THE WOLF STREET REPORT: Bond Massacre, Inflation Prick Biggest Bond Bubble in History

The dollar’s role as dominant global reserve currency is at risk if the Fed fails to crack down on inflation (you can also download the WOLF STREET REPORT wherever you get your podcasts).

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  224 comments for “THE WOLF STREET REPORT: Bond Massacre, Inflation Prick Biggest Bond Bubble in History

  1. Gomp says:

    Excellent. Well said. Hope somebody (fed) is listening.

    • Raj says:

      With inflation at 8%, the real bond returns are deeply negative (< -5%). What prevents the Fed from lowering it to -10%? This can happen if inflation grows at faster rate than yields. E.g. If inflation rate grows by 4% and yields only grow by 2%, we are looking at real returns of < -7%.

      So, if Fed manages to tame inflation to 2%, can they then push bond rates to -3% creating an even bigger bond bubble, while keeping real reurns same as now (-5%). Seems mathematically possible, any reason its not feasible?

      • Augustus Frost says:

        Market psychology can prevent your scenario from happening. It’s not a mechanical world.

      • TweedleDum says:

        1. Fed will not let the policy interest rate go negative, as Powell has stated numerous times. Wolf has commented on this as negative interest rates decimate profitability of the banking sector, which has considerable influence on FED policy due to their representation on the FED BOG. In this regard ECB has a bit more latitude playing on the negative axis. One can’t have -3% 10yr nominal yield with positive short term policy rate (i.e. such strong inversions cant persist in a steady state equilibrium, as there is a massive incentive to sell10 yr treasury, and invest in small positive yield short term instruments)

        2. Even if one relaxes this assumption, only way 10-yr nominal goes to -3% is if policy rates go deeply negative (assuming Fed allows that). In that case, inflation can not drop from 8% to 2%. In fact it will be such a massive policy pivot from FED “tightening”, atleast directionally, that inflation will likely skyrocket. So -3% 10 yr is not consistent with either positive policy rate or inflation coming down from 8% to 2%.

      • Sacramento says:

        Ive thought of this too.

        ECB has done this. The results are not what they hoped for.

    • Sacramento says:

      This is type of podcast is why your a rockstar

  2. J-Pow!!! says:

    I, J-Pow!!!, Chair of the Federal Reserve of the United States of America, am protecting the sovereigh power of our greate doolllar with my .25% rate hiike!!!!!! I have unleashed the power of the poeople and am protdcting the climate and the world through my actions!!! Long live the Federal reservre!!!!!!!

    • Augustus Frost says:

      Yes, that’s what you get when a country’s “leadership” goes off the deep end and decides to use the currency and financial system to wage all-out economic warfare and throw centuries of common law protecting private property rights out of the window.

      • Dan Romig says:


        “Hey, just because I am the owner of a residential property with no mortgage and the property is in full compliance with property tax payments, doesn’t the Center for Disease Control have the right to tell me to stop collecting rent from my tenants and make sure they can stay in my place for free?

        Yeah, I have a contract with the tenants to exchange rent payments for a place to live, but if the President of the USA decides that I should let my tenants keep the rent money, I’m cool with that.”

    • Shells says:

      Lol you brighten my day

  3. Hal says:

    Is Powell, perhaps, waiting for the midterm elections, to take serious action? Or, what?

    • SocalJimObjects says:

      He is waiting until the Russo-Chinese SWIFT alternative comes online.

      Honestly, the guy is just coasting. Look at his age. He just wants to the grave with his wealth “intact”

    • Wisdom Seeker says:

      Powell’s still waiting to be confirmed to his reappointment. The Senate has been throwing some curveballs.

      Until his job is secure and he’s got a mandate for action, he’s not going to do anything serious, lest it piss off a swing Senator or two.

      • Raj says:

        I think the Senate is waiting for market tantrum. Then they can blame the market correction and non-transitory high inflation on J Pow and cancel him.

        Then they would install a clean shirt to instill trust in Fed.

      • SpencerG says:

        You may have a point there… I hadn’t considered that. But his nomination was reported out of the committee (22-1) last week so now he is just waiting for floor action by the Senate.

        • Sit23 says:

          That tells us that 22 of the committee people are the same people who benefit from FED policy. Who gains from people’s actions? Follow the money. Show me where one eats, and I will show you where one gets one’s opinions. All of those point to exactly why the FED has it’s policies.

      • Wow you really take no stock in the Fed’s independence. Maybe he can’t raise rates because it will piss off his wife?

        • Shells says:

          I consult with my wife on all major decisions. Rarely has it been a bad call. That said, she might be smarter than me, and i know people make marriage decisions for all kinds of reasons, with all different priorities. so I realize ymmv

        • NBay says:

          Stick with enjoying and commenting on Jpow!!!!!?’s playground bitching humor, at least until you get your “savior”….then I’m not sure what you will do……….or what anyone will……

        • NBay says:

          Either savior……if it’s the bigger one, I’m in even deeper shit.

      • Stylites2 says:

        Absolutely. Why would Powell take any definitive action until he is confirmed by the Senate? He’s not stupid. After confirmation he will discover his inner monetary Tiger. . .

  4. Xavier Caveat says:

    Wouldn’t you want to have your investment in all currencies-not just American dollars like every other dope in our country?

    • DawnsEarlyLight says:

      Why? Are planning on taking a trip? 😙

      • Xavier Caveat says:

        Some here talk of the glories of buying on the dip, but what if dollars Americano aren’t worth anything all of the sudden, but a few lucky smarties clean up because they aren’t beholden to the almighty buck, and placed their trust in old school money instead.

        • drifterprof says:

          DXY has sprung another hard-on, including against Thai baht where I live. So for me, soon, another small tranche converted to Thai baht and deposited in my wife’s Thai credit union account (2.65% annual interest).

  5. Prophet says: Economics made fun, I say!

    • Wisdom Seeker says:

      And the fun’s just getting started!

      I am looking forward to:

      1) Yield curve exploding upward as people finally realize inflation won’t cure itself, bonds are doomed to negative real returns for years to come, and “Big Short” hedge funds front-run the inevitable.

      2) Bond mutual funds blowing up due to redemptions exceeding liquidity. Non-Treasury money market funds “breaking the buck”.

      3) House prices plunging as interest rates rise and loans become scarce, resulting in underwater owners declaring a “mortgage payment moratorium” (i.e., squatting) until banks figure out how to evict them. If another serious-COVID wave comes, best of luck to the banks on that one…

      4) Corporate bonds getting downgraded AFTER the bonds fall apart, CDS shoot the moon, company announces dire financial situation etc. (Never before the bonds fall apart – can’t have ratings agencies actually serving investors.)

      5) Banks imploding as loans go bad, with the return of FDIC “Bank Closure Friday” announcements. (BTW, the number of US financial companies with market cap > $50M has already started shrinking…)

      6) Fed Gov’t allowing banks to stop marking their assets to market prices, and allowing them to mark to financial model valuations, in order to save banks from imploding. Oh wait, we already did that… what’ll the next fairy-tale finance solution be?

      7) Congress and Executive Branch officials, after failing to support new oil & gas production and/or pipeline construction, and after pushing to ship US domestic gas to Europe to alleviate shortages there, then calling for a “windfall profits tax” on energy companies as they reap obscene profits from sky-high oil & gas prices … prices which are high in large part due to the ongoing commodity shortage created by the government failing to allow more production, and exporting too much of what we do have… oh wait, that’s already happening…

      8) Food-price inflation and shortages caused by the disruption of agricultural production from sky-high input costs (due to the high price of energy in (7).

      • Raj says:

        This is a very good list. However, going through it makes me feel that fed would reverse course and prefer bailouts to bankruptcies and prefer hyperinflation to QT.

        • Augustus Frost says:

          The FRB cannot prevent a deflationary asset crash.

          The markets are too big and “they” cannot act fast enough. Besides, the FRB is not a person and there is no guarantee there will be a consensus to act “in time”. Bureaucracies can do have internal disagreements under conditions of duress all the time. Look at the EU for an example.

          Any hyperinflation will only occur later, after interest rates soar.

        • economicminor says:

          hyper inflation in Weimar Germany only lasted 2.5 years before it destroyed the currency.. It was like bankruptcy, it started slowly and then all at once.. The real Hyper was less than a year before it imploded.

        • Raj says:

          Going by recent Fed actions, it looks like the Fed and the govt would be happy to procastinate another 1.5 years before hyperinflation kicks in rather than inflict tightening pain that c an directly be attributed to Fed actions.

          Hyperinflation can be attributed to poor state of US economy along with Covid, Ukraine war, American consumerism and the habit of living beyond one’s means.

          So hyperinflation fault can be blamed on “Mass Karma” while tightening pain fault can be attributed to Fed and Govt.

      • Brant Lee says:

        I see the economy in the U.S. coming to a screeching halt from the bottom up. People are now used to walking away from financial obligations instead of sticking out the tight situations. As inflation blows the doors off of budgets, people will still fill their bellies first with the good stuff while expecting to be bailed out from paying rentals, mortgages, and excessive auto loans. It will be stimulus and handouts that delay the inevitable or it’s going to happen sooner.

        At the top end, the wealthiest KNOW they can expect to be isolated by the government financially while the rest of the country goes to heck in a handbasket.

        So, business as usual for the Fed.

      • Augustus Frost says:

        You’re mostly describing a repeat of 2008 with a price inflation component.

        It’s my base scenario too.

        • Wisdom Seeker says:

          Yes, in the absence of more insight, my base case is for another 2008-style crisis but with every knob dialed up to “11”.

          But I think there will be some 1970s overlays as well, especially if the oil politics continues to go sour.

          BTW, 2008 also had price-inflation (oil hit $140/barrel, gas was $4/gallon which was unheard-of at the time), a housing bubble, a Fed belatedly fighting the under-measured inflation by slowly raising rates without recognizing the housing bubble, and a stock market that was too high.

          2022 has all of those things on steroids, plus greater supply chain disruption and on-shoring, and a much more extreme financial mania. And the social mood has shifted towards print-and-spend policy “solutions” (at least with the current Congress) whereas in 2008 there was a little creative destruction. So I think the inflation could play out more like the 1970s.

          And I think there will enough unexpected twists that simply “doing what worked best in 2008” will not work. For instance, in 2008, Treasuries were the best safe-haven, but the recent bond market behavior suggests that might not work this time.

          Also, with all the financialization of everything it’s not clear that the assets that did well in the 1970s are the ones that will do well over the coming years.

          This discussion reminded me that with rates moving fast, it’s time to keep a close eye on credit spreads and other credit-quality metrics. There’s some short-term stress showing up between LIBOR and UST yields, and also between AA and lower-quality short-term corporate debt…

        • Mac Money says:

          There is no basis for another 2008 style crisis. Ask yourself what would need to happen for a wave of people to default on their homes? The vast majority of loans underwritten today have stricter guidelines (Dodd-Frank, ability-to-repay), the average homeowner has a TON of equity, and there are hardly any ARMS or balloon payments that would force a homeowner to refinance at a higher interest rate.

        • Wolf Richter says:

          FHA guidelines for 3%-down-payment mortgages are as loosey-goosey as they have ever been. We’ve also had all kinds of examples of lenders not verifying income, etc.

          BTW, a massive issue during the mortgage crisis, as we now know, were investors walking away from multiple properties and their mortgages.

          But I agree. What we’ve got now is in an entirely different ballpark. 2008 won’t repeat.

        • Wisdom Seeker says:

          @Mac and Wolf –

          The reason why a 2008-style housing crisis is still possible, in my view, is that the current bubble is far broader and more extreme than in 2008 (not just housing, but stocks and everything else). On top of that, the current inflation is also much deeper, and so the response to the current inflation will need to be much more extreme than in 2008, and it will trigger a much bigger “bubble pop”.

          I appreciate that underwriting standards are somewhat higher (except for the most recent batch of bagholder loans), and that the bubble makes people feel like they have a bigger equity cushion, but if prices fall back even to the 2005-2008 highs (which is entirely possible), that’s a lot of paper wealth going poof, and all the precautions could still prove deeply insufficient.

          Consider also that in 2008 there was room for rates to be driven lower to stabilize the market. But now that option is basically gone. House values will fall much further just from the inability of borrowers to refi into lower payments.

          Then you still have the problem of rampant speculators. Maybe they’re not buying with ARMs or NINJA loans, but there’s a lot out there, and they’ve found new ways to use a single down payment to buy a dozen houses. As rates keep rising and prices start falling, those speculators are going to need to unload fast (like Zillow).

          Next, when the stagflationary recession hits from the rising interest rates, people will start losing jobs and realizing that their survival nest egg is evaporating by the day. More supply will hit the market.

          Meanwhile consider the usual stream of people who had home equity, but suddenly “need the money” due to job-loss or medical or whatever: how many will have heart failure when they go to cash-out refi their 3% original loan, and find that all they can now get is a 5%, 7% or 10% loan? Just to tap a bit of equity from their own house, suddenly the payment is twice what it used to be!! That ain’t gonna go over too well. Those folks will be selling to get their remaining equity back, renting while the market falls, and then hoping for a chance to buy back in during the next bust. The ones without any equity left will just quit making payments and squat in the house they used to own until they’re kicked out by the lenders.

          Finally, as Wolf has often pointed out, in many markets a lot of the “down payment money” is derived from stock options or stock holdings. With rates going up, stocks will be going down along with bonds, and the supply of “down payment money” is going to get squeezed. And then when prices start falling, buyers will be waiting for a better deal while trying to get their down payment back.

          All of that is a LOT of supply hitting the market, and a lot of demand evaporating. I hope it’s not as bad as 2008 but I wouldn’t bet my own money on it.

      • David Kendig says:

        Fannie Mae MBS is up 164 basis points YTD. That’s danger zone territory.

        • Xavier Caveat says:

          Fannie Mae now trades for a whole 80 cents*, don’t you get delisted if the stock price goes too low?

          * it was worth 80x as much 15 years ago just before housing bubble bust numero uno.

  6. Depth Charge says:

    “Soft landing” my ass. The FED’s chintzy-assed .25 rate hikes aren’t going to do jack to combat inflation. They could raise rates at the current pace for 3 years and still be behind.

    • Raj says:

      Yes, thats what the math says and its one of the few things that don’t lie.

      May be bonds are thinking soft landing, but the stock markets are already taking off again with no mood for any landing.

      • phleep says:

        Two paths — near two hazards — Scylla or Charybdis — future states of the world and paths to financial redemption — are diverging, gaping apart. The Fed’s machinations seemed to steer between them, through the Great Moderation, to square the circle, but now can’t. Those with enough capital try to be on both lifeboats, debt and equity (and others too: cash, gold, crypto, and commodities). Those without, choose their boat or like the slow sleepy masses end up herded onto one. But the storm is turbulent and oh so complex.

        Physical health, mental limberness and robustness, a situation not already unstable, these are starters for my kit. In the real Weimar, having a working farm was nice. Oh well. I loved the relative free ride and carefree dynamism these victories and this dollar presented for so long. It is easier to see now, the seeds for this were there, long ago.

      • Yancey Ward says:

        The bond market isn’t saying soft landing- it is saying hard landing. The stock market is seeing soft landing.

        I see a hard landing coming, much harder than most are expecting.

        • Raj says:

          May be you are seeing different charts than me, but do check how stock markets and cryptos have taken off in last 2 weeks after Fed announced a minisce 0.25% rate hike. They don’t seem to be in any mood for landing. They can either fly or crash..

          Apparently in the 70s, for same level of inflation, fed raised rates by to 8% to 10% within a year to break inflation. So I feel that what Fed is selling today is Too Little and Too Late.

        • Wolf Richter says:

          Huge and predictable relief rally, no? Nothing goes to heck in a straight line.

        • Depth Charge says:

          “Huge and predictable relief rally, no? Nothing goes to heck in a straight line.”

          I disagree wholeheartedly. This latest 2,200 point move on the DOW is more about a revelation from investors that the FED is intentionally allowing inflation to “run hot,” so it’s “risk on” until further notice. Another quarter point hike and we will see all time records on the DOW, if not before May. The FED’s easy money continues as you yourself just stated. “They continue to throw gasoline on the fire.”

        • Jim Cramer says:

          Bitcoin is creeping back to $50k. You love to see it!

        • NBay says:

          If it didn’t waste so damn much energy, the bitcoin(s) scene would be funny as hell.

    • Nathan Dumbrowski says:

      Wondering if the math team at the FED realizes that there is something fundamentally wrong or not computing with raising rates. Perhaps for too long it was believed that the rate was the financial panacea. Maybe they broke the system.
      Now comes the interesting part of unpacking something that hasn’t been done in this day and age. How to un-wind T$USD. Raise overnight rates between banks. Get back to being the lender of last resort between banks.

      • Flea says:

        China owns 1 trillion of bonds ,they are tired of American manipulation,not a good thing www 3

    • DawnsEarlyLight says:

      I agree the Fed’s actions have been somewhat criminal (imho) and far less than required, but for each increase in rates has an opposite effect in a decrease in inflation. The goal is to meet in the middle, and raise rates to meet falling inflation.

      • Depth Charge says:

        But inflation isn’t falling, it’s RISING. So the FED’s chintzy rate hikes are even more embarrassing than they would be if they were actually catching inflation. The RATE of inflation is still racing away from the rate hikes. These guys are deranged.

        They’re doing this on purpose. They are trying to maintain bubble asset prices when what they should have done is slammed the brakes on everything, and long ago. They have had every warning signal imaginable and they ignored it, and continue to. It’s running away from them.

        • DawnsEarlyLight says:

          Agreed, and of course, all the losses of damage done will never be recovered.

        • Swamp Creature says:


          The Fed is doing what that Miller (golf cart company CEO) guy did under Carter. Chasing inflation up with miniscule rate increases. The Miller guy was fired by Carter and replaced by Volcker. That’s what needs to happen now.

    • Swamp Creature says:


      Powell just said it will take three years to bring inflation under control. That’s a big change from “Inflation is transitory”. Next, he will say “It will get worse before it gets better”.

  7. SpencerG says:

    “The dollar’s role as dominant global reserve currency is at risk if the Fed fails to crack down on inflation ”

    WHICH IS EXACTLY WHY they are not going to fail to crack down on inflation. Powell and the rest have their personal reputations on the line here… for all of Eternity. They know their place in the history books if they fail to contain inflation.

    • KWHPete says:

      “The dollar’s role as dominant global reserve currency is at risk if the Fed fails to crack down on inflation ”

      Well Kuroda just undermined the Japanese Yen with his bond market action today and will the actions of the US government undermine the US dollar?

      IMO the inflation genie is out of the bottle and the FED will not be able to control it.

      The effects of the Russian sanctions have yet to work their way through the various economies of the world and the USA.

      Look at food.

      Food inflation is going to be horrendous and the effects of weather and lack of inputs is beyond the control of the FED.

      When is planting season in the Ukraine?

      About six weeks from now in the corn areas of Ukraine which apparently are currently under Russian occupation or the areas where fighting is still going on. Lack of diesel is going to make planting impossible.

      China’s ag output is also going to be down and they have stockpiled a lot grain and ag commodities.

      What will happen if and when Russia hits back with some of its own sanctions such as diesel which is already in short supply?

      Will inflation in the USA hit 10 or 15% in the next six months as all of this hits at once?

      • David Hall says:

        Russia needs to sell oil as their war is more expensive than they budgeted for. India and China are buying Russian oil. Turkey and other NATO nations may not go along with a Russian oil boycott as they need fuel for transportation.

        Canada suffered widespread crop failures in 2021 due to drought. Crop insurers saw earnings decline. Western U.S. farmers might see cuts to their irrigation water allotments due to continued drought.

      • SocalJimObjects says:

        “Governments have a very clear understanding that there is a clear link between diesel and GDP, because almost everything that goes into and out of a factory goes using diesel,” the director general of Fuels Europe, part of the European Petroleum Refiners Association, told Reuters this week.

        No, the next 10 years will not look like the last 10 years.

      • Augustus Frost says:

        Japanese Yen FX rate has not declined despite BOJ monster QE, to this point.

        It’s also not the global reserve currency and Japan has no empire to maintain.

        Economically, while Japanese will be poorer for it, at least the country doesn’t run perpetual massive trade deficits like the US. Worst impact will be from higher commodity prices priced in Yen.

        • Wisdom Seeker says:

          Augustus, you may want to take another look at that Yen FX rate. It’s at 6 year lows and trending downward.

          Japan is even less ready for rising interest rates than the US is.

        • BeeKeeper says:

          Very briefly.

          There is a DIFERENCE between TRADE and RESERVE currency.

          Current YEN FX movements are related to TRADE CURRENCY.

          Furthermore, there are G7/G20 COMMITMENTS on maintaining STABLE exchange RATES. Meaning FX market can experience heavy INTERVENTIONS. First, you will hear warning from Tokyo’s Ministry of Finance (MOF). If this will not calm FX market. MOF will call upon G7 and/or G20 and they will jump in to DISINNTEGRATE any wild MOVES.

          Think twice, if you want to copycat Soros.

        • NBay says:

          The Japanese manage to produce a lot of top quality world’s goods, with very little land and resources. Talk about “hard earned money”. Their scientists, engineers, and technicians Far outnumber their “managers”, and that’s just a guess I’d still put money on.
          Also they require FAR FAR less than us to live a “good life”. Nuke power COMPLETELY aside, we would do well to mimic their ways; In Education, public transit, and especially personal shelter and transportation SIZE, etc, etc, etc.

          We are guilty of pissing away a goldmine, not to mention allowing absurd levels of CLASS WARFARE while we did it.

  8. Depth Charge says:

    “The FED’s $9 trillion balance sheet.”

    Just those words are enough to make a person vomit. Who in their right mind thought this a good idea? The FED is a deranged entity which needs to be completely dismantled.

    • historicus says:

      a billion seconds is 32 years
      a trillion seconds is 320 centuries…

      the word trillion is not understood.

      the Fed bought $40 billion a month of MBSs.
      That’s 40,000 MILLION a month!

      • Wolf Richter says:


        “the Fed bought $40 billion a month of MBSs. That’s 40,000 MILLION a month!

        BS. I just shot this uninformed manipulative BS down twice last week, but you’re too busy dashing off comments to read anything.

        1. The Fed buys securities to replace maturing securities. If it stops buying securities altogether, its balance sheet will decline, and that will be “Quantitative Tightening.” Coming soon.

        2. What is still rising are MBS, but the MBS now showing up in the balance sheet were purchased 2-3 months ago. The Fed buys MBS in the To Be Announced (TBA) market, and the purchases take 2-3 months to settle, which is when the Fed books the purchases, so that what we see added to the balance sheet during the week was bought 2-3 months ago, so Nov-Jan. And MBS come off the balance sheet via pass-through principal payments when mortgages are paid off or are paid down, and these pass-through principal payments speed up when rates fall, and they shrink when rates rise (fewer refis, like right now); but Fed has to replace them, but they’re impossible to predict. And that’s why you see the jagged line in the balance sheet.

      • JeffD says:

        A trillion seconds split among the number of lives in the US is about 3000 each. Less than an hour each. Doesn’t sound as big in that context. Works the same way with money.

    • Wisdom Seeker says:

      “There are 10^11 stars in the galaxy. That used to be a huge number. But it’s only a hundred billion. It’s less than the national deficit! We used to call them astronomical numbers. Now we should call them economical numbers.”

      – Richard Feynman

      • Otto Maddox says:

        I’ve used this quote for years…

      • 91B20 1stCav (AUS) says:

        Feynman’s autobiography remains a very entertaining read…

        may we all find a better day.

        • NBay says:

          Yeah, it IS a real fun read. He was super smart and educated, but not a stuffy professor…..a regular guy, and a good prankster, which didn’t fit in well when they were building the bomb……which was kinda serious stuff……

        • NBay says:

          Speaking of good reads, I don’t know how I (or anyone else I’ve ever read) never ran across Kin Hubbard, but he had one liners that easily rival Twain and Rodgers. Check him out.

        • NBay says:

          Here’s on that fits Feynman;

          “Nobody ever grew despondent while looking for trouble”

        • NBay says:

          Actually it could fit the talk radio pissed off bunch, too. Nobody likes being despondent.

          Words are not accurate and one-liners often even more so….

          …just switch your viewpoint……everything often changes…..

  9. phleep says:

    Everybody grabs their chips tighter. Globalization in reverse. But in choppy, hard to predict ways. Price volatility.

    • John H. says:


      “ Everybody grabs their chips tighter.”

      Guess we’re headed for a 3rd “chip shortage” (following silicon and potato) !

      • John H. says:

        Oops.. meant “Phleep”. Sorry, dang spellcheck!

        • Depth Charge says:

          One man’s spellcheck is another man’s Freudian slip.

        • NBay says:

          I guess I should tell you now I wrote “…I must be psychotic.” on purpose. It was humor to me. Try and make your spell checker turn psychic into psychotic…..

          I don’t insult easily…..I’ve had too many really physically threatening “insults” to give a damn about what people think of me here…..

          Where did your “sneaked in” TDS go? Was looking for it….maybe Wolf is tired of really old political insults? I had some choice things to say about people who failed to “study” The Apprentice well…another “syndrome”….that I also thought was funny.

          Oh well.

    • ru82 says:

      Exactly. I saw a debate of various nationalities on the Ukraine war but was hosted by an Indian TV station so they were neutral. They had a Russian guy on there basically saying Russia is not the threat everyone thinks they are because all they produce is oil, nat gas, and some other commodities.

      They have no real technology as he meant semiconductors. He said their one auto manufacturer shut down because of sanctions. Same with some other manufacturers.

      The current chip supply chain issues because of COVID was a wakeup call to the U.S. Suddenly the U.S. would also be in the same spot as Russia. We would not be able to make cars, tanks, airplanes, and etc if we get into a spat with China.

      The U.S. are other countries are looking inward to make sure they can survive if there are globalization disruptions.

      • Gabby Cat says:

        Reminds me of the warnings the UMWA and USWA use to preach on the corner of the street, out front of our old post office. They would tell my parents if they did not shop wisely, keep money in America, then we could not support ourselves logistically in a natural disaster. Looks like they were right. I never understood “Your Children will reap the scarcity of the Great Depression, but they will have money this time.” Sounds a lot like your comment Ru82. So, if the stock market is okay and all other funds functioning, why does it feel worse then 2008, 2002, 1980, and 1970? I think in the 70 and 80 we were still making staple items like clothes and appliances here. Everything from the steel to the fastening clamps in refrigerators were created in USA. Now we outsource 20-100%. Factories take time to retrofit or build from scratch. Will China change its 0 tolerance rule or are they compliant in the big squeeze for financial gain? I am not sure I understand the end game.

  10. just-a-boy says:

    Congrats Wolf, This page has a link on the top of Google News!
    It may have happened before, but this is the first time I saw it…..
    6AM East Coast Time.

    • Devil’s Advocate says:

      A necessary tweaking of the algorithm in the Oligarch messaging system to ensure the masses understand this is part of the pain needed for the US to retain global hegemony…
      Not really the place to note it, but 1965 saw the war in Vietnam begin doing its share to push up inflation, a successful peace effort relieved just in time by the oil shocks of the 70s… 2022 will see that one-two punch delivered at the same time Ukraine’s breadbasket is taken off line… A trifecta worthy of making it to the podium, IF first place in schadenfreude didn’t already go to the Germans who thought they could make Russia one of their main markets and still shield defense expenditures by hiding under US nuclear umbrella… Merkel… She almost pulled off the greatest heist in German history since the Sudetenland, but now that gamble has backfired spectacularly… If only Germany had thrown us out of NATO as soon as the Warsaw Pact went kaput in 1991, Germany could have shrugged off Ukraine just as it has already said it will shrug off China bringing Taiwan back into the fold… Which is really the news I want to wake up to… I mean as far as investments go there is no contest between how great of a wall cancel culture will hit, when it demands business treat China as it did Russia… I am almost giddy with anticipation… on one side a generation of mini-me(s) spawned by nattering nabobs, on the other side, the dictum that if goods don’t cross borders, armies will.

      • Depth Charge says:

        The bought-and-paid-for anti-American, treasonous filth who occupy the swamp, and all of the corporate greedheads who sold America off to China have also developed a subservient, obsequious stance when it comes to holding China accountable for anything, whether it be human rights violations, pollution, fraud, or any other offense. China now produces almost everything we need to survive as a country. If we had to ramp up production for a war, we can’t. These traitors destabilized the country in the name of personal rapacious greed.

        • Swamp Creature says:

          Supermarkets are now selling a lot of frozen food from China. Saw that today after inspecting the frozen fish department. Now we are depending on China for food??? Give me a break!

      • Sierra7 says:

        Devils Advocate:
        “Nattering nabobs of negativism!”

      • rick m says:

        D’sA- “Schadenfreude” in this case would be experienced by the Russians, as they are (supposedly) the ones enjoying the German faceplant.
        In over fifty years of speaking German and the Bavarian dialect, I don’t remember ever hearing that word used by a native German language speaker, and only rarely seen it in print. Gloating over another’s misfortunes is as inimical to a German as anyone else who gets the principle of karmic payback with interest. There, but for the grace of God, go I. A phrase with currency.

        • NBay says:

          Thanks rick, I’m getting tired of that word being used here, too.
          I don’t mind a NEW $5 word I have to look up.
          That’s learning, and sometimes it leads to new concepts, or new important players in history.

  11. Twinkytwonk says:

    Interesting stuff and I much appreciate you sharing your knowledge but as someone who has been expecting the collapse of this bs since 2004 I have been consistently wrong as they always ( I’m in the UK) pull something out of the hat. From removing house prices from inflation, increase mortgage length, print money, repress interest rates, hand out free money during the pandemic etc.

    Therefore, I am dubious as to whether they do anything but kick the can down the road. After, selling my house I am 100% cash. The inflation rate is a worry for me and a lot of others.

    • Augustus Frost says:

      Just remind yourself this is the greatest mania in the history of human civilization.

      I have been like you but it’s only manic psychology that keeps this house of cards from collapsing. Borrowing and “printing” are the only “tools” they have which are no different than any of their contemporaries and predecessors. There is no “wizard behind the curtain”, not in the US, not in the UK, and not anywhere else.

      The US, UK and developed world central banks and governments are drawing on decades to centuries of confidence.

      Watch out when it runs out.

      • Nathan Dumbrowski says:

        Some wizardry with digital currency is my bet to confuse the masses. They will roll it out as the next generation of currency hiding all the faults with the previous version of USD. At the end of the day it is a barter system where we need to agree to the input/output. Older than human beings.

        • Got Crypto? says:

          If only there was some kind of money free of counter party risk… That’s been around for thousands of years and won as many wars. Fiat always goes to zero. As always timing is everything.

  12. GBC says:

    I think it is not just tightening money policy that is needed to fix this. Taxes need to go way up, the US government needs to get its financial house in order, to become economically powerful as a government again, and as taxes go up rates can go up, gradually, until the correct fiscal/monetary balance is reached. The vast increase in wealth in America that appears to have occurred over the last number of years is an illusion: the value of things has not been going up, the value of money has been coming down. Bring the US federal debt down to $10 trillion, fund the pension plans, fix the infrastructure, move rates up to 4% or so, strengthen America, bring value back to the currency, that is what is needed. Oops, forgot, can’t do that, that would require a functional government, snd the US government is dysfunctional, which is the root cause of the problem, that is why the dollar is at risk as the world reserve currency, as well it should be.

    • Wolfbay says:

      Yes raise taxes but also cut spending. That’s what’s needed but it won’t happen.

      • unamused says:

        “Yes raise taxes but also cut spending.”

        You’re in luck. Plans are definitely in the works to raise taxes, except they’ll be cut for the billionaire class. Also to eliminate SS and privatize Medicare, which will incentivize the elderly to contribute to the economy and stop bleeding it.

        Wall St. bonuses are up 20% this year and are expected to be way up again next year, up over 1700% since 1985. The plan has been working just fine for decades.

        You guys worry too much.

        • Jake W says:

          i’m no defender of wall street, but i suspect that the wall street bonuses are more an indication of ipo/m&a/debt underwriting being frontloaded due to silly monetary policy of the past year. in other words, wall street firms made a lot of money on deals that are not likely to recur this year or in the near future.

        • Anthony A. says:

          “Also to eliminate SS and privatize Medicare, which will incentivize the elderly to contribute to the economy and stop bleeding it.”

          If they eliminate SS and privatize Medicare, my wife and I then will have to go find jobs at ages 76 and 79 (who will hire us?). How else will we cover the annual $8,000 we pay for Medicare and our supplemental insurance policies? Then also, we will need to cover the $3,000 annual out of pocket we pay for drugs (two Tier II in that).

          Sounds like a plan.

        • 91B20 1stCav (AUS) says:

          AA-i could be wrong (and frequently am, as we all are in any distribution curve), but methinks una’s ‘/s’-button was implied…

          may we all find a better day.

        • Anthony A. says:

          91B20 1stCav (AUS):

          looked for the /s button but did not see it. I just never know when he is for real or not.

        • NBay says:


          Not bad, but I still don’t think you are the same guy….not as verbally fluid or flippant enough…but maybe I’m wrong and you went through some changes or just decided to change style…’s been a few years.

      • Happy1 says:

        Tax collection at the Federal level the first 5 months of this fiscal year is up 26% year over year. 26%! Do we really need to raise them more?

        The problem is that Biden’s budget proposal is for more than 30% more money than the 2019 budget pre COVID. These numbers are per WSJ this morning.

        The Federal government doesn’t have a revenue problem, it has a massive spending problem. And it’s not just the current administration, it’s both parties.

    • Old School says:

      That kind of fits with the theory that democracies kill themselves by voting to eat the seed corn. Without total real savings you get less real investment in the future which means productivity and living standards can flat line or even decline.

      Future is unknowable. Stock, bond and housing markets are voting on what they know at the moment all supported by confidence. Panic can change it all in a few days.

      • unamused says:

        “That kind of fits with the theory that democracies kill themselves by voting to eat the seed corn.”

        Plato and Aristotle both deplored democracy as mob rule, but fortunately despotism is available as the superior alternative. More countries are reverting to it every year. Moreover, the existence of a large, prosperous, and insufficiently profitable middle class is known to be a mere aberration of history, soon to be corrected. Permanently.

        “Future is unknowable.”

        Don’t be silly. I can tell you exactly when the sun will rise in the morning. And there are many other examples.

        • Augustus Frost says:

          I agree the middle class is an aberration of history. I’d put supposedly perpetually rising living standards in the same category too.

        • economicminor says:

          Reality, it is difficult to have a perpetual rising std of living with a perpetually growing world population without cheap or free energy to drive it forward.

          Humans have drilled and mined much of the relatively easy resources and burned them or turned a lot of it into trash.. Now resources are much more difficult to obtain and process. And of course, our energy supplies are one of those, exacerbated by war that will reduce the supplies even further.

          If there is a real down side to democracies its that they seldom plan and mostly react.

          Add in the climate crisis, the debt bubbles and the current outbreak of tribalism in the US with a broken political system..

        • Happy1 says:

          Must quibble with the notion that the middle class is not expanding.

          This is true in the US. Partly because of manufacturing being automated, but also partly because the knowledge workers are moving beyond middle class as the value of knowledge work increases. This is a large part of my the decline of the middle class, and is a happy thing for those involved.

          On a worldwide level, there has been a massive increase in middle class standard of living, with hundreds of millions of people in China having been lifted from poverty, and hundreds of millions more in Latin America and Southeast Asia, not to mention the well developed economies in Japan and Hong Kong and Taiwan and Korea. The worldwide standard of living has massively increased in the last hundred years and I think the idea that this will somehow not continue underestimates human ingenuity.

      • VintageVNvet says:

        Not to argue too much OS, as I respect your focus and insights generally; however, your comment, “Future is unknowable.” should be qualified.
        As a retired formerly frequently successful estimator for construction work, starting with just my own labor only in small bits/projects in ’68, and then proceeding to estimating projects as large as $4BB for various FEDGUVMINT work fifty years later, it is very clear IMHO that no one can know the future ”unconditionally.”
        IOW, anyone with any experience CAN know the future to some extent.
        The real question for everyone, investor in financial products or just trying to prepare for basic needs for air, water, food, shelter, etc., is how much of the information available from experience is relevant going forward.
        That’s the biggest challenge, eh?

        • Old School says:

          Yes, maybe I should have said “we over estimate what we can know about the future”. Unexpected events occur that tend to blow up statistical based risk management for example. All it takes is a 9/11, Fukushima, Russian default, or pandemic to send the world off in a new direction.

      • Happy1 says:

        Per Churchill, democracy is the worst form of government except all the others that have been tried. The Achilles heel is always the people voting for freebies from the “public purse”.

    • Joe says:

      Well said

    • Augustus Frost says:

      Taxes are absolutely headed higher but that’s not the problem.

      The country has a spending problem which no amount of taxation can solve.

      The budget is so far out of balance now it would be totally out of control even if there was no national debt and no interest expense.

      No, it’s not because of the virus. It’s been this way since at least 2008.

      • unamused says:

        The data clearly shows it’s been this way since the early 1980s, when it was decided to avoid taxing the rich in exchange for campaign contributions.

        If there’s one thing Americans hate more than anything esle, it’s taxing rapacious tycoons.

        • NBay says:

          Original guy or not, I totally agree with 1980 as a major turning point.

          I TOTALLY DEFY all you “studious investors” here to come up with a “fundamental business analysis” (you know, EBITADADADA and what not) to explain the 1950-present S&P graphs “kink” in 1980.

          (also note the incarcerated Americans graph, and some of Wolf’s wage and net wealth stuff).

          You can’t……so who ran the Reagan-bot?…….what year was the Heritage Foundation established? I’d hate to think us hippies scared them and caused it all…….

      • Happy1 says:

        Yes. This has always been the problem, ever expanding entitlements.

    • Depth Charge says:

      I’m to the point where I’m tired of talking about “what needs to happen.” We all know what needs to happen, but the powers that be are not going to do it. That’s why I try to focus on “what’s going to happen.” And all I see is more of the same from the FED. Jerome Powell needs to be FIRED.

    • elysianfield says:

      Oops, forgot, can’t do that, that would require a functional government…”

      You are only partially correct…it would take a functional government with the desire and will to put it’s house in order.

      The current agenda of the government may not coincide with an ordered house.

  13. historicus says:

    A wise man once said..

    “Procrastination is irresponsibility and likely deceit.”

    The Powell…”its transitory”….. and the delay in dealing with the inflation that everyone else seemed to see……is likely deceit. Sadly.

    Why didnt he do a “transitory” reaction to the “transitory” inflation?

    • VintageVNvet says:

      nonsense h:
      A truly wise person of my personal acquaintance, drafted into the US Army Medical Corps the day he was graduated medical school, then drafted into OSS after a few months in a MASH at the front lines when it was known he had spent his HS jr year as an exchange student in Germany and was completely fluent in both German and French, told me many times, ”Don’t do anything today that you can put off until tomorrow, if only because tomorrow may mean it does NOT need to be done.”
      Of course, he was rich beyond needs after doing his duty and saving every cent of pay, meager as it was.

      • InLimbo says:

        Re: procrastination.
        Have an older relative who constantly procrastinates.
        I tell them:
        “Procrastination only pays off if you die or leave office before the project is due”.

  14. Freewary says:

    Sorry this is not a bond market bloodbath. It’s just regular volatility in moneyprintingland.

    I’m waiting for 3 month treasuries yield 21% and 30 year yields 40% plus. Then I MIGHT buy some. Probably not even then, though.

    • Old School says:

      There are a lot of moving pieces. From my understanding commercial banks create 75% plus of money and they need a decent spread between short and long rates to make profitable loans because of overhead and potential defaults. I don’t think economy can handle more than 1 – 2% interest increase before demand dries up and we roll into recession.

      Seems like we are dependent now on government to spend in good times and more in bad times with real rates mostly being negative til we lose reserve status.

      Heard someone say you can know how things will end, but you can’t know when.

      • Augustus Frost says:

        “Seems like we are dependent now on government to spend in good times and more in bad times with real rates mostly being negative til we lose reserve status.”

        There is no maybe about this comment.

        The reason this is factually true is because the actual fundamentals are mediocre to awful and society is falling apart. All “growth” since 2008 is fake and the result of increased deficit spending.

        If this comment seems extreme, what does anyone think the social state would be if government deficits now were the same as pre-2008 with “growth” either close to zero or negative for 13 straight years?

        The majority of the population is only economically “solvent” due to increased government transfer payments and cheap money form the loosest credit conditions in history.

        US society is balkanized with no common culture. Political discord is also a symptom that at least some segments know it and are fighting to keep their share of the pie from shrinking at someone else’s expense.

        We read that GDP is growing but since it’s not even close to an accurate indicator of society’s economic condition, there is good reason to believe the country is becoming poorer right now and has been for years. It’s been disguised by government spending and cheap money.

        • Old school says:

          Maybe it’s the fault of being the reserve currency. It is not a win/win for everyone. Some casualties along the way

        • 91B20 1stCav (AUS) says:

          “zero-sum” a constantly fluctuating figure, then-literally, figuratively, economically and as a general mental construct?

          may we all find a better day.

  15. Escierto says:

    The US dollar index skyrocketed today. So much for the dollar getting trashed lol. It’s as strong as it has been in two years. Precious metals were destroyed today but crypto is rallying. Nothing to see here. Move along.

    • historicus says:

      The dollar is getting a lift from real interest rates perhaps returning…

      but if the dollar is gaining … what is it really gaining against?

      In terms of commodities and services, not so much.

      • Jake W says:

        right, it’s gaining against other worthless fiat currencies, like the yen. the problem is that at some point, the whole fiat currency concept will die together, and people will demand real assets for everything.

        • COWG says:

          “ and people will demand real assets for everything.”

          Like what ?

          In what circumstances ?

          You got some examples ?

        • Jake W says:

          cowg, read about the barter economy that arose during the weimar republic.

          people would buy *anything* they could to get rid of the worthless marks.

    • Wolf Richter says:


      You’re talking about the exchange rate of the dollar, which is determined by trading activity.

      But: Inflation = reduction in purchasing power of the dollar in the US, not exchange rate.

      And “dominant global reserve currency” has nothing to do with exchange rate either but is the extent to which USD-denominated financial assets, such as Treasury securities and US corporate bonds, are held by other central banks.

      • Pehdro says:

        I think this summer is going to be hot…

        “In March 2021, the Executive Board delayed the next review of the SDR valuation basket to July 31, 2022 effectively resetting the five-year cycle of SDR valuation reviews. With the next review to be completed by mid-2022, the new basket will become effective on August 1, 2022”.

        • Wolf Richter says:

          “I think this summer is going to be hot…”

          Maybe in Texas. But not at the IMF. This was a routine 5-year review that was moved out by 10 months due Covid and the lockdowns in some countries. Nothing big is going to happen. They’ll make minor changes to the valuations in the SDR basket, as they do every five years.

      • Depth Charge says:

        Right. I’m tired of people citing the dollar’s move higher against other junk currencies as some sort of example that it’s not being debased.

        • JeffD says:

          Since dollar strength means cheaper precious metals (and other commodities), can a strong dollar be called debasement of purchasing power?

        • Pehdro says:

          “They’ll make minor changes to the valuations in the SDR basket, as they do every five years”

          Maybe… or not

          U.S. Dollar 41.73 0.58252
          Euro 30.93 0.38671
          Chinese Yuan 10.92 1.0174
          Japanese Yen 8.33 11.900
          Pound Sterling 8.09 0.085946

          I’d bet the Chinese… Dont know… Tight the nuts?

        • Wolf Richter says:

          Unless one of these countries gets bailed out by the IMF (hahahaha), it doesn’t matter. It has zero significance. Actual exchange rates change every second of every day. The IMF changes it once every 5 years. They’re lazy. So what???

        • NBay says:

          Haha also!….seems it’s their unchanged “banking” MO that counts. Would you believe Stiglitz was the LAST book I ever read (other than auto shop textbooks)?

          Don’t miss books a bit……awkward (especially with a trashed back) and in the end, just someone’s opinion…..I have a library Carnegie would envy, the internet.

          Speaking of words, noticed how “At the end of the day” is being replaced by “The over arching…” ?

  16. John H. says:


    You mention Brazil CB policy

    As rates lift-off, what impact does overseas central bank activity have on the Fed’s decisions — e.g Japan, as referenced by KWHPete above — or Turkey, as described below:
    “Consumer prices rose 54.4% in February from the same month in 2021 per official data, up from a 21% annual rate in November. Last week, the Central Bank of the Republic of Turkey kept its benchmark interest rate at 14%, down from 19% last August, on orders of President Recep Erdogan, who has termed himself an “enemy of interest rates.” No mere jawboner, the strongman has fired three separate CBRT chiefs since 2019 for insufficient dovishness. Turkish lira-pay 10-year government bond yields reached a record high 28.15% yesterday, up from less than 17% last September.”

    – From Almost Daily Grants, March 25, 2022

    Does the interest rate structure around the world act as a “gravity” as Michael Engles describes, or does US reserve currency status allow the Fed to do whatever it pleases with rates?

    • KPL says:

      “As rates lift-off, what impact does overseas central bank activity have on the Fed’s decisions”

      My question would be the other way round – What impact does the Fed’s decision have on other CBs.

      After all as far as CBs are concerned only the Fed counts. So many CBs have raised interest rates ( has many articles on this) has over the last year or so but it is when the Fed raises it that the world sits up and takes notice.

    • Wolf Richter says:

      John H,

      Erdogan’s monetary policy is an exercise in nuttiness. The nuttier the better. He is willfully destroying the lira through inflation. And he is wildly succeeding.

      The BOJ has had “yield curve control” in effect since 2016, when it said that it would buy “unlimited amounts” of 10-year JGBs to keep the 10-year yield “near but above 0%.” That upper limit at the time was 0.1%. So this has been in effect for over 5 years.

      Kuroda just reiterated it, as he has done many times before, including a month ago. But Kuroda has nudged up the upper limit. It used to be 0.1%, now it’s 0.25%. Sort of like a rate hike. Well, but the BOJ let it go higher, because now the Japanese 10-year yield = 0.26%, and no biggie.

  17. nsa says:

    Inflation amounts to a slow motion debt jubilee. Run inflation at say 10%, claim it is 5%, and then pay savers 1%.
    By the rule of 72: 72/(10 – 1) = 8 years…….the time it takes for the purchasing power of fiat asswipes to halve and debt denominated in asswipes to half evaporate. Borrow dollars and pay fifty cent pieces……and then quarters…..and then dimes…..and then pennies.

    • Wolf Richter says:

      “Inflation amounts to a slow motion debt jubilee.”

      That’s a misconception, confusing consumer price inflation with wage inflation. Inflation only reduces the debt burden if there is WAGE INFLATION, not consumer price inflation. CPI inflation tracks a cost increase for consumers. If they don’t make up that cost increase through higher wages, their debt burden is going to RISE, instead of fall. So what you need is wage inflation, not consumer price inflation.

    • Depth Charge says:

      “Inflation amounts to a slow motion debt jubilee.”

      Not when even more, larger debt is being piled on. Big nope.

  18. unamused says:

    Central bank digital currencies will save the global economy, guaranteed. They just won’t save it for everybody, for example, you.

    Relax. Help is on the way.

  19. KPL says:

    Is there an outside chance that even this pussyfooting Fed may do a 50 bps hike at the next meeting?
    My guess is the probability is not ZERO.

    • Depth Charge says:

      A 50 basis point hike in the future – May – while inflation continues tearing through the entire economy is akin to a fire captain looking at a raging inferno and saying “we’re going to schedule our trucks to take a look at that fire in several weeks’ time.” We all know how that sort of thing works out. The FED is “light and late” on their supposed inflation fight. IOW, they aren’t doing shit.

      • KPL says:

        “IOW, they aren’t doing shit.”

        Agree. But then expecting fireworks from the “most reckless” (or shall we say “most timid” – scars of 2008) Fed ever would be a bit too much.

        IMO, the Fed will do 50 bps probably because the market does not seem to have got the memo that the Fed is going to hike rates vigorously despite jawboning (maybe the 25 bps hike in Mar contributed to the wrong memo). If their intention was to quell inflation they would do 100 bps. But then the stock market will crash and they have to do QE.

  20. THEWILLMAN says:

    Both getting inflation started and stopping inflation is liking whacking ketchup out of a glass bottle. People will all tell you the best way to do it (the angle of the bottle, the direction of applied force, how hard to hit it) but the only thing that really matters is consistent whacks until eventually the ketchup comes out.

    Let’s not forget that a similar playbook was applied in 2008 and caused basically no inflation above base rate.

    So now that we’ve whacked it enough times that inflation is here, time to whack the bottle consistently until it stops. That seems to be precisely the groundwork Powell and co are setting up here with raising on every meeting. And in that respect the fact that an almost hopeless 25 BP raise did nothing isn’t the point – it’s the commitment to continue whacking away at this thing until the ketchup finally comes out and inflation goes away.

    What I’m keeping an ear out for is the slightest wavering at that commitment. Even a hint that they might not be taking this seriously is the equivalent of putting the ketchup bottle down and starting over later.

    • Old School says:

      The way I look at it is the Fed sees the future as a bell curve of future outcomes, but they always have to forecast the tail that is the most optimistic to keep confidence high.

      I was reading during the GFC Bernanke said he didn’t see us going into a recession when in hindsight we had been in one a few weeks when he made the statement.

      One criticism I hear about the Fed is they are data driven which means they are driving looking in the rear view mirror and tend to make policy decisions too late

      • Augustus Frost says:

        It’s hubris to believe that any central planning committee (that’s what the FOMC actually is) can actually successfully micromanage an economy of 330MM+.

        Ultimately, this social planning experiment (which is exactly what the government is and has been conducting since the 30’s) is going to result in a “fat tail” catastrophic systemic failure.

        Practically everyone seems to think that “smoothing out the business cycle” has been a success. It has been to those who received most or all of the benefits up to the recent past while the “can” was being kicked.

        It won’t be to those who experience the downside in spades which is coming up.

        It’s not that the FRB or government have recently made “policy mistakes” and different choices would have avoided most or all negative outcomes.

        The very existence of these policies is the mistake.

        No, there is never something for nothing.

        • COWG says:

          A lot of talk about comparisons to the 70s and 80s…

          The population in the US has increased 50 million or so since then…

          A lot more cats to herd…

          And a lot less economic productivity for the given population…

        • Jake W says:

          the only different choice in the modern era that may have made a difference to the trajectory of this nation was the 1965 immigration act. it prioritized family reunification above all else, like skills and education.

        • historicus says:

          “When central planners decide, they intentionally assist one group to the expense of another.” F A Hayek

          It is clear the FED decided to assist the fully invested (stocks and real estate) to the expense of the prudent saver, those who save for the “rainy day”, don’t buy big items unless they can pay all or mostly cash.
          So, the Fed interfered with free market decisions.
          Milton Friedman said the great thing about Capitalism is that it is free from coercion, it is cooperation without compulsion.
          Wonderful, until the Fed conducts a “cattle drive” to stocks and real estate.

        • Depth Charge says:

          “Practically everyone seems to think that “smoothing out the business cycle” has been a success. It has been to those who received most or all of the benefits up to the recent past while the “can” was being kicked.”

          I don’t know who this “practically everyone” is, but I disagree with the assertion. Most people don’t even know what/who the FED is, and what they do. If they did, they would not support them. What we have is a very thin slice of ivory tower crooks carefully crafting policies which financially benefit a select few at the expense of the masses, but sell the policies as if they were designed to help them.

        • unamused says:

          “Milton Friedman said the great thing about Capitalism is that it is free from coercion, it is cooperation without compulsion.”

          Coercion and compulsion are unnecessary when you’re locked into a system with no alternative. Which is to say, they own you.

          The problem with putting the foxes in charge of the chicken coop is that you’ll inevitably run out of chickens.

        • NBay says:

          If that’s an accurate Milty quote (and it sounds like him) it shows one of the two great “leaps of faith” people had to make to help fuck this country up like it is…..the two (somewhat intertwined) leaps that fucked up this goldmine after we stole it from the Indians and won WW2.
          One could almost say we were “predestined” to fuck it up by having those mindsets….one of which IS “predestination”.

          Told ya words are really inaccurate!

        • NBay says:

          Or I stink at using them.

    • economicminor says:

      Inflation is when the money supply is elevated above the productivity rate. Prices increase when more money chases fewer goods.. We’ve had inflation for a long long time in stocks, bonds, art, yachts and especially real estate. So in reality, the catsup is already smeared all over the table and the kids.

      What people are complaining about is that now the increased money supply has finally hit consumer goods and energy. Now the catsup and the mustard are all over the carpet too. The FED says it’s going to stop squeezing the bottles. It’s great plan to clean up the mess so far is to hand out one single paper towel to start the clean up with.. And a promise to hand out some more some time in the future. And WE get to live in the mess until they get around to deciding that it is finally time to clean the mess up.. Of course by then it is going to be spread all over the house and dry.

      • 91B20 1stCav (AUS) says:

        ecominor-you forgot the pickle relish…

        may we all find a better day.

  21. historicus says:

    Regarding the Fed
    “He who takes away a neighbor’s living slays him”

    Promoting ANY inflation takes away the value of a person’s living, that which he earned and saved….and from that for which he currently toils.
    The Fed is “slaying” the worker/earner/saver of this nation…those who fill the shelves, turn the lights on in this country each morning.
    The Fed should NEVER and nor to ANY DEGREE promote inflation. And it is their duty . Even a 2% promotion pierces their duty, an inversion.
    And the money supply should only expand to meet a growing economy, not to pump the numbers.

    Markets should react to the Fed, not the Fed to the markets

    …unless of course they serve a different master than their mandates as laid out in the Federal Reserve Act of 1977. Do they? Since about 2009? Someone should ask.

    • Old Ghost says:

      “Markets should react to the Fed, not the Fed to the markets”

      Well said. But why does everyone think that the FED or “markets” are the only actors who can respond ?

      Maybe it is because the US has not had much in the way of a functioning government in the last 40+ years ?

      IMHO taxes on billionaires are way too low. Will Billionaires respond to income taxes by borrowing against their stocks instead of taking a salary— well fine, just raise the interest rate to 20%.

      Are corporate persons doing share buy backs? OK, why not a 59% tax on corps that do buy backs?

      Why not require ration coupons for some items, like gas or diesel fuel?

      I read somewhere that British banks once had a “girdle” where they could only lend a percentage of deposits for real estate—-why wouldn’t something like that work here?

      There are a lot of things that could be done to reign in inflation besides praying that the bankers on Wall Street do the “right thing”.

    • 91B20 1stCav (AUS) says:

      histo-“…as you travel through this lifetime, you’ll meet lots of funny men-some rob you with a six-gun, and some with a fountain pen…”.

      -Woody Guthrie, ‘Pretty Boy Floyd’

      may we all find a better day.

  22. Yancey Ward says:

    People think stagflation is coming like the 70s. This is all completely wrong. I lived in the 70s- I was very young then, but I remember it well. The economy was growing well the entire decade because of the demographics involved- the Baby Boomers were becoming adults and having their families- the numbers of employed were growing rapidly, even in the weakest parts of the 1970s. Inflation was a problem, but it wasn’t a lethal one for the economy. Today is completely different. There is no big demographic wave of new workers. When the recession hits, the inflation involved will rapidly disappear again. Is the Fed behind the curve? I don’t think matters one bit any longer.

    • Jake W says:

      not to mention that nearly all of our immigrants today require transfer payments. and the population is not really increasing much outside of immigration. so all of the “growth” in population actually causes our economic situation to go backward.

    • Augustus Frost says:

      I think the economy was growing well for other reasons too, like the country actually produced more real things that made it wealthier as opposed to services which is substantially just make work that doesn’t create anything.

      You may be using it in a different context but the demographic assumptions economists use have limited if any long term reliability.

      First, just because someone reaches a certain life stage and wants the recent lifestyle that goes with it, doesn’t mean they are going to get it and that this is going to be the demand driver economists seem to routinely claim. This applies to both individuals and entire societies. Modern economics assumes otherwise.

      Second, just because someone reaches a certain age doesn’t mean their income is going to increase because of it either. This is the “prime earning years” assumption.

      Both are assumptions predominantly if not entirely from post-WWII experience in a limited number of countries (like the US) which are subject to radical change.

      Inflation wasn’t as big of a problem because of much lower debt levels..

      Today, most household “wealth” is fake since it is mostly someone else’s debt, ridiculously overpriced stocks, and bubble priced housing. Substantially persistent higher rates will wreak havoc on both “investors” portfolios and employment. Since the US is also now the largest external debtor in history, a noticeable proportion of higher interest payments will also be paid to non-US residents who will use it to buy up real goods and assets leaving less for those based in the US.

      Last but certainly not least, the country has experienced substantial cultural decay in the last half century. This isn’t directly quantifiable, it’s almost completely ignored, and I know many (if not most) disagree with it but it’s an actual problem.

      Culture isn’t a secondary or irrelevant feature in economic success and prosperity.

      It’s the very foundation of what makes some societies more successful than others in terms of how most people measure what makes a place desirable to live.

      It’s an extremely unpopular sentiment, but the US has imported tens of millions from less successful countries and failed states which will absolutely not make this country more economically successful or a better place to live measured subjectively by quality of life.

      • COWG says:

        “ Last but certainly not least, the country has experienced substantial cultural decay in the last half century. This isn’t directly quantifiable, it’s almost completely ignored, and I know many (if not most) disagree with it but it’s an actual problem.”

        In 1964, LBJ instituted the “war on poverty”…

        Which ushered in the “money transfer programs”…

        This is almost 60 years of failure…

        But, to me, the real crime of this was the destruction of the greatest productivity tool ever and what built the country…

        Personal responsibility and Self-sufficiency….

      • Wolf Richter says:

        Augustus Frost,

        “…as opposed to services which is substantially just make work that doesn’t create anything.”

        1. Quit bashing services. Rent is a service. Hotel stays and flying are services. Your internet connection and cellphone connection are services. The software you’re using to post this comment are services. Your healthcare is a service (except for the pharma products). Electricity to your house is a service. WOLF STREET consists of a mix of services, and YOU are using them.

        2. The US is the 2nd largest manufacturer in the world, behind China, in terms of manufacturing output. The US share of global manufacturing output is greater than the combined share of the next three: Japan plus Germany plus India.

        Manufacturing in the US is HUGE, but it is largely automated and doesn’t employ as many people as it used to. But it should be much bigger, given the size of the US economy; it should be bigger than China’s manufacturing sector.

        • Jake W says:

          wolf, i don’t want to put words in his mouth, but i think he’s referring to unproductive services, like regulatory consulting, trading derivatives and facebook algorithms.

          and he’s right that we have way too much of that, and way too little manufacturing, for the size of our economy.

        • ru82 says:

          I am curious.Is Google ads and Facebook ads categorized as a service? They pull in billions of dollars of revenue from other countries.

        • Augustus Frost says:

          I’m aware of what you are telling me but can’t write it all here.

          Jake W is correct. Noticeable proportion of GDP and employment which doesn’t represent real production.

          Since you mentioned healthcare, sure it’s necessary. But it’s backwards to measure all of it as economic output (“growth”) when the US spends something like 20% of GDP on it. There comes a point when spending more means the country is worse off. I’m against single payer but the US economy isn’t bigger or more productive because it spends so much more than Europe or Canada.

        • JeffD says:

          @JakeW Like the mind boggling amount of “regulatory compliance services” surrounding real estate. Do I really need to pay a company $100000 every year to come and make sure every condo still has the smoke alarm and external fire bell they had last year (visual inspecton only)? Just about every service surrounding real estate is stuff no one cares about or needs to do.

        • Jake W says:

          jeffd, or the absurd amount of time and money banks and other companies spent on kyc, anti-money laundering, and all sorts of other “regulations” that do very little other than keep lawyers and regulators employed.

        • NBay says:

          “except for Pharma products” is in parentheses for the wrong reasons, IMHO.

      • OutsideThe Box says:


        So basically you are a Calvinist ?

        • COWG says:

          I personally think he’s a Hobbist…. :)

          And that the Fed plays Calvinballl….

          Making up Sh$t as the game goes along…

        • NBay says:

          Nothing wrong with your thinking that 200 hrs of Joel Osteen and many donations won’t cure.

  23. Yancey Ward says:

    This Winter and Spring look eerily like 2008 to me.

  24. Lone Coyote says:


    I’ve started seeing that some states are proposing stimulus payments to offset high gas prices and inflation. I’m not an expert, but to me that seems like a great way to push inflation higher. Is that a reasonable take?

    • historicus says:

      I thought the same thing….
      But some states are suspending state gas tax…..
      so the difference between suspending the state gas tax and giving out cards to compensate is of little difference.
      Of course, I am assuming the cards handed out can only be used for gas, which would make the most sense. If not, then back to the “it creates more inflation” argument.

      • Jake W says:

        even if they give out cards, it still creates more inflation, because the higher gas prices would had to come from money that could have been spent elsewhere, exacerbating inflation in those other areas.

        • historicus says:

          I am only saying that if suspending state gas tax is one consideration…or a gas debit card another….it is a lateral move.
          Not saying either one is right.

      • Enlightened Libertarian says:

        Wolf, if you buy a real estate asset with borrowed money, and over a ten year loan period inflation + appreciation doubles the value [as is happening to me right now] doesn’t that destroy your debt? [Mostly inflation with some appreciation]
        Example, buy a 10 million apartment building with 6 mill down and a 4 mill loan. After 10 years it is worth 20 mill but the loan is less than 4 mill after P&I payments. Your equity goes from 6 mill to 16 mill, your debt drops from 40% to 20%. Wouldn’t that be debt destruction through inflation?
        Just asking for my financial education.

        • NBay says:

          You have $20M (and came up from nothing several times) and you are asking Wolf for financial advice?
          I doubt he’s there yet, or even in your league, especially since he pisses away a lot of valuable time doing stupid* things like swimming in the Bay almost naked.

          *I’m not sure if any brown fat theories are still mainstream.

    • Wolf Richter says:

      Lone Coyote,

      Yes, these are just counterproductive vote-buying schemes that will make inflation even worse. In California, that proposal (BTW, most proposals in California never go anywhere anyway, so I’m not too worried) has already gotten a lot of push-back from environmental groups that want a reduction in demand for gasoline, not a subsidy for more demand.

  25. Raising short term rates only boosts the cost of borrowing money on main street, which will put the brakes on consumers. Inflation is like the moment in the pandemic when we run out of TP. You knew it wasn’t going to last. The Fed isn’t fighting inflation it’s fighting inflation psychology. Here’s hoping some of the other mass insanity that’s been going around will end as well.

    • Jake W says:

      nonsense. the fed funds rate doesn’t affect the cost of borrowing money on main street. great, so bank of america can borrow from the fed or from wells fargo for 0.25%. do you think the successful small business owner with 5 employees can borrow at those rates, with no collateral and no personal guarantees?

      • COWG says:

        Not nonsense, Jake…

        While not on Main St, the folks over on Oak St. , who do most of their borrowing on credit cards , will see their cost of borrowing go up…

        • Jake W says:

          yes, it’s nonsense. people who borrow on credit cards often pay the maximum allowed by their state’s usury law. it has little to nothing to do with the fed funds rate.

        • COWG says:

          Not quite, Jake…

          Credit cards charge a percentage above what called the prime rate based on creditworthiness, say 10% above prime for good credit to 20% above prime for poor credit…

          Prime is determined by, wait for it….

          The Fed Funds rate…

          Ergo, the higher the federal funds rate , the higher the bank prime rate, the higher interest up to the legal limits of usury…

          What your actual interest rate will be is determined by the card issuer…

          However, many businesses also have a line of credit for cash flow purposes which is also tied to prime plus a certain rate…

          As the Fed funds rate increases, prime rate increases, and their borrowing costs will go up as well…

          Many adjustable rate mortgages used to be tied to the prime rate as well, not sure of today….

          Doing business at fixed rates protects you against these types of things….

        • Forget it Jake. It’s Chinatown……

  26. Swamp Creature says:

    I would like to see the Fed start to unload its balance sheet starting with MBS immediately and at a faster pace. They should not wait for bonds to mature but begin selling them on the open market. Interest rates should be allowed to seek their own level without Fed intervention, if that is possible. If they go up on the long end, which they already are, and hurt the housing industry then so be it. Those who have been sucking off these low rates to do house flipping and other speculative endevors may get burned but frankly I couldn’t care less. A home was supposed to be a place to live in not to be traded like some cattle.

  27. fred flintstone says:

    For the first time in the history of our country we have folks in charge that honestly do not understand basic economics, self denial for the future good or how to get along.
    Its the me me me generation that has no idea that a check book must be balanced.
    If we expect these folks to do the right thing……we have a long wait.
    Rates are going to remain soft because they want them soft. They could care less about you. Its all about them. We’re all in this together is history.
    Their solution to this mess is to increase the defense budget with dollars they do not have so they can intimidate the world…..thereby keeping their crazy overspending possible.. Domestically they will continue to destroy the middle class until somebody hits the streets at which point they will turn the (volunteer, well paid) army on you.
    FDR, Reagan,Lincoln, Washington are all dead……this group is closer to Stalin. They will provide incentives to various groups to keep the false image of a middle class going until it fails….then it will all drop when the dollar collapses. The country will do fine but our standard of living will be quite a bit lower.

    • 91B20 1stCav (AUS) says:

      fred-you left out ‘and a significant portion of the general population’ in your ‘people in charge’, list (…your excellent point on our now-enlisted military, the concept of citizen-soldier or equivalent and sincere public duty (ISEP in Jared Diamond’s observation) now long out of general fashion other than for lip service, confirms the view, imho…).

      may we all find a better day.

  28. Rumpled Bemused says:

    The central bankers were bold when they should have been cautious, and now they are cowardly when facing the consequences of their past actions.

    Perhaps, our future will look similar to 1965-1981. I don’t know, but my gut feeling is that we’re due something more catastrophic. For several years, we’ve had countries agreeing to ignore eacother’s exploding debts and failing currencies. They we’re willing to do this as long as their interests we’re more or less aligned, but those days are over and no one is going to voluntarily be the loser in the coming financial and national conflicts. Our modern way of life is dependent on natural resources, goods and services moving swiftly and inexpensively about the world, and conflicts of interest are about to slow those transactions dramatically. A lower standard of living is, perhaps, the best possible outcome. I don’t even want to contemplate the worst.

    • John H. says:

      “ my gut feeling is that we’re due something more catastrophic.”

      Here’s a picture of catastrophic:

      “The greatest of all secular bear markets, which began in April of 1946, and probably ended in September 1981, carried prime long American corporate bond yield from their lowest recorded yields to their highest. The yield index rose from 2.46% to 15.49% for seasoned prime issues and up to 16.5% (industrials) and 18.0% (utilities) for high quality new issues. This was a yield increase of 1303 basis points on seasoned issues, and 1981 peak yields were more than six times greater than 1946 low yields. The great bear market lasted some thirty-five years, by far the longest duration for a bear bond market in U.S. history. If a constant maturity thirty-year 2 1/2% bond had been available throughout this second bear market of the century, its price would have declined from 101 in 1946 to 17 in 1981, or 83%.”
      – From Homer and Sylla A History of Interest Rates

      History doesn’t repeat, but it rhymes, as they say. Hope we’re not heading for that type of cycle!

      • Augustus Frost says:

        “History doesn’t repeat, but it rhymes, as they say. Hope we’re not heading for that type of cycle!”

        No, it will be worse, much worse this time.

        There was no bond mania in 1946 as there is now. The US national debt was high then but aggregate debt was modest compared to recent history.

        The US also had a large trade surplus and with an economy composed of real production.

        Today’s economy is substantially fake with much of it services that don’t represent any wealth creation.

        As the largest external debtor in history, rising interest rates will transfer purchasing power to foreign creditors who will use it to buy a larger proportion of real goods that will be exported out of the country. There will be less if any point to accumulating a capital surplus which only provides more fiat USD as portfolio income.

  29. ru82 says:

    banks are not participating in this bounce the past 4 or 5 days. You can never have a true rally unless banks participate.

  30. Stillastudent says:

    Thanks, Wolf, for the clear summary of the “65-’80s bond bear market and its lessons for today.

  31. Enlightened Libertarian says:

    The comments and references on Wolf Street are addictive. Many many interesting and obscure references.

  32. Kunal says:

    Stocks are heading back to ATHs. Bitcoin is heading back to ATHs. TSLA is heading back to ATHs. It seems like Fed may achieve its elusive soft landing. Middle class and ordinary Americans are already screwed with inflation so not much can be done but the wealthy class will not have to bear any pain of wealth decline and asset bubble pop.

    Most people on Wolf Street are bears and rightly so given the data and objective analysis but fiat USD based economy is all rigged and nothing is rational. The most rational decision in this marketplace is to never bet against Fed and never get out of market.

    • Jake W says:

      no, a soft landing means they get inflation under control and they protect the asset markets. right now, they’re only doing the latter. that’s not the soft landing. that’s lying about wanting a soft landing.

      • Kunal says:

        Well Fed’s mandate is no longer fighting inflation so forget about it. They are doing just fine with their mandate of constant asset price growth. Soft landing in my mind is stable (not too fast) asset price appreciation that looks good politically.

      • Depth Charge says:

        Exactly right, Jake. The FED has achieved NOTHING. Until they get ahead of inflation, the damage continues, some of it irreparable. Jerome Powell should have been fired. Instead, he’s being rewarded. Our country has been hijacked by deranged lunatics.

  33. SlimPickins says:

    Wolf here or maybe another blog entry could you help us understand what is the benefit (description and extent) of having the reserve currency? Does the US Government get to create the $$ from thin air and spend it as demand for $$ increases? or perhaps similar to that, but by a more complicated mechanism? If so, then losing that capability would seem to be a huge loss, how much would you estimate that is worth?

    • Wolf Richter says:


      A “reserve currency” just means that other central banks hold financial assets (mostly credits, such as bonds) denominated in that currency. For the US, this has the effect of foreign holders funding a part of the US deficits (budget and trade), and it makes overall funding of those deficits a lot easier.

      This happens not because of anything the US government or the Fed is doing, but because foreign investors have confidence in US assets (and their liquidity) and are buying them. When they lose confidence, they’ll shed them and buy some other assets instead.

      There were periods during which foreign investors lost confidence in the USD, and its share of foreign reserve currencies plunged, such as between 1975 and 1990. I’m going to do an update on this when the new quarterly data comes out later this week. This is my article one from a quarter ago:

  34. Xavier Caveat says:

    Bond, secret investment agent .007%?

  35. Prophet says:

    A suggestion for a new guideline to the comments section:

    When the word count of the comment is equal to, or in excess of, the word count of the article, a pop-up window displays the message:

    You’re full of yourself!

  36. jon says:

    I don’t see any risk to USD as reserve currency for few decades. Other currencies are not that great. Cleanest shirt in a dirty basket as someone said.

    FED/Gov knows this and thus they have the audacity to print with impunity.

    • Jake W says:

      people say that, but just remember you never get any warning when it’s about to implode. Could it be another few decades? Maybe. It could also implode later this year.

    • The Real Tony says:

      I give the U.S. dollar 4 years before its supplanted as the world’s reserve currency.

  37. LongTimeReader says:

    Hi Wolf, I know you said the current markets should be compared more to the 70s and 80s, would you mind making an article outlining what the markets looked like at the time compared to Fed policies now? Much appreciated!

  38. Swamp Creature says:

    I took my lawn mower to get serviced by my mom & pop home based business. Their fee went up from $100 to $120 in one year. That’s some serious inflation in my book. Like 20%. Wolf needs to update the inflation data he puts out which comes from the government. The real rate is running at 15 to 20%.

    • TheAltonRoute says:

      Yes…I’ve definitely seen that. I’ve heard that Toro is no longer enlisting new dealers; there simply isn’t enough product to stock the existing dealers. It’s the start of the season, and there already are several mower blades that are on backorder. Prices are soaring. For example, the low-end Simplicity lawn tractor has gone from $2500 in 2019-2020 to $3150 today.

  39. Beardawg says:

    Just never have been able to grasp bonds. This podcast was awesome from a historical perspective. However, when Wolf concludes the Fed can/should do XYZ, they (Fed) rarely do, and inflation is the consummate wild card.

    It seems to me that like real estate (moves slow), when inflation seems to settle in around 4-5% and if bond yields are at the same place, go ahead and buy, HOPING the Fed will try to get inflation down to the 2% range (their alleged mandate). Trying to time bond purchases more finitely than that seems a fool’s errand to me.

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