than 100k miles but out of warranty it had a laundry list of repairs it needed totaling $7,500 (more than the value of the car) if paying the shop rate. She sold it off and got a Japanese car.
You can fix a lot of things yourself, but you do have be diligent and find the exact procedure. If you don’t know what you are doing, you can cost yourself some money or hurt yourself.
I’m seeing one idiot and it isn’t the OP.
GOLD a old persons thing said my kid. I have never owned a gold in a etf or miners stock. Anyone think its a good upcoming choice?
9% appreciated over 20 years doing ok just keeps up with devalueation of dollar great investments
Sorry per year
Gold is the currency of kings and nation states. Silver coin is the currency for all the rest. That said everyone needs 10 or 20 oz of gold coin, not bullion. Gold is not an investment. It is insurance that you hope you never need. When you need gold in a fiat currency scheme , which is what the fiat dollar is ,a scheme, bad shit has hit the fan. This happened in the Civil War and the American Revolution and was regionalized as to its civil impact. My clan was Jacobite’s from the Chattan Confederacy that was sentenced to transportation and 7 years servitude ( banishment and slavery) to Charles Town S.C. They were stripped of their gold safety net when they were imprisoned in England before transporting to S.C. We never recovered until the late 1800’s and it was a meager recovery at that in the highlands of western North Carolina. FDR’s executive order allowed every person 5 coins. A family of 5 could own 25 coins. That is about $45,000 today .That was insurance for eatin’ and living . It was also starting over money if you had to bug out. I am leary of ETF gold fiat paper. In general, you cannot claim physical gold and there are Force Majure (French for,you are f#*ked )clauses stuck every where on the forced settlement in fiat. Owning recognizable gold and silver coin is most important for the individual. Ask yourself this question . What would the farmer take for a few chickens? A handful of silver eagle’s , a handful of pre-1964 half dollars or some Handy and Harmon bullion . The pre 1964 half dollars would be my answer.Gold will not be useful . However, the farmer might sell you a few acres for some gold coin. Also remember this. The gold gleaming in your eye likely gleamed in someone’s eye also 5,000 years ago.
What’s wrong with owning gold kilo bars I buy them here in Istanbul at just over spot Sure seems to make more sense than paying a huge premium for some fancy coin The bars can always be smelted into coins
Are you trading up to a penthouse or waterfront estate yet?
Absolutely nothing wrong with a kilogram of gold or silver bullion. A kilogram bar is wonderful. It is a fortunate person that can own Kg bars of gold.A kilogram of gold is $60,000+. That’s way more than insurance to live on. Unless you could subdivide it yourself it would be hard to subdivide without exposing yourself to risk. There are eyes everywhere. My comment was about the fact that if shit hits the fan a small amount of gold or silver coins can keep you living. Kg bars of bullion is wealth. Wealth happens after eating and living and that’s a different animal .
Kilo bars make the best doorstops. Much better than bags of coins.
I bought some pressure metals and put a chunk into a miner. Gold is probably impossible to value. The best time to buy is when the economy looks rosey and nobody wants a dud in their portfolio. I think if you have unleveraged real estate you don’t need much. If you don’t have any real estate (like me) gold is something real that can’t be printed.
Poor choice with the FED talking about tapering and the prospect of higher rates on the horizon. This doesn’t even take into account the ridiculous premium you have to pay the coin shop. For an American Gold Eagle, you’re going to pay $110 over spot.
The buy/sell spread is $95. That means if you buy a gold coin, walk around for a couple hours, then decide you want to sell it, you will lose $95. That’s about 5 1/2% at today’s price. The math is even uglier for silver. I wouldn’t touch any precious metals right now. My allocation is about 2% of my net worth, and shrinking.
I’m not buying now either for the reasons you mentioned but after all the bubbles start deflating I might because we all know how the FED deals with deflating assets and that could ultimately be very friendly to precious metals
All people should work together to make economic renormalization come faster. Inflation is real and rapidly accelerating. It is also partly psychology. The more it gets talked up the more real it becomes.
People talk openly and loudly about quickly rising prices, this creates anxiety. One must buy goods now bc next year this time price will be 2X. Panic ensues.
The winner borrows at artificially low rates today to buy durable goods to resale next year at a profit. Shortages worsen. Rinse and repeat. Then wait for the rumbles.
I appreciated your commentary on the irrational levels of demand that we are seeing in the economy. I am left wondering when demand will return back to earth and what drives that. How long until consumers max out their credit limits that they paid down with stimulus? How long until cash-out refi dollars are all spent?
I don’t it’ll be much longer. But it’s anyone’s guess. I know quite a few people leveraged to the point of having an extra 20-50 bucks left over at the end of each pay period. The wind doesn’t have to even change just slow a slight bit and they’re insolvent.
I know one fellow that is selling his jet ski he bought this year (for a profit) because of gas prices and his 10′ tall f-150 gets 6mpg and he travels somewhat for work without a mileage or per diem comp.
I’ll keep my eyes on Facebook marketplace and Craigslist. When I start seeing stupid crap toys and old beater cars drop from their pie in the sky prices, I think I’ll know the end of magic money tree helicopter finance will be in it’s death throws.
Something people also seem to discount is the notion that the elites won’t crash the stock market because they’re too invested in it.
Remember, shit flows downhill. The market owners will sell before the bust. It’s the retirees, average Joe spectators, and Reddit retail investors who will burn. Meanwhile, Mr. 19 y/o senior GME stonk expert loses his taco bell paychecks by panic selling to the elites who actually buy the dip and ride it back to the top again. Rinse and repeat. You can get obscenely rich by starting with a fortune and buying in the collapse and then selling at a time like this when everyone is nervously looking around the room because we’re in “unprecedented times!™”
Owners already sold musk bezos sucker berg too late fools short market after Santa rally
“The wind doesn’t have to even change just slow a slight bit and they’re insolvent.”
The wind slowed in 2008 and in 2009/10 the government (which includes the Fed) saved their once- wealthy, then bankrupt, friends. Too Big to Fail/Jail was the mantra.
History has always shown that Economics is always subservient to Politics.
No doubt the Government and the Fed will find some way to finance their friends for their buying spree at the bottom of the market.
1) Sean Austin : can we just be friends ?
2) In 2014/ 2015, while NDX was pumping muscles before breaching 2000
peak and SPX was gliding slowly to the 2015 top, China opened it’s gates to
foreign investors and wall street poured into Shanghai Stock Exchange (SSEC)
3) BB#1 : Jan 5 2015 hi 3404.83/ Feb 9 2015 lo 3049.11.
4) BB#2 : Apr 27 2015 hi 4572.39/ May 4 lo 4099.04.
5) In Aug 2015, after the bust, when SSEC reentered from space to BB#1, SPX suddenly collapsed.
6) On Mar 16 2020 SSEC completed an A-B-C and built a Lazer tilting up.
7) SSEC jumped above the Lazer to BB#1, to 3456.97, on July 9 2020.
8) In Feb 2021 SSEC maneuvered to 3731.69, between BB#1 and BB#2, but plunged to the middle of BB#1.
9) In Sep 14, after the second attempt, SSEC was stopped by the Lazer and dropped to the top of BB#1.
10) Last week SSEC entered the open space, between #1 and #2, hiding
behind the Lazer, on the to BB#2.
11) If one day SSEC drop in a sling shot China & US will no longer be friends.
When normal people suddenly face death they do all kind of crazy things.
Mrs. Crush and I are looking to move from our swank DC bedroon community home to a new area, and so we have been taking trips to check out new developments. New homes that were in the $700’s in 2019 are now in the $900’s. A lot of these developments are populated by retirees. When we drive around these developments, older folks out for a stroll are smiling and always wave. Seniors driving new Stingrays and luxury cars. Restaurants full.
Home prices will not be allowed to drop.
Home prices will drop, right along with all ”assets” whether physical or fantasy financial.
That is a given in our world/global economy, and always has been for eva CtP!
Now the only debate is how much and when for each localized and specialized RE market.
(( Been in the construction industry since the 1950s, and have seen booms and busts in every market ever worked in ( and lived in, ) including FL, CA, London, ” SE and MW USA fly over” as an analyst, estimator, and manager. ))
Were you in London when Real Estate collapsed taking down Canary Wharf and the Reichmans?
Most memories are very short term about “Real Estate prices never fall.”
not sure about timing of either of those events kam,,,
I was ”squatting” in a flat in what had been a very nice house, probably single family house, when first built.
Finsbury Park in the early ’70s,,, not paying even a small bit of attention to the world or local economy except knowing it was absolutely the pits at that time locally…
Tried to find work with my house bros, and was told yes, no questions asked,,,
Pay offered was $5 PER DAY, exactly what was on offer in SF bay area at that time PER HOUR…
Proposed three times to my Wild Irish Rose ,,, rejected three times and moved on to Amsterdam and points south…
Love her, or, more accurately, the memory of her dark red hair and brilliant blue eyes, etc., etc…
it’s cute how so many people think that markets have to be “allowed” to drop. at some point, markets are bigger than governments.
I saw the same thing in Palm Beach before the GFC, lots of retirees buying all over the area, especially in golf communities. When the GFC began, it also coincided with the Madoff scandal, many of these retirees were wiped out by one or the other of these events. Three or four years ago, you could still buy a condo in one of these golf communities for 10K, with a 70K required membership and 1500 a month HOA fees.
$$10K down payment maybe Pet,,, but not in many years the price for any condo anywhere in FL..
Last ones I was involved in ”fixing/rehabing” bought new in ’70s for $50-60K,,, rehab in early oughts was $250-300K PER UNIT!!!
Surprise surprise,,, who coulda known the very very poor cheap construction allowed through the rampant corruption in FL in ’70s-80s was going to cost billions and billions and continuing to fix???
The amazing ”prescient” book, ”Condominium” by John D. McDonald, 1977, should be required reading by anyone and everyone considering buying a condo in FL, with a full exam requiring at least 90% comprehension before they are allowed to buy…LOL
Those 10K condos in golf communities are now going for 100-150K and the HOA is over 2400, the membership fees are still around 70K.
Three years ago you could find them from Boca to Jupiter, for the figures I stated.
VV.
Check this out on zillow, the deals are a little north now, but still available.
13470 Harbour Ridge Blvd #3A, Palm City, FL 34990
Very good value IMHO Pet,,,
But no access to water for your yachet,,, etc…
Will be same price for waterfront sooner and later, as was the case in 2008 and similar times going back to 1956 when dad had no work for six months, always on commission, and we lost the farm and one house to be able to stay in the house he preferred,,, all of those now priced at at least 10x their prices then, except the farm that is more like 100x…
Gotta love FL RE,,, especially if you’re a gambler type,,, but sure better pay close attention ALL the time, eh
You’re talking about the top 10% not the majority Drive around LA or San Francisco and take a look at how the bottom 10% live I’m seeing price reductions on homes and even though perhaps I could come up with the cash , I wouldn’t buy now not to mention HOA , property taxes and insurance which will all be soaring soon No thanks you can have them
“Home prices will not be allowed to drop.” –> I thought he same in 2006-2007.
Poor Black Friday sales seem to indicate that demand is not anywhere as robust as believed.
My own view, all along, is that the increased demand was entirely driven by the 1%-5% splurge-spending their COVID-gotten gains.
People didn’t physically go to brick-and-mortar stores in huge numbers on Friday. Why should they? There were no big door-buster sales, and buying online is so much easier, and they’ve been doing lots of it. Sales were HUGE online over the entire Thanksgiving weekend.
The information I have seen does not match what you say:
https://www.dispatch.com/story/business/2021/12/02/black-friday-draws-more-store-shoppers-year-but-below-2019/8806805002/
Sales were down year on year vs 2020 for every single day of the Black Friday shopping long weekend.
If in-store sales were down and online sale were down – seems to me that overall sales for Black Friday are down vs. 2020 even disregarding inflation.
Given inflation, the actual drop is likely even higher.
The article you linked cited Adobe’s estimates about ecommerce. Adobe does this every year, with iffy results. And it doesn’t match other daily data.
But you didn’t really read the article you linked, it seems because the article you linked also said:
“Total online sales from Thanksgiving Day through Cyber Monday hit $33.9 billion, down 1.4% from 2020.” (Adobe estimates). 2020 was a HUGE GIGANTIC year for ecommerce.
“Because of supply chain challenges, consumers have been shopping earlier online rather than wait until Black Friday.”
“Online sales in November through Nov. 29 totaled $109.8 billion, up 11.9% over 2020. Sales have topped $3 billion in 22 days of the month, a new record, according to Adobe. It expects online sales from Nov. 1 to Dec. 31 to hit $207 billion this year, a 10% increase from 2020.
If you think that consumers are cutting back suddenly, after having had a historic blow-out October, OK, fine with me.
None of this daily data is indicative of anything. That’s why I don’t cover it. Good monthly data is hard enough to get right.
@Wolf
If sales are down, that’s all that matters, no?
Yes, 2020 was huge but a failure to grow is still a failure to grow. Nor did you respond to the inflation question: If, in fact, Thanksgiving/Black Friday sales are flat to down – this represents a 5%+ drop in actual sales since prices increased at least 5% across the board.
Your ongoing focus re: online sales is also somewhat misleading since it should be overall sales – of which online sales are a component – that matter. As far as I understand it, online sales are still a fraction vs both overall sales and brick and mortar sales. Last I looked, online is still under 20% of overall retail.
So fair enough regarding Adobe’s estimates – I will wait to see what other sources note.
“if sales are down, that’s all that matters, no?”
Read my whole comment including the BOLD SECTIONS. It says, citing from the linked article YOU linked, that sales ARE UP 10%+.
What nonsense are you talking about?
The question asked was: what a crackdown on inflation means for asset prices?
Let’s look at the Nasdaq.
Nasdaq PE ratios for specific years (December of that year):
2006: 27.35
2007: 12.07
2008: 13.45
2009: 13.38
2010: 10.49
…
2021: 29.17
Safe to say that the PE ratio will drop at least in half. The actual lowest point on a quarterly basis was 5.48 in June 2008…
Of course, the 2008 crash/GFC was mostly to real estate. The Nasdaq in 2008 was around 2100 vs. 2500 in 2007.
The Nasdaq is 15000 now – and I am 100% certain there is all manner of earning chicanery buried amongst its denizens.
GFC is thus not a good comparable vs. the Y2K Internet bubble pop. Nasdaq went from 5300+ down to the 2-ish levels noted above.
What has played out in the crypto markets over Thanksgiving and then again this past Friday – that’s a preview. Only repeated several times with crack-up booms interspersed.
Note this coincidence:
Prior to the re-appointment of J Powell
J Powell -> ” Inflation is transitory”
After appointment of J Powell
j Powell -> ” Delete the word transitory”
I see a 100% corellation.
absolutely. before being reappointed, powell met with biden and manchin. i think both of them read him the riot act and said that he better actually crack down on inflation as a condition of being reappointed.
Asking J Powell to control Inflation is like putting Count Dracula in charge of your blood bank.
LOL Swamper,,, similar to what my old and older buds said when I was appointed the local Building Inspector!!!
More were, like, ”setting the fox to guard the hen house, eh?”
Will inflation be allowed to run wild?
Will the Fed ignore their “stable prices” mandate?
Don’t expect the Arsonist to reach for the Fire hose.
A crackdown on inflation? when the sole purpose of a central bank is to inflate the currency ?
What a strange thought process.
Paul Volker was FED chief and he sure got the job done back in the early eighties I remember it well as I was laid off and had just bought a home and had an infant to feed Never collected Unemployment just got to work
Plunge Protection Team Director: Sorry you bankers are getting upset about inflation.
Big bankers: yeah, we don’t want to get paid back with cheaper dollars.
PPTD: we can fix it you know. Take about 18 months – say early 2022? Would that work for you?
Big bankers: sounds good, we’ll finance you with dark money. What’s the plan?
PPTD: we’ll crash the crypto markets and vaporize billions of printed dollars being held by people in the middle and at the bottom. That should fix the problem.
Big Bankers: Do it! But keep the selling contained to crypto. We’ll go long gold at the end of 2021.
If you’re going to write fantasy – at least it has to be minimally believable.
That Big Bankers are going to be long gold…ha ha ha
Also pretty clear that you have no idea of the relative sizes of markets.
The crypto market is only $2T total. The overall stock market is at least 40 times bigger. Cannibalizing the entire crypto market won’t make a dent in the larger asset classes.
After ten years of monetary excess we finally have some economic (not just asset) inflation. And the Fed still doesn’t want to back off. Tapering will provide bond investors with marginal gains. Money reallocates from stocks those bond prices will be bid up, so it’s a zero sum game. If they raise short term rates the yield curve inverts, (but who cares really) Whenever stocks pullback, bond yields come down and corporate high yield rallies and the process reinvigorates itself. Interest rates ultimately decide the cost of derivatives and risk insurance. Look at the TED spread.
In a system of checks and balances, as we allegedly are….
Where is the check and balance on the Federal Reserve?
What if they let inflation run hot? (Isnt that what they are doing now?)
Who steps in and says…..ENOUGH? Is not inflation a tax, promoted by an unelected body on the holders of dollars? Taxation without representation leaps to mind. Would the Founders stand for such?
Sherrod Brown, the head of the Senate Banking Committee? Do not Democrats love the extremely low cost of debt creation to fund their Socialism Projects? They won’t object.
And who (“I have mine” group) doesnt want stocks to keep running up? And real estate (their two homes)?
This is a very bad path for society. The ladder has been pulled up….the American Dream of SAVING and eventually getting on your financial feet has been removed. How does one save to buy a house, a car? Keep money for unforeseen events? Punished savings at 6%. Never before at this extreme….with extremely high stocks and real estate.
Again, the main socialism projects were for the TBTG folks and the military trash development.
There are properties in the middle of Ontario where there are no jobs, but selling for millions of dollars. Does the USA have this problem?
If you want a million dollar home, you might go to Naples, FL. There is a 4700+ sq. ft. house with 5 BR, 6 BA on 1.6 acres, beachfront, listed for $27,000,000, sold/contingent.
Florida teachers are some of the lowest paid teachers in the nation. We do not have an MIT, Harvard or Stanford.
For Canadians and the money laundering Beijing sweatshop owner, that is a bargain?
Yes. And less awareness of the global causes.
The Ontario government in Canada wants to raise the minimum wage to C$15 per hour, but the large companies in Toronto are already angry and they want to lay off staff, or replace union staff with temporary workers.
i am a saver. It is behavior learned from past hard times communicated to me from those who suffered and did not want that fate for me. Trillions of dollars of the time value of money which is called interest has been stolen and given to the connected. The power of Gov’t stole it. I see it every where I look in my world. A person of modest means must be abel to exchange an hours worth of their youthful labor represented in savings for an equivalent hour of someone’s labor in their old age when infirmity is upon them. This is a basic function of money. What the Gov’t has done to savers using their bitch the Fed is immoral. Inflation is the legacy of the loss of the time value of money.
1000+
Never have these conditions existed
And it is deliberate by an unelected body
Theft pure and simple
Violation of oath of office by all Fed governors, but that is the sport in Washington DC
I’m a saver to, and will continue to do it until I die. I will not gamble like the FED wants me to. They can go sit on a stick of dynamite. I hate those filthy swine.
*too
Need an edit button.
DC
They want you to gamble along with the rest of the lemmings out there that follow the mainstream media BS. When you are all in, then they will pull the plug and let the markets seek their proper price discovery. All the smart money will be on the sidelines and already cashed out. All the losers that came in late will be left holding the bag.
If you saved $10,000 last year, it can only buy $95,000 worth of goods, if you believe the lowballed inflation stats.
Every single thing the government and bureaucrats do, as well as the UNELECTED FED, is designed with the sole intention of continuing the rip-off of the American people. It’s “heads I win, tails you lose” with these scvmbags. And then when they break the system after ripping everybody off blind, they sit behind closed doors and come up with some gimmick that pretends to “fix” the problem when it’s really about offloading the bad effects onto the taxpayer so the wealthy don’t have to suffer any losses. You know what? YOU LOST, SCVMBAGS. It’s time for these people to lose everything.
When the lemmings get wiped out when J Powell starts tightening, look for him to say “You people just made bad investments and were greedy”.
I’m curious what are the tax consequences of someone jumping into the housing market now at the peak and suffering a large capital loss when they are forced down the road to sell at an inopportune time? And say they don’t have any long term capital gain to offset the loss. This could happen to someone who loses their job has to move after interest rates normalize. Is the deduction for long term capital losses still $3,000/yr as it once was? This is the risk that no one is talking about. Certainly not the crooks from the likes of Rocket Mortgage and other shiester lenders.
Losses? HAH!! These people are putting 3% down, oftentimes borrowed. They have zero skin in the game.
Tax loss carry forward used to be very useful SC.
Don’t know about that these days, but used it a lot in the various and sundry crashes 4 and more decades ago…
Sorry I cannot give any details, as that is just one more of the obvious IRS rules perpetrated by the rich folks long ago, and I used it long ago, etc.
” it was the investors who had the foreclosures”
Thank you Wolf. Everyone else conveniently misses that.
It’s simple math. Total global debt / global GDP of 4x means fiat printing is the error term.
(QE to infinity) x 8, if that makes any sense.
What’s going up with gas prices?? Crude dropped from $90 to $60 and gas prices are still out of sight? They dropped 2 cents at the most. Some stations around here actually increased the price.
It takes a good bit of time for lower crude prices to get through the system. Most refiners have contracted crude pricing several months out and need to get all that refined first. Could take a couple of months.
“Will Inflation Be Allowed to Run Wild?”
Shouldnt the question be…
“HOW can inflation be allowed to Run Wild?”
The Fed is ALLOWED to exist under certain conditions and agreements, ie mandates.
What will be the catalyst for a change of phycology for consumers? Especially in terms of housing.
I live in San Diego and put offers on 2 houses this weekend, each had 20-30 offers on them. One of them is going $150k over comparable comps (of the last month) and it is in much worse condition. I’m just gobsmacked, but inventory has plummeted in the last month and chaos is ensuing. How long can this go on?