Peak Balance Sheet: Fed’s Assets Dip to Level of 5 Weeks Ago. End of QE, End of an Era

Markets already started to kiss that easy money goodbye.

By Wolf Richter for WOLF STREET.

Total assets on the Fed’s weekly balance sheet as of April 20, released this afternoon, declined to $8.955 trillion, roughly the same as on March 16 and below the levels of March 23 and April 13. Beyond the week-to-week ups and downs, caused by the peculiarities of Mortgage Backed Securities (MBS), which we’ll get to in a moment, the balance sheet has flattened out. Balance sheet growth has ended. QE has ended. That part of the marvelous show is over.

Since March 2020, when this whole money-printing orgy began, the Fed has increased its assets by $4.65 trillion, a mind-boggling amount of QE in the span of just two years.

QE was designed to repress long-term Treasury yields, mortgage rates, long-term interest rates of any kind, and to inflate asset prices. It thereby created the biggest wealth disparity ever, documented by my Wealth Disparity Monitor, based on the Fed’s own data.

But then raging inflation got in the way. And the Fed finally started “tapering” its asset purchases in mid-November. Tapering means that the Fed bought less of Treasury securities and MBS than it did before tapering, when it was increasing its assets by about $120 billion a month. After the tapering began this monthly increase began to shrink. Now the balance sheet is no longer increasing, tapering is finished, and QE has ended.

Now markets started to kiss that easy money goodbye. The bond market has been getting hammered since last year. The stock market has been getting hammered since January this year, and numerous stocks have imploded.

The Fed has also unwound and brought to zero numerous of its emergency measures that it had started in the spring of 2020, including its repos, which it ended in mid-2020, and its corporate bonds and bond ETFs, of which it never bought much to begin with. We’ll get to them in a moment.

Treasury securities flat at $5.76 trillion.

Since the beginning of March 2020, the Fed’s holdings of Treasury securities have ballooned by $3.24 trillion, to a total of $5.76 trillion. The balance has now remained roughly flat for several weeks.

In order to maintain the balance of Treasury securities at the current level, as maturing securities come off the balance sheet, the Fed buys new Treasury securities in the amounts needed to replace the maturing securities.

TIPS decline, accumulated Inflation Protection rises.

The $5.76 billion of Treasury securities include Treasury Inflation-Protected Securities (TIPS) and the accumulated Inflation Protection on those TIPS. The government compensates TIPS holders for CPI inflation by increasing the principal of the TIPS. The Fed tracks this “Inflation Protection” amount separately from the face value of the TIPS. On its balance sheet today:

  • TIPS, face value of $381 billion, -$7 billion from March 16.
  • Accumulated Inflation Protection on TIPS, $81 billion, +$4 billion from March 16.

The Fed’s sleight of hand with TIPS on market-based inflation expectations.

Since March 2020, the Fed’s proportionally huge purchases dominated the relatively small TIPS market and pushed the TIPS yields into the negative.

The TIPS yields are called “real yields” and form a factor in the “market-based” inflation expectations (such as the spread to regular Treasury yields) that the Fed cited in its statements to show that market-based inflation expectations were “well-anchored,” when in fact these “market-based inflation expectations” were the result of the TIPS yields that the Fed manipulated down with its purchases of TIPS.

With its purchases, the Fed pushed the 10-year TIPS yield into the negative throughout the pandemic. But the Fed has now stopped buying TIPS, and the balance of TIPS is declining on its balance sheet, and TIPS yields began to rise in January (from -1.1% at year-end) to just above 0% on April 19, the first time since March 2020 that 10-year TIPS yield closed in the positive, though for only one day.

Manipulating the TIPS yield to show that “market-based inflation expectations” were “well-anchored,” though inflation had already begun to rage, was one of the cleverest monetary sleights of hand.

MBS: $2.73 trillion, flat with March 16.

The Fed’s holdings of MBS dipped to $2.73 trillion on the balance sheet today, and was roughly flat with the balance on March 16. Since March 2020, the Fed has added $1.36 trillion in MBS.

MBS differ from regular bonds in that holders receive pass-through principal payments when the underlying mortgages are paid off after the home is sold or the mortgage is refinanced, or when regular mortgage payments are made. As a passthrough principal payment is made, the balance of the MBS shrinks by that amount.

During period of low and declining mortgage rates, such as during the pandemic, mortgage refis are a huge thing, and the passthrough principal payments become a torrent, and the balance of each MBS shrinks rapidly.

Conversely, the surging mortgage rates now have largely killed refis, and pass-through principal payments have slowed down.

In order to make up for those pass-through principal payments, the Fed buys large amounts of MBS in the “To Be Announced” (TBA) market. Before the taper, it bought over $100 billion a month to make up for the passthrough principal payments and to increase the balance sheet by $40 billion a month.

Now it is buying just enough MBS to fill in the estimated amount of passthrough principal payments in order to keep the MBS on its balance sheet level.

But there are two problems with it:

  • The unpredictability of the passthrough principal payments
  • The 1-to-3-month delay before the Fed’s MBS purchases in the TBA market settle.

Trades in the TBA market take one to three months to settle. The Fed books its trades after they settle. So when the Fed was three months into the taper, that’s when the first tapered MBS purchases started showing up on its balance sheet. This is delayed data. And the MBS on the Fed’s balance sheet kept rising at the pace of purchases two to three months earlier.

In addition, the timing of the passthrough principal payments and the settlement of the purchases don’t match from week to week. So the Fed’s balance of MBS jumps up and down from week to week.

By now, most of the delayed settlements of the taper MBS purchases have been booked, though there might still be some stragglers out there. And the balance of MBS, despite the ups and downs from week to week, is roughly flat with March 16:

Unamortized Premiums decline to $342 billion.

This is the net amount that the Fed paid in “premiums” over face value and in “discounts” below face value when it purchased Treasury securities, MBS, and agency securities in the market. The net unamortized premiums peaked in November 2021 at $356 billion and has now declined to $342 billion.

The Fed – along with everyone else that buys bonds — has to pay a premium to buy securities whose coupon interest payments exceed the  market yield at the time. For example, when you buy a 10-year Treasury security with seven years of remaining maturity, and a coupon interest payments of 2.5% a year, while the 7-year yield in the market is 1.5%, you have to pay a premium over face value to get those 2.5% coupon payments for the remaining seven years.

The Fed books these securities at face value and books the premium separately. The Fed then amortizes the premium in a straight line to zero by maturity date. Which means the Fed writes off the premium over the life of the bond. These securities have a higher-than-market-yield coupon interest payment, and the amortization of the premium is smaller than the coupon-interest payment.

By the time a particular bond matures, and runs off the balance sheet, this premium has been amortized to zero, and there is no loss at maturity. In other words, the Fed is taking the losses of this amortization on a constant basis, while it is earning the higher coupon interest income that these bonds generate.

Repurchase Agreements (Repos) at zero:

The Fed is still offering repos but has raised the rate it charges to be unattractive (currently 0.50%), and there have been no takers since July 2020, when the balance fell to zero.

With these repos, the Fed lends cash to counterparties in the repo market, in exchange for collateral (Treasury securities or MBS).

Repos are in-and-out transactions. On their maturity date – the next business day for overnight repos, or longer for term repos – the Fed gets its cash back, and the counterparty gets its security back. Repos are a quick way for the Fed to send lots of liquidity to the markets and take it out when the repos mature.

Central-bank liquidity-swaps at near zero.

The Fed has been offering dollars to 14 other central banks via “central bank liquidity swaps,” in exchange for their currency, to provide dollars to those economies for their dollar-funding requirements. The Fed did this during the Financial Crisis in 2008-2010, during the Euro Debt Crisis in 2011-2013, and during the pandemic.

Almost all of those swaps have matured and were unwound, with the Fed getting its dollars back, and the other central banks getting the local currency back. Only a minuscule $233 million of swaps remain outstanding:

SPVs continue to decline.

Special Purpose Vehicles (SPVs) are legal entities (LLCs) that the Fed set up during the crisis to buy assets that it was not allowed to buy otherwise. Equity funding was provided by the Treasury Department, which would take the first loss on those assets. The Fed lends to the SPVs, and shows these loans and the equity funding from the Treasury Dept. in these SPV accounts.

The total amount of the SPVs dropped by 79% to $44 billion, from a peak of $208 billion in July 2020.

The PPP loans that the Fed bought from the banks account for $22 billion, about half of the total SPVs, down from $90 billion in July 2021. Over the summer and fall of 2021, the Fed sold all of its corporate bonds and bond ETFs into the hottest corporate bond market ever, and they’re gone (yellow columns, CCF). The remainder are the Main Street Lending Program ($12 billion), Municipal Liquidity Facility ($7 billion), and TALF ($2 billion):

In addition to having fueled the worst inflation in 40 years, the past two years of the Fed’s QE and interest rate repression have created the worst wealth disparity ever, based on the Fed’s own data on the distribution of wealth in the US. The ultimate outcome of the Fed’s reckless money printing are raging inflation and this:


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  249 comments for “Peak Balance Sheet: Fed’s Assets Dip to Level of 5 Weeks Ago. End of QE, End of an Era

  1. JM says:

    If the FED wanted to lower inflation they’d announce a 1% rate hike tomorrow morning. Instead they want continued high inflation to continue the wealth transfer to the 1%. With inflation at 17%, the FED is destroying the wealth of 95% of American’s. Jay Powell, all talk no action. Lock these criminals up, end the era of central bank fraud. Jefferson was right:

    “If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.”

    • J-Pow!!! says:

      I am announcing that as of tomorrow I will hike rates 1% to end this temporary residual inflation!!!

    • Lorenzo St. Dubois says:

      Wow! Heavy man!

    • Wolf Richter says:

      Check out the markets. They’re starting to take Powell seriously, even if you don’t.

      • Andrew Wilson says:

        but the bond markets are not?

      • Depth Charge says:

        Wolf – even you have said it yourself, that the FED is doing too little, too late. How is too little too late “serious?” It’s an honest question. These people hem and haw over chintzy rate hikes when they should have had an emergency 5% hike months ago. They could stop this inflation in its tracks, but they don’t want to.

        • historicus says:

          “It is hard to imagine a more stupid or more dangerous way of making decisions than by putting those decisions in the hands of people who pay no price for being wrong.” Thomas Sowell

          and there you have it…
          We “hope” they do the right thing. But there is no consequence for them if they don’t….or even CHOOSE not to. There wasnt even a consequence for those three Fed Folk who resigned in shame.

        • Old school says:

          I think what the Fed is shooting for is threading a needle by slowly working off debt by slowly reducing inflation from 8% to 6% to 4% to 3.5% and so on for the rest of the decade. They need to inflate away the debt by at least 30% and slowly inflating it way without a recession is the goal, but very small chance they succeed.

        • Augustus Frost says:

          A large hike like 5% would have to be supported by equivalent open market operations, presumably earlier QT.

          Not by “jawboning”.

        • Augustus Frost says:

          Old School,

          The chance they succeed is virtually and effectively zero.

          If it happens, there really is something for nothing.

          There has been far too much accumulated social rot in American society over my entire life, going back to the 60’s.

          It isn’t just a matter of dollars and balance sheets.

          At some level, they must know the financial system and economy are a house of cards. It’s the most logical reason everyone is frantically trying to avoid a recession (an entirely normal and expected event) presumably because of the political and social “blowback”.

        • DawnsEarlyLight says:

          Old School, the fiscal irresponsibility of the US makes that almost impossible.

        • RockHard says:

          DC, reading Wolf’s later comments

          >They’re going to stop this inflation, and they have the tools to do so. It will be too little too late to stop it now, but over the next few years, and with lots of pain, they’ll stop it. And tightening globally is how they’re doing it.

          You’re talking about a Volcker-like intervention, but inflation ran hot for quite a while in the 1970s too. I was pretty young then (in middle school when Reagan was elected), but I definitely remember the pain.

      • JG says:

        Wolf – love you man! But really surprised how you seem to believe the FED is actually even remotely close to being serious about any significant rate hikes, ending QT, buying MBS, etc. They have let this inflation absolutely rip roar higher to probably 15%-20% in the real world (CPI is a joke). They are bluffing/lying as usual. Sure we will get a few hikes, but then they will lay an egg and come up with their usual excuses to take a “pause”. They want all this inflation, but would never publicly admit it.

        • Wolf Richter says:


          Maybe you were born after the 1970s, or were too young to understand what was going on at the time.

          So let me help out: there is now raging inflation out there like the majority of the people alive in this country have never ever seen, and it’s not disappearing, it’s raging, and it’s raging globally, and the central banks are watching the beginnings of the collapse of the monetary system, a consequence of global QE and interest rate repression, and they’re freaking out. They’re going to stop this inflation, and they have the tools to do so. It will be too little too late to stop it now, but over the next few years, and with lots of pain, they’ll stop it. And tightening globally is how they’re doing it. Because the alternative is too terrible.

        • Depth Charge says:

          “…the central banks are watching the beginnings of the collapse of the monetary system, a consequence of global QE and interest rate repression, and they’re freaking out…”

          I sure hope you’re right, Wolf. I really, really want you to be right. But I am such a cynic that I don’t imagine them “freaking out” at all, I imagine them smiling amongst each other as they pour another tumbler of single malt, $2,500 per bottle scotch.

          I just watched Mary Daly talk yesterday, and these are her words:

          “…in order not to tip the economy over by reacting abruptly, we need to take a measured pace. But that measured pace still gets us up to the neutral rate, which I put at about 2.5% by the end of the year.”

          This does not at all sound like somebody concerned with inflation, this sounds like somebody who doesn’t want to let go of their greedy bubble gains.

      • JayW says:


        Sorry for asking maybe should be an obvious question. The federal government is certainly going to run deficits of at least 2 to maybe $3T over the next two years. The increased tax receipts may only last through say September.

        Assuming the FED somehow is able to engineering a “soft landing” over the this time period, this would mean that the FEDs balance sheet will NOT grow by making ANY bond purchases from the Treasury to fund our deficit spending, correct?

        Again, big assumption is that the FED successfully sheds at least $2T off its balance sheet in the next two years, how is this going to affect bond yields?

        So while the FED is jacking up short-term rates with FUNDS rate hikes, there’s going to be significant liquidity sucked out of the market with the purchasing of all these bonds & MBS.

        Do you think there’s enough money out there to purchase all these FED assets and deficit spending bonds?

        Correct me if I’m wrong, but this will be at least $4-5T in treasury bond & MBS purchases in just two years. That seems like a lot of liquidity. I guess my question is what happens to yields if demand dries up? That would mean decreased demand pushing yields even higher than everyone might otherwise expect them to go, especially if inflation proves harder to tame than the FED expects, correct?


        • Wolf Richter says:

          “…how is this going to affect bond yields?”

          They’re going to be a LOT higher. CPI inflation = 8.5%. Bond yields across the board should be ABOVE the rate of inflation. Ideally, inflation will come down some, and bond yields don’t have to rise that far to be above the rate of inflation. But if the Fed is going to crack down on inflation, it will have to drive Treasury yields above the rate of inflation, including short-term yields.

          “Do you think there’s enough money out there to purchase all these FED assets and deficit spending bonds?”

          Sure, but yields will have to a lot higher to attract this money in those quantities, including my money :-]

          Yield solves demand issues. That’s the beauty of it, if you let it — meaning if central banks don’t screw up the market with their interest rate repression policies.

      • DawnsEarlyLight says:

        True, but how long can a person hang by their thumbs?

      • Harry Houndstooth says:

        For those of you who bought SRTY and SQQQ, we have a healthy profit. Whenever I start feeling I know what I am doing, I take some chips off the table.

        • Jack says:

          Harry , your comment resonates with me
          whenever, i start feeling like i’ve got things figured out, i know it’s time to take a little off the table as well

    • Bruce says:

      Central banks tried to go negative interest rates but that would hurt the banks and people would reject that .So they did the next best thing suppress interest rates and push up inflation as much as they can.effectively giving you negative returns.The fed have no intention to slow inflation .Why are they still buying MBS

      • cb says:

        Bruce said: “So they did the next best thing suppress interest rates and push up inflation as much as they can.effectively giving you negative returns.”

        the next best thing for who? Why is this the next best thing? What does it accomplish and for who?

      • JG says:

        Exactly! 100% agree. The FED is lying/bluffing as usual.

        • Wolf Richter says:

          You tightening deniers are just hilarious. I mean you make me crack up. If you base your investment decisions on it though, good luck!

        • Dan Overton says:

          Wolf, a lot of people have lost all faith in the current financial system and decided to pull out before it’s too late. Can’t really blame them, except maybe they’re a a little early.
          I’m playing both sides, trying to time the final boat sinking. Results will be the same.

        • Nacho Bigly Libre says:

          I don’t understand the faith some people have in this central planning committee which is demonstrably clueless most of the time. Remember the “inflation is transitory” mantra of 2021?

          I am not saying they won’t raise the rates. I am saying if they do, it’ll just be another one in the series of clueless actions they have taken in the 21st century.

          And of course, I am not talking investment advice from this forum – doesn’t exactly have a stellar track record.

        • Trucker Guy says:

          Nacho bigly libre,

          How exactly are the higher ups clueless? They’ve wringed the lower and middle class dry, separated them from their meager paychecks, and laughed all the way to the bank.

          The wealth disparity is harkening back to the great Gatsby and robber barons. I’d say if anything, they are the most competent collective of the elites.

          We can all sit around and call the fed idiots for saying inflation is transitory but at the end of the day, what is their individual net worths and what is yours? I’ll gladly get in front of a microphone and say the sky is red, not blue for millions of dollars.

        • LK says:

          You’ll gladly do that while also being in a role with a responsibility to the public? Are we saying the success of public officials is dependent on what they do to maximize theor individual net worth? Are you high?

        • max says:

          The FED is lying/bluffing as usual.

          FED job is to save biggest banks — they will not admit that.

          patter is inflate, stop inflating, and when shit hits the fan, inflations again.

          but problem is bubbles are getting bigger and bigger same as balance sheet and outstanding currency in circulation.

        • Trucker Guy says:


          Are you saying officials do what is best for the public?

          I’d personally sell out my neighbors for millions of dollars. You would too given the opportunity. Only deluded people think they wouldn’t. They can just preach on their high horse because they’ve never been in the position to choose.

          I’ll complain that what they’re doing is evil because I’m one of the peasants getting screwed by it. But given the opportunity, I’d do the same thing they’re doing.

    • ru82 says:

      The FED is looking for a soft landing. They need to go slowly with rate hikes. You cannot put that kind of shock in the system.

      Lets see if they really do follow through. Inflation is raging so much they will need to increase rates.

      But looking at the wealth gap chart….The bottom 50% did not gain much wealth so a 50% drop in the stock market will not really effect them at all.

      Will the FED allow a 50% drop. Depends who their overlords are I guess.

      If the FED follows through, that means they are really intent on slowing down the economy. Push companies to not expand manufacturing capacity, not to do upgrades to equipment, etc.

      My company has ordered some Cisco switches for a small business a month ago and Cisco keeps saying they cannot give a delivery date. That is how unsure they are on the backlog and supply chain.

      Tried to order some office grade printers. July at the earliest.

      These are must haves. Not want to haves.

      • John H. says:



        They want to tame the inflation that they kindled.

        I suggest two other motivators behind Fed decision-makers’ tardiness:

        1. Legacy — they don’t want to be stamped for all time in the textbooks as having led the country (world) into Great Depression 2.0 ?

        2. Institutional Credibility — they have a desperate longing to protect the concept of central banking. I believe this is due to a sincere belief that central control of the economy works (though the current predicament proves otherwise), and more selfishly, because their livelihood depends on its continued existence. For Fed decision-makers, Depression 2.0 will tarnish CB reputation, and ruin a great gig.

        The good to come out of this situation might be a serious national re-think about alternatives to central banking.

        “ As against the working of the law, your raising the rate of interest, or your attempting to sell government securities, will be just as effective as Mrs. Parrington’s mop against the Atlantic Ocean…..My objection is that the bill permits a vast inflation of our currency…”
        – Senator Elihu Root, Congressional Record, Dec. 13, 1913

        It appears Root was on to something!

        • VintageVNvet says:

          Some wise person long ago said something like, ”The FIRST and FOREMOST ”job” of every bureaucracy is to preserve and protect and promote that bureaucracy.”
          certainly appears to be true these days in USA,,, and have read extensively that it has been true in old world for eva???

        • ru82 says:

          @John – Well said.

        • NBay says:

          Exact same sentiments of everyone in every single corporation…..all management covers their asses and jobs/pay whether private or public, the stiffs closer to the bottom actually do the “mission”. Higher up in management you go, the more selfish and nasty and richer they get……why else would they fight their way up?

          BIG difference between having a good work ethic and ambition.

          The REAL question is; Is ANY organization’s “mission” good for the people and the planet!

          Growth for growth’s sake (making someone money) is the ideology of a CANCER CELL.

      • perpetual perp says:

        Reagan ended our Republic (without knowing it) when he dismissed the government as always ‘the problem.’ Absent an engaged government, the oligarchs took over Congress and, thus control the nation’s money supply. Serial tax cuts emboldened the Olitarchy. You can have Democracy or billionaires. You cannot have both.

        • VintageVNvet says:

          not too sure about the not knowing aspect pp,,, but for the rest, damn sure correct
          raygun was likely the very worst governator of the state of california, ever,,, as evidenced by his edict to spray tear gas over thousands of people because one or two, clearly criminals,,,
          later proven likely to have been GUVMINT plants,,, were damaging storefronts, etc., in the southside area of Berzerkeley in the spring of 1969///
          and while IMO he did that to ”make his chops” with the reactionary rightists, he then parlayed that into enough financial support to become elected POTUS,,, once more proving the theory that the most money wins EVERY USA election.
          Time and enough for USA to go to a totally public money ONLY election system AT EVERY election…
          ( Not holding my breath.)

        • NBay says:

          YEP! The Reagan-bot had a well laid out script, and nobody here voted for any of it….even if they voted for Reagan and think they did!…. or (gag) still think he was a “awesome president”. They aren’t simply are NOT rich enough to write ANY of this country’s “script”…..which they likely will discover….as they ARE NOT “voting members”.
          Although there is always hope….just less all the time.

        • Matt says:

          The Feds primary purpose is to help the government fund it’s deficit spending and now it is out of control.

          They can’t let rates go to a normal number, 2.5% is historically not neutral rates, yet that is the Feds target here.

          Neutral would be more like 4 or 5%. But the government can’t afford the debt payments at 5%.

          So it is unlikely that inflation would be tamed with a 2.5% rate if inflation is 8.5% that they admit, but really is closer to 17% if you use the CPI from the 80’s.

          Maybe if we have a deep recession that would clear out the excessive debt from the system and slow inflation.

          But will the fed and the government allow that much pain? I doubt it, if we have a stock market down 50% and housing prices going down,

          will the fed just lower rates to 0 again and restart QE? And will the government actually cut it’s spending?

          Or will they say we need to give people more stimulus money and rekindle inflation to new highs?? We will see…

      • Augustus Frost says:

        The FRB cannot prevent a stock market crash. That’s a complete myth. This fiction is believed because of the existing mania.

        The basis of any central bank’s power is the national currency. Watch the DXY which hit a two year high this week. It’s at 100 which gives the FRB 30 potential points of leeway for “printing”. Anything below 70 breaches the all-time 2008 low and risks a run on the currency. There isn’t a viable replacement now but that doesn’t = unlimited “printing” either.

        If the FRB insists on “printing to infinity”, the markets can crash the USD whether they succeed in “preventing” any other market from crashing or not. If the USD crashes, practically every USD holder will be (a lot) poorer.

        Most of it is fake wealth anyway.

        When the chips are down, the markets, economy and the public will also be thrown under the bus to preserve the Empire.

    • BHR says:

      Real Inflation is being driven by retail corporations raising prices above their costs to make huge profits. More wealth stealing by Rich from Middle & Poor. “Accountable.US said it examined financial statements of nation’s top 10 retailers over past 2 years — incl Lowe’s and Target — They collectively increased their profits by $24.6 Billion for a grand total of $99 Billion.”

    • Brewski says:



      PS. Our Constitution addresses the issue: Congress coins the money and monitors the spending. Sadly, we have lost to the power elites.

    • JG says:

      100% agree. The FED for the most part is all talk/bluffing. Sure we will get a couple obligatory rate hikes, but then they will find an excuse (C19, Ukraine, bad weather, supply chain, etc.) to “pause” those hikes prior to the midterm elections. All tools will be used to keep house prices, property taxes, realtor/loan broker commissions, propped up higher. They will do debt forgiveness for student loans right before the elections in the FALL, as well as launch 40/50 year mortgages, rent and foreclosure moratoriums, mortgage forbearance,…whatever it takes.

    • max says:

      apparently that is Spurious Quotation.

      let’s assume that is true –it would mean that he approve of politicians in congress to control fiat money:

      Thomas Jefferson is elected to the second Continental Congress on March 27, 1775. Jefferson,

      June 22 Congress issues Continental currency On June 22, 1775,
      end result “not worth a Continental,” that proved worthless due to rapid depreciation, drove up prices, ruined the economy

    • NBay says:

      Great article. Especially the TIPS and SPV details.
      Inspired me to go read the history of why the FED was created and the political action around it.
      The whole “Jekyll Island” deep dark conspiracy crapp I hear about was just business as usual. I saw a lot of similar players at Hilton Head (just a little ways south) but never got to see lobbying work happen at the Beech Mountain house or the hunting lodge on the Olympic Peninsula. This wasn’t banking lobbying, it was Military Industrial Complex stuff, and I wasn’t privy to anything except the usual “private is better than government” battle, as they ostensibly always do what’s “best” and government never does.
      I remember once being told, “I wish I could tell you what the Russians have, but I can’t” (as in I would then understand why it’s so important to throw money at CorpX). Same with banks, they are just private corps….the Fed was supposed to be a “middle ground solution” (e.g., please everyone), but it looks like the banking corps won that one quite handily.

  2. crazytown says:

    Wolf, the Fred data shows reverse repos still near the highs – any commentary?

    • Wolf Richter says:

      They’ll stay there until QT starts eating them up. QT hasn’t started yet. RRPs and reserves will be the two liabilities on the Fed’s balance sheet that will decline with QT.

      • Lune says:

        Which means the real economy won’t see any tightening of conditions until both those balances are close to zero, no?

        • Wolf Richter says:

          First a clarification: RRPs can and will go to zero. But the reserves (bank cash) cannot and will not go to zero. They will come down a bunch but not go to zero. I think the minimum will be somewhere in the $1-2 trillion range.

          Financial conditions are already tightening some in the real economy (higher rates, wider spreads, etc.), which make borrowing more expensive and harder to get (housing, corporate, etc.).

  3. 2banana says:

    The natural end result of massive government spending and cheap/easy money.

    “In addition to having fueled the worst inflation in 40 years, the past two years of the Fed’s QE and interest rate repression have created the worst wealth disparity ever,”

    • Nacho Bigly Libre says:

      Fed balance sheet and fund rates

      Jan 2021: 7.3T, 0.25%

      July 2021: 8.0T, 0.25%

      Jan 2022: 8.8T, 0.25%

      Apr 2022: just shy of 9.0T, 0.5%

      How will Biden support his Free Lunch Economics™️ if cost of borrowing goes higher?

  4. Swamp Creature says:

    This whole economy reminds me so much of the 1970s’s that I feel like someone put me in a time capsule and send me back in time. Everything is the same as then. Runaway inflation, rising interest rates, rising housing prices, energy crisis and shortages, disfunctional government. But actually things are even worse now. Back then we didn’t have this gigantic balance sheet to unwind, this large budget deficit, and a War in Europe. The Vietnam war was over and there was peace on the college campuses. The younger generation just wanted to go and get a job and enjoy the American dream. None of these positive things are true today.

    • Rob says:

      And we still had a manufacturing base within our own borders!
      Now we’re riddled with debt and our creditors are beginning to lose interest in using our zimbabwe fiat currency. We’re so much more screwed than we were back then.

      • phleep says:

        Jerusalem Post just said Israel is diversifying its foreign reserves into other currencies, now including Chinese RMB as well as Aussie and Canadian dollars. US dollar is still biggest, but the percentage is dropping.

        If that picks up (a lot, in a lot of places), we will feel, not like Zimbabwe, but maybe somewhat more like a constrained Euro state. I am not sure, given the super-rich’s probable wish to keep defense strong, where the cuts will be, but I suspect they will appear as trouble in my neighborhood. Not least is the psychological impact in a nation of already precarious personalities given to short attention spans, grandiosity and “free” stuff.

      • ru82 says:

        Why did gold and silver drop and the USD strengthen? Not saying that I disagree.

        What is the saying the USD is the best student in a bad class. U.S. central balance sheet is only 30% of the U.S. GDP while the ECB is 60% and Japan is 130%.

        What about cryptos. In the free crytpo give aways by all these crypto companies I have amassed $200 worth of crypos. I am a HODL. My $200 is now worth $80.

        Cryptos are not the answer of store of value.

        • SocalJimObjects says:

          HODL ? Hold On for Dear Life?


        • cas127 says:

          GDPs can and have collapsed quickly.

          Central Bank/Treasury debts don’t (in fact the latter are used to falsely prop up the former through “QE”).

          That is a big reason not to take comfort in ratios containing GDPs.

          *And* the US debt to GDP is over 100%.

          So it all depends upon which ratios you look at.

          DC can invent new ones to cultivate false comfort (see sausage innards of unemployment rate calculation)

    • Bubba says:

      The social fabric was still largely intact in America in the 1970s, and trade unions were strong. America still made stuff rather than trading paper and endless litigation. Globalism was in its infancy back then.

      • phleep says:

        And sentiment is shifting into reverse on globalization in so many places and ways. People feel overstretched and insecure. It will have to be at least more stealthy in the future, given nervous home voting bases in various countries.

      • Flea says:

        For 40 years corporations,have stepped on working class people.Now a revolt is starting = union membership rising ,they got to greedy ,time to pay the piper

      • phleep says:

        The social fabric had been pretty strained in the 60s. There were riots, bombings, remember? Everybody was protesting something in the streets — even the Mob. It wasn’t all over in the 70s, still weird. New Deal helpfulness + LBJ’s money-print extension had run dry. Discipline in 1970s factories was bad. US cars were poorly made. Full employment and money giveaway policies were out of gas. It was the “malaise” era.

        Stuff was weird. Remember Patty Hearst? But we pulled out of that doldrum. At a price though.

        I don’t see any relative “good old days” to resurrect there. Or much time for nostalgia. The time arrow points forward only, with its foot on the gas.

        • VintageVNvet says:

          ”good ol’ days” WERE good for some folks at some areas at some times, maybe all the times,,,
          but only for some folks, just like now
          think right after WW2 for the most equitable distribution of ”good times” for most folks,,, as long as you were not black folks in the very racist parts of USA or anywhere similar in the world
          ”elites” were taxed at up to 90% of income, and some of them actually paid that rate — on income
          most of course did not, though the publicity of the rate was helpful in the equitable PR
          looking at home ownership prior to and then after WW2 might be indicative of more fairness starting after GI Bill was introduced, etc., etc.
          guess maybe our current elites have forgotten???

    • historicus says:

      All comparisons to the 70s should begin with this fact..
      In the 70s, we had a Fed that FOUGHT inflation.
      Today we have a Fed that PROMOTES inflation….even at 2%, their self authored goal…..this is a brand new aspect of the Fed, and a curious and blatant violation of their stable prices mandate.
      Now we have a situation that IF inflation reverts to say 3%, the Fed will declare victory. But in a ten year window, with year one at 8%, add 9 xs 3% and do some compounding. The purchasing power of the dollar will have dropped 40% in ten years!!! (and with a Fed patting themselves on the back for having returned inflation to their target “area”).
      It is sad the people of this country dont know what’s going on ….most think the Federal Reserve is a bourbon or an Indian Reservation.

      • John H. says:

        “ It is sad the people of this country dont know what’s going on ….most think the Federal Reserve is a bourbon or an Indian Reservation. “

        Good one, historicus!

      • c smith says:

        “In the 70s, we had a Fed that FOUGHT inflation.”

        Nope. Volcker arrived in August of 1979.

        • phleep says:

          Yes, um, Arthur Burns? Loosening for the ’72 election? That was comparable to the foolishness of this latest episode.

          Volcker came in with alongside the deregulation start in the quite late Carter admin, at the end of the 70s.

        • historicus says:

          The Fed raised the rates to meet the inflation rate…and at times surpassed it. That is responding to inflation. The “new Fed” since 2009 never did that. That is fighting inflation IMO.
          Burns may have been a poor fighter of inflation and harbored bad policies, but he NEVER promoted inflation, and he did raise rates to make certain holders of dollars were not harmed and also to arrest inflation.
          Compare to the Powell Fed which promotes inflation …. even the 2% – 2.5% rate is damaging when compounded out.

      • John H. says:

        c smith-

        But in the 1970’s the Fed was, at least, allowing interest rates to rise along with “inflation expectations.”

        Nominal rates averaged about 8%, and the real rate was positive, at least according to Homer and Sylla.

        It took Volker to make the heroic and ultimately convincing move, though, as you state.

      • ru82 says:

        I had fond memories of the 70s. Back then a middle class home was a 1500 sq ft home with 2 car garage and 3 or 4 bedrooms. There was not such a huge wealth gap. CEOs did not earn 1000x the average salary of their employees. It seemed like they cared a little bit more about the company instead of their stock options / investors.

        When you jeans had a whole in it your mom put a patch on the whole.

        You could have a coversation with someone who was not constantly not checking their smart phone.

        • John H. says:

          But the weed wasn’t as strong as today’s…. I hear!

        • Anthony A. says:

          John, the weed was OK, but clearly not a strong a today. My college prof in 1970 in one class has real good stuff. When he held Saturday class on the beach in New Milford, CT, he was gracious enough to share it.

          I really miss those days. And this was Connecticut, not the West Coast cities.

          I was two years out of the military and working on getting an Engineering degree. Paid for with G.I. Bill money ($222/month) and my savings from my part time jobs.

    • Augustus Frost says:

      No, there was no asset mania back then. Over 40 years less of social decay too which is even more important.

      If it was just a matter of balance sheets and numbers, ending inflation is easy. Reverse the spending and default on the national debt to start over.

      Can’t do that without breaking practically everything because it’s not possible to put the toothpaste back in the tube without destroying it.

      • John H. says:


        “No, there was no asset mania back then [1970’s]”

        Wasn’t there a bit of a mania in commodities? Gold went from $40 to $800….

  5. Stan Sexton says:

    Isn’t the “FED WINDOW” still open for borrowing at .5%? Also known as “Primary Dealer Credit Facility”. Isn’t this where the Elite get the money to buy Grandma’s house at 75k over list price and All-Cash? Since 2013?

    • Wolf Richter says:

      Stan Sexton,

      Primary credit (discount window) loans had an average balance this week of $411 million with an M, which is nothing on a $9 trillion balance sheet. Banks can borrow for less in the multi-trillion-dollar repo market and in the federal funds market.

      Primary credit (discount window) loans are in my second-to-last chart, the black columns you see on the left that have now faded out.

      Primary credit peaked in the week of March 23, 2020, at $50 billion. Which was small compared to all the other stuff going on.

      I understand that some bloggers out there have spun up some fun financial fiction about primary credit (fiction = creatively invented stories for entertainment purposes) but the black columns in the second-to-last chart show the reality.

      • Flea says:

        Welcome to 1929 ,sorry to see 1928 go bye

        • David Hall says:

          Rising wages. Rising food prices. Chip shortages. No gold standard. Money printing like a Weimar Republic. Instead of a bubble bursting, a surge in inflation. The price of a home in my subdivision went up again, like the 70’s. Price of gasoline is not 62 cents a gallon like 1977. Remember a 5 cent Hershey bar during the Vietnam War?They may tighten until it hurts. Then what? Stocks and bonds go down. Good companies raise prices to preserve margins. What is safe?

      • Harry Houndstooth says:

        Ladies and Gentlemen-

        Nothing but the unadulterated truth dispensed daily in a form easily digested by those seeking wisdom.

        In this retest of the market lows; is the market going to break down or is there another market rally before the bottom drops out?

        Good Question

        For my 2 cents, I expect the major market averages to get cut in half. But, I do not allow my bias to affect my trading decisions. It may take 2 years or who knows.

        The first dead cat bounce of the bear market we are in is apparent on all the US markets. Those who bought SQQQ and SRTY at the peak of the bounce have a huge gain made in a very short time period. Remember, these trading vehicles are fighting a designed asset decay which favors not holding them while you are waiting to profit. In other words, you want to try to buy them at the peak of the rallies in the bear market we are in (which history shows us are huge rallies on the way down), selling them with the falls.

        Personally, I went from nearly entirely in SRTY and SQQQ to nearly entirely in cash in the aftermarket on Friday, April 22, 2022. This could be a huge mistake because the bottom may fall out of the market. If it does I will sell the rest of the SRTY and SQQQ. But, I did lock in a hefty profit and holding less of a declining asset should we be in the absence of a falling market. It is more difficult to increase your brokerage account value in a bear market then in a bull market.

        We just saw the Nasdaq 100 breach 15,000 and then retest the 13,000 near term low not getting near the 16500 top – this sure looks like a dead cat bounce. However, if we get one more rally before the bottom falls out, I am ready.

    • SoCalBeachDude says:

      Bank practically never borrow directly from the Federal Reserve and when they do so it is based on the FEDERAL DISCOUNT RATE which is always set 0.5% higher than the interbank lending Federal Funds Rate. The outstanding balance borrowed from banks from the Federal Reserve is less than $500 million dollar and that borrowing carries a stigma and the borrowed funds may not be used by banks for speculative purposes.

  6. Keith says:

    Good article – thanks

    • JeffD says:

      They are all good. And a lot of patient corrections with additonal new info in the comments. All that and entertaining to boot.

  7. John H. says:

    I understand that the last Repurchase Agreements self-liquidated back in 2020, but if/when this facility is used again, does the loan show up as an asset?

    And what about the collateral held for the short duration of the loan?


  8. nearlynapping says:

    What do you think happens first (1) a drop below $5 trillion or (2) a rise above $15 trillion??

    • Kunal says:


    • Wolf Richter says:

      You people are funny. The Fed is taking you out to the chopping block, and you’re dealing with it by being in denial LOL

      • Gattopardo says:

        No, they are indeed funny and heading to the chopping block, but they *may* be correct. You think the Fed is going run down its b/s faster than $1b/year? Doubtful. ~4 years from now, they’d hit $5T. A lot can happen in 4 years, including a stinging recession and whatever crisis is next, in which case the Fed could double, triple down, doing “whatever it takes” again.

        • Wolf Richter says:

          The $5 trillion doesn’t matter. It’s completely irrelevant. The markets will shit all over the place long before then. They’re already starting to, and QT hasn’t even begun yet. Think of short-term rates of 4% and $1.1 trillion a year in QT, and holy moly in terms of asset prices. That’s what I mean by chopping block.

        • cb says:

          Wolf said: ” Think of short-term rates of 4% and $1.1 trillion a year in QT, and holy moly in terms of asset prices. That’s what I mean by chopping block.”

          a lot of “you People” will cheer that chopping block …….

        • Wolf Richter says:

          Yes. The Fed’s QE and interest rate repression since 2008 has been hugely destructive to a lot of households, while others made out like bandits. The Fed engineers wealth transfer as a matter of course. Some of that is now reversing.

      • unamused says:

        ‘Chopping block’ seems too quick and easy. The guillotine was intended as a humane method of execution. I was thinking whipping post. More prolonged. More American.

      • cb says:

        @ Wolf –

        What people are being taken to the chopping block? How so?

        Savers and prudence have been hacked for years. The projected unwind might now help their situation.

        The imprudent might get spanked, rightfully so. The front runners and manipulators should get creamed, but probably not; they are insiders and front runners on both sides of the move.

        And, if as Historicus says, the FED maintains it’s stated (and corrupt) goal of 2% inflation, it’s actions won’t be anything but PR across any meaningful time frame.

        So is the FED lying? or which lie is real? The lie about fighting inflation? Or the lie about “stabilizing” inflation at 2%?

        They are pathetic and ruinous to middle Americana social fabric. They exemplify all the worst of insider dealing.

  9. nsa says:

    Vice Chair Clarida, Dallas Pres Kaplan, Boston Fed Rosengren all resigned without penalty shortly after a jealous insider snitch revealed the boys were actively front running their own interest rate decisions and wu-wu announcements, rolling as much as 5 million per transaction. “I will miss his wise counsel and valuable insights” Chair Powell said in a statement announcing Clarida’s early departure.

    • Flea says:


    • Bubba says:

      Those guys ought to spend the rest of their lives without parole in Florence Supermax prison. I am not joking.

      • Depth Charge says:

        That’s getting off light. As the poster above you said, they are traitors. That is punishable by death.

        • cb says:

          sadly, that has become expected behavior of those at the top

          and it continues to corrupt the fabric of America

          cheaters get ahead, while the honest are stepping stones and collateral damage

    • unamused says:

      It should come as no surprise to anyone that central bankers would do double-duty as an organized crime syndicate. And vice versa.

      A rising tide lifts all yachts, but dinghies get shipwrecked.

      • cb says:

        and boats with holes, which a majority of Americans are in, result in many drownings

        That “rising tide lifts all boats” is one of the most misleading of all quotes. Only a blue blood would infer that all Americans have boats – as he spoke from his yacht.

    • Jpollard says:

      The 10 year and longer are below 3%.
      If the Fed is going to Stop QE, then they will no longer be a buyer of longer term Treasuries . If they actually do QT, they will be a seller .
      Why are rates still below 3% , when the biggest buyer is turning into a seller

  10. John Apostolatos says:

    “Markets already started to kiss that easy money goodbye.”
    “Check out the markets. They’re starting to take Powell seriously, even if you don’t.”

    Give credit where credit is due. Congratulations to those who saw the corruption and the insanity in our economic system, and took advantage of it to get rich. Those of us like me who relied on Australian Economics missed the boat.

    A hedge fund manager said two years ago that you should look at Trump and the Fed as criminals, and predict what they will do accordingly because these people are not rational. They will destroy the future of the country for their own survival. The same guy made a lot of money on the way up; has sold most of it at the top, and will make more money on the way down.

    I believe the current hike in rates is not being done because Powell had a Come to Jesus moment. He is again thinking about his own survival, and so is Biden. Someone called him both an arsonist and a firefighter.

    It is time for Powell to pull the rug since the greater and the greatest fools have already bought. The transfer of wealth for this round is mostly complete. You will see it in your 401k and housing soon.

    • ru82 says:

      True. Biden and Powell need inflation to drop. Inflation hurts the bottom 50%. As seen in Wolfs charts, they have not really gained any wealth from the stock market run because they do not own stocks.

      But high inflation will make them vote for a new person who promises to stop inflation

      A crash in the stock market will not effect them. The people I know in the bottom 50% do not even follow the stock markets or care.

      • Flea says:

        80/20 hamburger is 5$ a pound @ 8% inflation = 100% inflation or price gouging .there’s no one guarding the hen house ,poor people revolt soon

    • phleep says:

      Australian Economics

      Is that like Austrian Economics? Zoroastrian? Astrological? ;)

      • John Apostolatos says:

        Typo: Austrian Economics

        P.S. Wolf did say to ignore typos. Read the message.

        • perpetual perp says:

          For a second I thought ‘Australian’ economics meant MMT! MMT is the only macro economics that was built specifically for monetary sovereign nations. Price stability is its primary goal. The creator of MMT is Australian economist Bill Mitchell.

        • Wolf Richter says:

          He only coined the term to give the old debunked method of monetary destruction a new and appealing name in order to rope people in. He did a pretty good job too, and I’m busy blocking MMT trolls on this site :-]

        • Phil says:

          It was a particularly noteworthy typo. :D

        • Wolf Richter says:

          But I liked “Australian Economics”

        • phleep says:

          Just funnin’. he said he ignores typos.

        • Trucker Guy says:

          Australian economics is also known as “monetary theory innit” for the record.

        • coalman says:

          “Australian Economics” means you turn your country into a colony for international finance. We are all governed by psychopaths.

        • TheAltonRoute says:

          Is MMT just Civil War greenbacks on steroids?

        • NBay says:

          Was watching a travel show maybe 5-6 years ago and the guy said Vienna was “filled with retired central bankers”, more or less in the context of a lot of “high culture” things to do there.

          Don’t know if it’s true or not, or if it’s at all relevant to the Australian School Of Economics.

    • TheAltonRoute says:

      Yep…I find the Austrians’ ideas pretty interesting. Their apocalyptic predictions about the US economy probably will be proved right at some point.

  11. Bubba says:

    I’ve been buying short ETFs to profit off the Wall Street train wreck. So far they have been a good trade, and the major indexes have still barely moved. I can only imagine what they will do when the market really takes a dump.

    • phleep says:

      I have a chunk of VIX ETFs, but that would need a relatively time-compressed freakout to really pay off. The beauty is, unlike options, these don’t expire (unless theoretically they go to zero market value, but that’s extremely unlikely, methinks).

      Right now they are languishing, barely in the money, but every few months they wake up, and a little more rarely they pop. (Check the one-year and five-year charts). It is so fast, I have preset limit sell orders, at certain tripwire levels.

      • Propheticus says:

        An interesting exercise is to compare the $VIX.X index to the ETF, UVXY. As you know, UVXY is not an inverse ETF, but is still a good example of manipulation.

        $VIX.X logged an intra-day low back on June 29, 2021. To date, that low has not been eclipsed. On a daily chart, short-term bottoms have been drifting higher. Today, the index has crossed above, and will likely close above, its 50-day simple-moving-average.

        UVXY, however, logged an intra-day low back on Jan. 22, 2022, much later than that of $VIX.X, and nearly breached that low as late as yesterday. It is still trading below its 50-day simple-moving-average at the time of this post.

        While $VIX.X short-term bottoms have been drifting higher, UVXY short-term bottoms have been drifting lower to sideways.

        I’m not saying one cannot profit or successfully hedge using VIX-related ETFs and inverse ETFs in a down market. I’m merely pointing out that they are not true representations of their parent indexes. A negative bias exists for VIX-related ETFs and inverse ETFs, even when the markets are down and the ETFs are up, such as today.

    • ru82 says:

      There are a lot of meme stocks that are 50% to 80% down from their covid peaks. I am amazed the indices are not lower. I guess TSLA, AMZN, Microsoft have held up the QQQ.

      Look at Zoom, VROOM, EXPI, OSTK, Rivian, SNOW, NOW, SE …… Some of these are down 90%

  12. 8_mile_road says:

    If Powell announces a 0.5% rate FED rate increase on May 6, perhaps the market won’t suffer a big crash anymore?

    Why not? Because the market HAS ALREADY factored the 0.5% FED rate increase + 90 billion QT over the last week or so.

    • phleep says:

      I think that is the Fed’s hope, and has a fair probability. The market has factored in loss of some recent froth in NASDAQ, sure. I think the recent times were so frothy and extreme, there are further shoes to drop. Lots of names are seeing big drops on what seemed mediocre news (Netflix for example).

      But if and when things freak out, and I am thinking 2008(ish), things can happen quickly. Today’s “fair value” financial asset can become a fire sale item. That was what created the modern vast Fed scale, reach and balance sheet to begin with. The Fed cannot control all the inputs that make this second scenario possible. It was sort of good at picking up pieces creatively (with a good US dollar behind it), but not “good” enough for those who went insolvent. Those are the ones (like me) at the bottom of Wolf’s wealth charts, though I am 81st percentile in household net worth. It gets much steeper above my level.

      “When the levee breaks, mama you’ve got to move.” — Led Zep

      • JeffD says:

        Share buybacks purchased through debt issuance is about to be totally off the table at any company. Expect huge stock crashes as all companies suspend buybacks. This will be a “cleanse” for the long term real economy, and a sign the Fed is actually doing its job for the first time since the early 1980s.

        • Augustus Frost says:

          Actually cleansing the economy requires a massive economic depression, worse than the 1930’s since the accumulated distortions Are easily the worst in history. The distortions have been accumulating since WWII.

        • TheAltonRoute says:


          So all these Internet disruptors aren’t worth a bazillion $?

        • VintageVNvet says:

          Having been accumulating years since WW2, I have to agree with AF in spite of ”wishing” not to do so.
          Mom was correct 70 years ago, when she said, ”If wishes were horses, every beggar would ride.” ,,, and that is exactly where we appear to be heading once again: dreamland.
          ( Unfortunately, I don’t mean the world class BBQ in Tuscaloosa for you who might know it.)

  13. ru82 says:

    At east we do not have China’s stock market returns. FXI is lower than it was 10 years ago and is almost at 2009 lows.

    SPY is up 300%.

    Just think if you live in China and have to invest in the Chinese stock market.

    We are luckly to have 300% returns in are 401k.

    I know several people who retired in their late 50s because of the SPY returns the past 10 years. They thought they would be working until 67

    • phleep says:

      Chinese opacity still produces totally weird events. Huge stock crash in ’15 after huge public pump. Whole cities built and locked down in a finger-snap.

      Now they are cutting deals with Europe to float securities there.

      • Flea says:

        China unemployment rate around 6% ,economy growing at 3.5% ,this is phony .I must have a phd the numbers don’t add up

    • RH says:

      They want to rip off Europeans too. Read about the large, Chinese provinces that admitted to overstating their GDP by 23% or more. Compounding has that effect when you make up fake financial figures for DECADES. That was before the hit to GDP that they will take when their RE developers go under.

      The CCP does not have the Forex reserves to bail them and also other, corrupt, Chinese companies out. They depend now on FDI which they are seeking desperately.

      The CCP Ponzi-companies will thus be the next subprime-like disastrous scandal: like in 2008 when they held subprime bonds to then sell them to gullible investors through fraud, banksters now hold Chinese-CCP investments that they will not be able to unload fast enough when the guano hits the fan as in 2008.

      They will again scream for more free money and more government bailouts.

      • RH says:

        For example, read in Newsweek an estimate that for nearly a decade China overstated its GDP growth by 1.7, which was in years before their tyrannical,, current presitator consolidated his power: now, the wise fake everything, which is why covid will be intractable in China. Their figures are all lies.

        • RH says:

          Correction: 1.7% PER YEAR.

          Thus, due to its food and other issues, I predict China’s implosion will be the next, black swan in 2022 or 2023. Mark my words.

    • cb says:

      Yes. There have been many beneficiaries of the FED and GOV corruption.

    • Augustus Frost says:

      In the upcoming major bear market, many retired people will attempt or need to work again when the value of their portfolio declines or crashes and/or their purchasing power is eaten alive by inflation, if they can find work and get hired.

      I’m 57 (not retired) and someone my age potentially has 30+ years left. A lot can happen in 30+ years to turn someone’s financial life upside down, like the upcoming economic depression. Most people, even the currently now wealthy, will remain “invested” in hugely inflated markets when the financial markets tank.

      The financial position for most of them will change substantially where they are going to end up poorer or a lot poorer.

      • elysianfield says:

        Learn to code.
        Eat lentils.

        …You will own nothing…and you will LIKE it!

        • Wolf Richter says:

          Been eating lentils all my life. They’re super-delicious. You can fix them in a huge variety of ways. I love them (beans too). Super healthy too. I have no idea why people keep referring to them here as some kind of inferior product.

        • John H. says:

          As a pejorative, smoked carp might work…

        • elysianfield says:

          Mr. Richter,
          It is a current meme generated from a Bloomberg editorial…a “let them eat cake” revisited. I also am enamored with legumes of all varieties… The meme suggests that lentils are…pedestrian…somehow suitable for the lumpen only.

  14. ru82 says:

    30 year mortgage is around 5.2.

    That is still a historically low rate. I am just tryin to put things into perspective.

    Those artificial rates of 2.75% for 30 years were crazy. That is why most banks are not holding those loans and sold them to the Fannie Mae.

    I have a 2.25% for 15 years on my current house. I will rent the house out when I move.

    I have a friend who picked up a 2% for 15 years last December.

    He always planned on moving to a bigger house in 5 years and move up to a 3 car garage house but will he now?

    He bought the house for 320k 4 years ago. Refinanced last december at 2% for 15 years. The house is now worth $420k. His new loan is for $300k @2% for 15 years or $1100 a month payment.

    Lets say houses stay flat in 5 years. He owes about 280k on the loan. Even if he tried to buy the same house 5 years from now, the loan will coast him $1600 instead of $1100. So his move up to a $500k home will cost him $2000. Even though the house is only 80k more than his current house he will almost have to double his house payment

    • Depth Charge says:

      When that shitbox is only worth $150,000 he will bail.

      • cb says:

        Might never happen because $150,000 might not be worth shit alone, much less a shitbox.

        They create dollars from nothing ………………
        and they create lots of them

        it’s the greatest theft out there,

      • Tony says:

        When my shit box is worth $115k I will let the bank have it. Nice thing is the bank can’t come after me financially. So I will take my savings and buy a house cash while letting the bank eat a 200k loss. Can’t believe there are still people too dumb not to buy.

    • Augustus Frost says:

      What you describe works to support housing prices as long as enough people don’t lose their jobs where the trigger will most likely be significantly tightening credit conditions, regardless of rates.

      Most housing equity is fake bubble equity and most people are at least somewhat dependent upon fake growth for both their income and employment.

      In other words, just because someone doesn’t plan or want to sell doesn’t mean they won’t have to anyway. I expect the government to implement another mortgage moratorium in an attempt to forestall another housing crash if it becomes necessary, but that doesn’t mean sales volume won’t crash and the market won’t freeze up anyway.

      • JeffD says:

        Job losses are painful but temporary. Companies go bankrupt, but the population remains that needs goods and services, and that means jobs to provide them. When a company goes bankrupt, the plant still exists. Just the investors get wiped out.

    • c smith says:

      You’ve just explained why the housing market will be dead for the next 5 years.

  15. Jan de Jong says:

    In order to show recent relative wealth disparity development the graphs for the wealth categories should be shown as indexes. Is relative disparity getting worse or better? Hard to see with graphs of absolute amounts.
    Not so easy to do ofcourse.

    • JeffD says:

      The absolute numbers are the honest numbers. If someone in the lower 50% went from $1000 in assets to $20000 in assets, does it really make sense to say their wealth increased 19x while the “unlucky” wealthiest 1% of households increased their assets by *only* 50% ($24 million to $36 million in a year)?

    • Wolf Richter says:

      Jan de Jong,

      In the linked article on the wealth disparity, I blow your theory out of the water, written just for you, but it seems you missed it:

      The below is quoted from my article:

      Reckless usage of percentages can kill someone.

      If I give my favorite homeless guy $5, and he already has $5 in his pocket, I increased his wealth by 100%, which is a huge percentage jump in wealth. But he’s still homeless and still doesn’t have any wealth.

      Percentage increases are regularly touted to show that the wealth at the bottom increased, when in fact, it increased by only minuscule amounts of dollars because the bottom 50% have so little that even a big percentage increase still amounts to nearly nothing in dollar terms, compared to the billionaire class.

      When the wealth of the bottom 50% increases by 5%, they gain about $3,000. And when the average wealth of the top 30 billionaires increases by 5%, they on average gain $3,500,000,000. And the wealth disparity just blew out.

  16. BHR says:

    Irrational Exuberance & Dot Com Bubble – History Repeats Itself. Check list of Imploded Stocks on Wiki page. “Low interest rates in 1998–99 facilitated an increase in start-up companies” Sound famillar?
    Like now, everybody who could work a computer & access internet, usually at work, were day trading. I was making bigger daily gains than my $200 pay in 1999 as a late 20s CPA. Everybody checking their investment & retirement accounts several times a day. Wealth effect drove people to spend like crazy racking up CC balances. Using those gains to buy their 1st house, cars, etc.

  17. JeffD says:

    “Before the taper, it bought over $100 million a month”

    Just $100 million/month? Chump change?

  18. historicus says:

    “QE was designed to repress long-term Treasury yields, mortgage rates, long-term interest rates of any kind, …”

    And this is why the Fed touts the “dual mandate” mantra. For the third carved out mandate “promote moderate long term interest rates”, if honored by the Fed, would have precluded this antic of pounding long rates to FORCE investors to take more risk.
    So, essentially, the Fed violates TWO of their THREE mandates….the second being “stable prices.”

    In a system that boasts of checks and balances, Who Checks the Fed?

    • unamused says:

      “Who Checks the Fed?”

      In theory, Congress has oversight authority.

      In theory, there’s no difference between theory and practice.
      But in practice, there is.

      • perpetual perp says:

        Unamused; think Yogi Berra said something similar. The best one I like is ‘If you don’t go to their funeral, they won’t go to yours.’

        • phleep says:

          The Fed was following the Yogi wealth enhancement method: he was very hungry, so he asked for his pizza to be made into 8 slices, not 4.

      • BuySome says:

        Those who create something are not the ones who provide the checks & balances in this system. It would be up to the Executive or Judicial branches to do that. Now the players change, but there is and has only ever been one First Supreme Court of the United States. Treason is a military matter as it relates to national defense and the security of the Constitution/Republic/People…therefore, it is the concern of the Executive to decide if the court has failed and must be put on trial. If found guilty, then the entire court must be dissolved and the justices lose all lifeime guarantee of office as that body is gone. This crazy game of executing the value of money is nothing less than “cruel and unusual punishment” and the court has not said a word to stop it. Put ’em on trial. Then pass a new amendment banning all lawyers from ever holding this highest of offices due to a conflict of interest which prevents them from overtuning barrister bullshit. Get this machinery back on track before these headless idiots put us all into a civil war that will surely terminate what is left of a well designed Republic. Use the law to save the law.

    • John H. says:

      “The bureaucrat begins, perhaps, by doing only what he conceives to be his sworn duty, but unless there are very efficient four-wheel brakes upon him he soon adds a multitude of inventions of his own, all of them born of his professional virtuosity and designed to lather and caress his sense of power.”
      – H.L. Mencken, On Politics: A Carnival of Buncombe

      The brakes on the Fed are clearly inoperative…

      • historicus says:

        “he soon adds a multitude of inventions of his own,”
        2% inflation goal..
        Climate and green energy
        Gender and demographic make up of the Fed
        Inclusive employment
        “The urge to save humanity is usually a false front for the urge to rule it.” HL Mencken

  19. Old school says:

    I am not a Ray Dalio fan, but he has some good perspectives on the financial system.

    He basically says when there is too much debt you can pay it off honestly causing a recession or you can inflate the debt away making bond holders and savers pick up the tab.

    • Matthew Scott says:

      How does one define the “truly rich” and the “billionaire class” and is there a way to track their wealth onto your wealth disparity chart?

    • Wolf Richter says:

      Right now, Dalio and his funds are picking up the tab. So he’s still talking his book, trying to manipulate markets his way. But he sounds increasingly moronic.

      • Depth Charge says:

        Thank you. Ray Dalio is terrified of getting taken out behind Cathie Woodshed’s residence. Unfortunately, he can see her shadow at this point.

    • If you’re government you resolve old debt with new growth (and spending) You outgrow it. (There are sometimes parochial limits put on spending) The real reason the markets are tanking on the lame jawboning efforts of the Fed is that the associated risk to GDP is real, and is not being disputed by any of them either. If things were as dire as the market supposes the Fed would raise rates NOW. The one thing Fed doesn’t want is to raise FFR to 3% while the 10Y is at 2 1/2, the difference between murder one and manslaughter on the economy. The Fed is not going to blow up the economy in an election year.

  20. Poor like you says:

    “Balance sheet growth has ended. QE has ended. That part of the marvelous show is over.”

    I think I heard a bell toll.

  21. unamused says:

    NPR reported yesterday that The Fed is trying to control inflation with higher interest rates without causing a recession, without mentioning that they won’t be able to do either. They will, however, save the big banks, for a little while.

    • John H. says:

      “They will, however, save the big banks…”

      More pointedly, they will save the big BANKERS, many of whom have swung through the revolving doors between academia, government and banking, and some several times over.

      Ike should have warned about the “Banking/Government/Academia complex.”

      • Slacker says:

        Ike should have warned about the “Banking/Government/Academia complex.”,… Pharmaceutical/Medical industrial complex.

        We have all been financial used for sure.

        • historicus says:

          Ike did indeed warn of the funding of science by the government. He believed, and rightfully so, that as politicians directed the funding, academia and science would be funded regarding their beliefs on big government. Corporations would control academic science by controlling politicians. Academics who played the game would get the benefits of grants and funding. And research results were tailored to keep the stream of money flowing. The founder of the weather channel did an interview in which he said those who promote climate change get the grants, and those who have conflicting views seem to not receive them. One can wonder about COVID studies as well.

        • NBay says:


          That is a woefully incomplete set of facts without also including QAnon’s take on it.

    • Wolf Richter says:


      The Fed (and other global central banks) will be able to knock down inflation with high enough interest rates and lots of QT. That will do the job. With their HUGE balance sheets that they can unload, they’re uniquely positioned to knock down demand enough to kill inflation. Right now, they’re trying to do this more or less gently and slowly. So this is going to drag out for years.

      What they will likely not be able to do is avoid a recession. And a real recession that cleans out the excesses and gets rid of the overhang of corporate debt and gets rid of corporate zombies would be a good thing and would allow the economy to refresh.

      A recession lasts a few quarters, and the economy is better off afterwards. Inflation is a terrible thing, can last for many years, and can have devastating consequences for a generation or longer.

      • 8_mile_road says:

        //And a real recession that cleans out the excesses and gets rid of the overhang of corporate debt and gets rid of corporate zombies would be a good thing and would allow the economy to refresh.//

        I have not read ANY economic textbook, saying an economic recession is a good thing. However, based on what you wrote above, a recession benefits our society because it allows the strongest entrepreneurs survive, and the weakest die.

        If so, then why are we afraid of a recession?

        • Wolf Richter says:

          “If so, then why are we afraid of a recession?”

          “We” are not afraid of a recession. A recession can cause investors a lot of damage as their zombie investments have to be written off or lose value. So investors dread the moment that reality settles upon their investments. But that’s not “we.”

          I’ve been through many recessions in my life. Let them happen. And don’t bail out the rich.

          Recessions are an essential part of the business cycle. They’re needed to do exactly what I said. If you don’t get smaller recessions more often because you try to prevent every recession with new stimulus, you’ll get one big one that will blow everything away.

          The economy and safety structures we have (such as unemployment insurance) are well suited to handle recessions, and if left alone, and if they’re allowed to happen and clear out the deadwood so that the economy can move forward with less debt, well, that’s a good thing.

      • Depth Charge says:

        “And a real recession that cleans out the excesses and gets rid of the overhang of corporate debt and gets rid of corporate zombies would be a good thing and would allow the economy to refresh.”

        No more people driving trucks that cost 3x their annual salaries will be a good thing as well.

      • unamused says:

        “So this is going to drag out for years.”

        Probably longer, I think.

        • unamused says:

          “And a real recession that cleans out the excesses and gets rid of the overhang of corporate debt and gets rid of corporate zombies would be a good thing and would allow the economy to refresh.”

          The zombies wouldn’t let us do that last time, so now we have to do it twice.

      • Nathan Dumbrowski says:

        Is is realistic to at least question if we can recover? With the national debt, trade imbalance, QE off the charts. Do you really believe that a couple of adjusted to interest rates and QT will do the trick. Have not they unleashed some wild financial shenanigans that have never been done before to this level.

      • Wes says:

        Milton Friedman Monetarist Economics…

  22. David W. Young says:

    Of course, most of us experienced investors realize how abrupt and significant the current rout in bond prices, all across the maturity spectrum, is as we converse on these pages! Looking at a chart of short ETF for 10-year and 20-year Treasuries, it is like a rocket ship ride for months now, starting around the beginning of this most momentous year. We are also at the beginning of a very severe recession, the inflation genie will bat consumer spending back into the dugout.

    Bond investors, the High Yield crowd will get their comeuppances as the corporate bodies pile up in the Bankruptcy and Default fields of play, have already had their heads shaved, and stock investors have only just begun to sit down in the barber’s chair of reality. Raging inflation, surging interest rates, a slow to the draw Fed, and political uncertainty, to include armed conflict, have never been conducive to the upward trend of bond and stock prices.

    What bond investors were thinking about when they bought bonds with already grossly negative Real Yields in the pre-inflation Genie days of 2020 and prior is beyond me. Could only have been the chase for yield at any cost, and now the delayed bill is coming due. What little interest they obtained on an annual basis has been wiped out in several weeks of trading in today’s The Vigilantes Are Back bond markets.

    The rapidity of the bond market’s reversal is historic. And if it were not for daily interventions by the Plunge Protection Team out of NYC via the trading desks of Goldman and Morgan and maybe, BofA, the stock market would be very clearly in bear market mode for all to see. The exponential ascent of the stock market since the Covid virus came to our shores was a warning sign in itself, and an experienced investor, one with 30 to 40 years under his or her belt going through many a market cycle and economic cycle, has plainly seen the writing on the ticker tape.

    Many Americans hoping to retire on their current financial market gains, all unrealized for most, will be working much longer, if not until judgement day, due to what is to unfold. Cash is not trash, and the next Fed meeting may allow one to get a whooping 1% annual rate on their cash savings account in the weeks ahead. What is a Negative 7.5 percent Real Yield amongst friends. Time for the banks and money markets to start paying us for our hard-earned money.

    • Flea says:

      People better start looking at global bond markets ,there two trains on one track ,spectacular crash .whole world is over leverage ,this will take whole system out to woodshed

    • Harry Houndstooth says:

      Thank you for this excellent post.

  23. Island Teal says:

    “Back to the 70’s” was a great time for so many people. As said above a lot of what made America great still worked then. Opportunity was abundant. And yes we still made things. The “Valley” was really getting rolling. You could literally leave your car in the parking lot of where you currently worked and walk to neighboring companies for an interview during lunch. Just remember to get rid of the visitors badge..😬👍

    • phleep says:

      > And yes we still made things.

      Since then (70s), many Americans had a nice ride on the entry of China. We got the unpolluted country with the cheap manufactured stuff, gliding on the cheap manufactured credit China recycled right back to us. many of us got to do stimulating service jobs. They got the super-low wages, pollution and steady growth.

      Now the worm is turning. That era is ending, or at least fragmenting pretty badly, all over the globe. My sound balance sheet, such as it is, is my life raft. Credit turns into an anchor that drags all kinds of folks down. That is, if the Fed doesn’t concoct some trick to float the hyper-rich to new lofty levels, as they seize assets from the sinking. Hmm — are those properly termed “oligarchs”?

    • VintageVNvet says:

      YES islandT,,, as long as you were white or able to ”pass” as white, and many times not even then…
      many places, including especially TX were SO bad in 1970, that I was hounded out of a restaurant because my hair was slightly over my ears due to being too broke to get the usual haircut
      when ”waitress” came out of the diner and yelled at me to get the feck out of there because they didn’t serve dirty hippies, my girlfriend and I got out of there asap,,,
      still not very comfortable in TX,,, and will continue to avoid it even if it costs more to go north around it on the way to friends and family on the Pacific coastal areas

      • Trucker Guy says:

        Take i-10 across Tejas. It’s all friendly Mexicans who are pleasant to be around. And I’m not being sarcastic either. I’d rather drive across south Texas from El Paso to Brownsville than go through and deal with the greater meth head expanses of misery.. erm Missouri, and Oklahoma or other meaningless tornado states.

        Fair warning though, the only food you’ll find in south Texas is spicy.

      • Anthony A. says:

        Texas is different now. They even let this Connecticut Yankee in here and now I am a native Texan!! Beautiful place and friendly people.

        VVN, could it be back then that they thought you were from California?

        • VintageVNvet says:

          probably so AA: and the girl, a ride $ sharer through one of the SF area college bulletin boards, WAS in fact a hippie chick to be sure…
          but TG’s comment reminds me of the days BEFORE I-10, when for some reason, I ended up in El Paso at 0200 several times: there was an all night Mexican restaurant and the owner was the night cook and made THE BEST huevos rancheros!!!
          The fire power in that dish would keep me driving the rest of the night and into at least eastern TX…
          In those days, the trip was 3600 miles, and 1200 of it was in TX! Crossing the Mississippi River was always welcome as the air turned from dry hard grit to soft humidity coming in the open window.
          ( No AC)

  24. KPL says:

    Is it likely that this time around insurance companies could be in trouble as they have been chasing yield in the good old recent days of negative and zero rates

  25. c smith says:

    Manipulating the TIPS yield to show that “market-based inflation expectations” were “well-anchored,” though inflation had already begun to rage, was one of the cleverest monetary sleights of hand.

    When the Fed puts its thumb on the scale, it is felt everywhere.

  26. SoCalBeachDude says:

    How can the Federal Reserve act as an effective central bank to a $22 trillion US economy with more than $30 trillion in federal government debt and another $80 trillion in other debt and a stock market with a capitalized value of around $40 trillion when it has such a tiny little balance sheet of less than $10 trillion?

    • Wolf Richter says:

      That is the silliest statement (dressed up with a question mark) that I have read all day, and I’ve been up since 5 am Pac Time :-]

      The Fed has barely moved its little finger, and look how bond and stock markets have reacted.

      • cb says:

        @ Wolf – Is it your position that the FED is an effective Central Bank? effective for who?

  27. fred flintstone says:

    The one lousy asset that a guy/gal who has saved and does not have fancy connections could hide in………..admittedly haveing to pay taxes on any gain thereby guaranteed to lose cash over the time of the bond ……but no………no they had to buy billions of tips…….and as a bonus restricted the number off I bonds that can be purchased.
    Uncle Sam has turned into the pit boss at the Flamingo……..and the dealers are really tight.

  28. Jim says:

    So one arm of the federal government will deficit spend over 100 billion a month, and the fed will run off 100 billion, net effect is policy easing.

    • Wolf Richter says:

      No. The net effect is much HIGHER yields to attract investors to absorb the government’s new debt AND to absorb the Fed’s QT.

      • sunny129 says:

        Not, if Fed fails to contain inflation, especially when they are way behind the curve. Fed cannot control ‘inelastic’ consumer prices like Food, energy,medical expenses and education. No end in sight for Ukrane war. Supply chains are getting worse.

        After the HARD landing, yeh, those yields will be attractive!

        • VintageVNvet says:

          10-4 s129, that’s the way I am seeing this situation too… been OUT of the SM since mid ’80s, but really thinking we, in this case the family we, might be getting back into it within this decade if the economy in general does go through the cleansing SO obviously needed.
          WE the PEONs will undoubtedly pay the price for the cleanse, as always, but at this point it seems to me it will be effort well spent.
          Perhaps at some point a fully qualified person will appear to actually LEAD USA, though being fully qualified probably includes too smart to put up with the political process these days.

  29. DR DOOM says:

    This morning I took 10 pre-1964 quarters (aka junk silver) and swapped them for the smelt value of $80 cash at a gold and silver bug store. I filled up my 2002 Silverado 4×4 300k + mi truck with 20 gallons of gas at $3.90/gallon at an Ingles Market in Western N.C. Ingles took the cash. Visa and MasterCard got knocked out of their parasitic 3.2% fee . I proabaly have at least 10 fiat quarters in a loose change jar I keep behind the seat. If I were to fish them out they would buy .64 gallons. Simple math of .64 gal\20gal X 100 = 3.2%. The post 1964 fiat quarters have lost 96.8% of their buying powe vs the Real Money pre-1964 quarter. Does it really matter what the F&$k the Fed does? Is the last 3.2% worth a War? Think about it. We already have been F$&ked and it was not the Fed. The Congress passed the 1964 Coin Reform Act which removed all silver and thus money value from our money. The Fed was created decades before as the bag man or errand boy to do the theft under their constitutional authority. The Fed deserves no respect as it is a non-constitutional strong arm minion of Congress. History has demonstrated that the fight to drain the last 3.2% will be a deadly process.

    • DR DOOM says:

      Correction on the quarter count it was 20 each and the % is not 3.2% but 6.4% for a loss of 93.6% buying power not 96.8%.

    • TheAltonRoute says:

      Or is the Fed just irresponsible? England has had a central bank for centuries. Was the Bank of England printing money like crazy during the heyday of the British Empire in the 1860s?

      • VintageVNvet says:

        Please elucidate on ”England has had a central bank for centuries.” TAR
        Don’t remember that at all after reading tons and tons of fiction and non fiction regarding the last few centuries of England his and her stories.
        Based on my reading, it appears to me that England has had only some folks in the ”City of London” who were the clear arbiters and lenders for all of that time.
        Thank you.

      • coalman says:

        The Bank of England was printing like crazy in the period 1775- 1783 in New York harbour, but it was in Continental currency, to destroy the value of the Revolutionary money. They succeeded, but still lost the war, thank God.

  30. Bobber says:

    We won’t see real pain in the stock markets until Apple, Microsoft, and Google start dropping. They have been holding up very well in the face of rising interest rates.

    • Anthony A. says:

      There’s a little “pain” going on right now if you check. I’m sure there is more to come.

    • Depth Charge says:

      The DOW just lost 1/35 of its entire value in a day. If it lost the same amount nominally every day – 981 – it would be at zero in a little more than a month. That’s kinda something, at least in my book.

  31. Zark Muckerberg says:

    “End of QE, End of an Era” 🎉🎉🎉

    The last two decades was straight out of a twilight zone episode. I still can’t believe other nations bent over and took it lololol. The French had it right when they smelt doo doo and tried exchanging their dollar reserves for gold

  32. John Apostolatos says:


    Any thoughts on the collapsing Yen? I always thought it would be the first domino to fall in fiat collapse. I wonder if they will have to sell dollars to defend the Yen, putting more pressure on interest rates here.

    With the Ukrainian situation the Euro is certain to be the next to fall, followed by the dollar. Perhaps that’s when gold backed or commodities backed currencies will take over. Zoltan Pozsar has a pretty interesting piece on this Bretton Woods III.

    “We are witnessing the birth of Bretton Woods III – a new world (monetary) order centered around commodity-based currencies in the East that will likely weaken the Eurodollar system and also contribute to inflationary forces in the West.”

    • Wolf Richter says:

      The yen is not “collapsing;” it just edged below the exchange rate lows of 2007 and 2015 against the USD. So it has been there before. And it’s bumping into the limits of what they will tolerate. The dollar is now very strong, given the tightening that is headed its way, which makes future purchases of USD denominated bonds more attractive (they’ll come with higher yields). So it’s more dollar-strength than yen-weakness.

      BOJ and the Ministry of Finance can sell some USD denominated securities (= market intervention) to prop up the yen against the USD, or the BoJ can start QT and raise rates, and it will eventually do that. QE already ended nearly a year ago.

      • sunny129 says:


        Then Why would BOJ – Suzuki pleading for ‘co-ordination’ (!?co-operation) from Fed and Ms. Yellen? Are heading for Currency crisis?
        Wouldn’t be surprised in a World where the Global debts are in record, in human history!

        “It wouldn’t surprise me if they did talk about joint intervention,” though Suzuki likely failed to win consent from Yellen, said Daisaku Ueno, chief foreign exchange strategist at Mitsubishi UFJ Morgan Stanley Securities. “That’s why Suzuki had little to say about what Yellen told him. Given the U.S. battles with rapid inflation through monetary tightening, it’s unthinkable Washington will agree to Japan’s call for intervention.”

        • Wolf Richter says:


          Because THEY (BoJ) don’t want to do what they SHOULD do, as I said in my last paragraph: Abandon yield curve control to allow long-term yields to rise, hike short-term policy rates, and kick off QT. That’s the solution to any yen weakness. The BoJ can do all this on its own and doesn’t need the US to do it, but it refuses to. And Yellen was right: let them stew in their own juices until they figure it out.

        • BeeKeeper says:

          Be aware, BOJ has nothing to do with JPY currency.

          Only finance minister can possibly intervene and manipulate Yen.
          Once minister makes order, Boj will execute it, but they are prohibited to do that on their own! Suzuki is not Boj! He is finance minister. Look for Kuroda comments in regard to Boj.

          As there is little inflation in Japan right now (according to gov stats), the Boj has no single reason to do anything but continue defending yields.

          Once inflation will start picking up. the Boj will turn around.

      • Wes says:

        BOJ sells yen to buy $ denominated treasuries for a higher yield return. Lower yen equals Japanese exports being more affordable…

    • SoCalBeachDude says:

      Money in the US and globally will never be ‘centered around’ commodities which are just resources that are priced in US Dollars and which are purchased and their prices set in the commodities markets in which are about 28 core commodities.

      • John H. says:

        Not trying to argue but to understand you.

        Why will money not be “based on” (tied to) commodities?

        If not commodities, then on what will it’s issuance be based?

  33. ru82 says:

    So what will be the FEDS benchmark that they tamed inflation?

    Are they looking for food and housing prices to go flat drop to just 2% inflation?

    If the stock market drops 20% from its peak? Will they pause? Panic?

    Home builder stocks are dropping. Back in 2006 they started dropping and that was a bad sign. Will higher rates and supply chain issues slow new home building down even though population keeps growing?

    Do high mortgage rates keep people from moving up from their starter homes to a bigger home. Nobody is building starter homes so that will be an issue for population growth. This should put a price floor on small homes? But no demand for the McMansions should hurt builders and prices for this type of home?

    Grab the popcorn. Everytime the FED tries to tame inflation, they tend to cause a recesson.

  34. John Apostolatos says:

    Thanks for digging up the numbers. It seems hardly anyone talks about the destructive social impact of the Bank of Japan’s monetary policy. You are well familiar with the Japanese culture so you have probably witnessed some of this damage first hand. Men just can’t afford women and marriage anymore. I am seeing the same trend here–thanks for nothing Benji and Jerome.

    “According to a government survey published in late 2016, 42% of men and 44.2% of women—almost half of Japan’s singles aged between 18 to 34—are virgins. And while some prefer it that way, others would like their fortunes to change, with 85.7% of men and 89.3% of women harboring hopes of marriage in the future.

    Japan’s lack of interest in sex is blamed on everything from a stagnant economy to Japanese manga fans favoring fantasy over reality, according to a report by CNN. Japan has one of the world’s lowest birthrates and is home to a severely aging population, with a recent survey finding 34.6 million Japanese aged over 65. But despite, the government’s attempts to boost the number of marriages and children, this year’s survey results from the National Institute of Population and Social Security Research, don’t reveal a swerve in the right direction.”

    • Jonzo says:

      I hope all other countries follow Japan’s path to not only stabilizing populations but reducing populations. Stagnant economy ? So be it. Growing populations need to end at all costs.

  35. SoCalBeachDude says:

    The higher that interests go in the US Treasury markets and overall in the US economy, the higher the value of the US Dollar (which is now over 100 on the DXY) will rise. It was all the way up to around 160 on the DXY back in 1985 and could easily soar up to the 120 range in the near future.

  36. PrisonerOfWisdom says:

    Perhaps we should model the world like 2-D imaginary numbers. The real axis is “Main Street” and the imaginary axis is “Wall Street”. The elite special interests’ goals are; 1) Maintain power and control 2) Enrich themselves via the imaginary economy 3) Loot the real economy up to the point (but not beyond) that the cattle (us) revolt.

    Inflationary pressure is causing danger to objective #3. This is in the real economy. We have had massive inflation in the imaginary economy for a long time and the elites want it to continue.

    The ideal solution would be one that makes objective #2 keep going and objective #3 come under control.

    Why not target the real economy with all QT being MBS….driving mortgage rates much higher and causing the house price drop, down payment drop, rental price drop ….and all the industries that depend on it. Leave Treasury bonds/bills as is and watch as they get naturally sold to take advantage of higher MBS interest rates as the spread between 10 year and mortgage rates gets much larger. Getting inflation under control with the least amount of impact to the imaginary economy would make more sense to the elite special interests.

    • Augustus Frost says:

      If what you describe was actually feasible where elite control rose to this level, we’d all be literally living in “1984”.

      It isn’t.

  37. Depth Charge says:

    “U.S. stocks remained on track for the biggest one-day drop since early March, but came off session lows after Cleveland Federal Reserve Bank President Loretta Mester said she didn’t see a need for a 75 basis point rate hike. In a CNBC interview, Mester said she would prefer a “methodical approach” rather than the “shock” of a 75 basis point move, explaining that she would be comfortable with more than one 50 basis point rise in an effort to get the fed funds rate to 2.5% by the end of the year.”

    Yeah, because a chintzy 25 basis points is going to “shock” this grotesquely overheated economy. Open mouth, insert foot.

  38. sunny129 says:

    The ‘horror’ show at Wall St, is just starting!

    Still there is a lot hopium in the mkt. Big bounces (Bear traps) are certain to appear, down the road. Mr. Mkt has never been accomodative to majority, during secular Bear mkt! He needs more investors on his band wagon, before the next plunge!
    Higher they go, harder they fall!

  39. Kenny Logouts says:

    Log y axis on those wealth disparity charts would be nice, as it’s impossible to see the change in the lower wealth plots.

    On the subject at hand.

    Only time will tell what their game is.
    But I’m sure rate rises precede every recession so I’m not sure why anyone expects this time to be different?

    The recession is the cherry on the wealth transfer cake, as everyone splits the bill for the party, despite just one or two having lobster and champagne.

    Netflix back to March 2020 high, wait 6 months for the Fed to cut interest rates, then buy buy buy! Haha.

    • Wolf Richter says:

      Kenny Logouts,

      “Log y axis on those wealth disparity charts would be nice…”

      For the gazillionth time: you use log scale in finance only and exclusively to hide reality. There is no other reason. If you don’t want to hide reality, don’t use log scale. And yes, I agree with you, this reality really hurts to look at, and log scales would make it a lot less painful. But log scales in finance are deceptive.

      “…as it’s impossible to see the change in the lower wealth plots.”

      Because you missed my comment here about this — there are a lot of comments, and it’s easy to miss, so I’ll just repeat it here. This is a quote from the linked article on the wealth disparity:

      Reckless usage of percentages can kill someone.

      If I give my favorite homeless guy $5, and he already has $5 in his pocket, I increased his wealth by 100%, which is a huge percentage jump in wealth. But he’s still homeless and still doesn’t have any wealth.

      Percentage increases are regularly touted to show that the wealth at the bottom increased, when in fact, it increased by only minuscule amounts of dollars because the bottom 50% have so little that even a big percentage increase still amounts to nearly nothing in dollar terms, compared to the billionaire class.

      When the wealth of the bottom 50% increases by 5%, they gain about $3,000. And when the average wealth of the top 30 billionaires increases by 5%, they on average gain $3,500,000,000. And the wealth disparity just blew out.

      • Kenny Logouts says:

        Log Y scale is used when you can’t read the Y values because they vary so much you can’t see the information they’re conveying.

        At least then divide down the big values 10x, or multiply up the small ones 10x, or divide out the high values by the low values so you’re comparing the mid/high wealth with a ‘flat’ poor value, so you’re showing disparity vs poorest, not absolute.

        I get your point. But right now the poor could have doubled, trebled, quadruped, gone up 10x even, or even stayed flat, and I can’t see that.

        Yes I still get why this chart is showing a situation that is bad for poor people, but it’s just as bad to not be clear on their behalf, as it is to underplay their loss position.

        For all your post explaining your chart being the way it is, I still can’t formulate a view of their relative wealth positions from your chart.

        It’s fine if you want to make it that way, but that doesn’t mean it’s not a flawed chart.
        You may as well just show us a table of values otherwise.

        • Wolf Richter says:

          Kenny Logouts,

          You’re all into hiding the bitter reality by manipulating the scale and by refusing to look at or understand the data I gave you. I understand that you don’t like this bitter reality, and YOU don’t want to see it, but you will NEVER get me to hide it so YOU feel better because YOU don’t have to look at it. End of discussion.

  40. sunny129 says:

    Kenny logouts

    “wait 6 months for the Fed to cut interest rates, then buy buy buy!’

    You think inflation will be around 2.0% at that time? I think not. Wait for the inflation numbers for the next 3-4 months. The ‘neutral rate’ will be a lot lower than many think!

    Demand destruction will so severe, Deflation deleveraging will pop up by the end of this year, to the surprise of many! Hard landing is guaranteed with a protracted Recession (global) , worse than GFC b/c crazy credit creation by Fed since ’09! I hope I am wrong!

  41. The Fed’s not fighting inflation they’re fighting the economy and that stinks. All manner of commodities are turning down, that’s not inflation. Gold down hard, not inflation. They’re sucking the marrow out of this economy because of no-growth policies. Then as Wolf notes the Fed spun some deceit on TIP bonds, blocking investors from the exits, and they failed to regulate crypto. The Fed doesn’t control fiscal policy. Interesting that the party of business is who brought this crashing down.

  42. new to the game says:


    The fed created this problem and laid waste to millions of average peoples lives, someone made these decisions and created this carnage. who is to blame for it and what do you think should happen to them. these people have so much power to ruin lives but are never held accountable. how do you prevent this from happening again.

    • Wolf Richter says:

      new to the game,

      I’m not the Global Dictator, unfortunately. So I cannot prevent anything. But I do my little thing in my little corner and try to shed some light on these things. That’s all I can do. It’s just a tiny little thing, and useless, but I’m doing it, and I’m having fun doing it.

      Congress created the Fed, and Congress can change the Fed or abolish it or replace it or whatever. But Congress won’t do it unless voters force it to. But snowball’s chance in hell since most voters don’t even know what the Fed is and what it does, which is where I come in :-]

      • Harry Houndstooth says:

        Pure wisdom dispensed daily.

        Where else can you get this tutorial of the truth?

        • Thomas says:

          I totally agree
          The MSM are lazy gossips when it comes to business analysis, compared to Wolf.

    • sunny129 says:

      new to the game

      At end of 2008 (GFC) pundits in Wall ST including Ms Yellen exclaimed that NO ONE SAW THIS COMING!

      Even if there is 50% drop in S&P it will be still above the ‘fair’ value!

      For the current on going Buble-bust they have already lined up Covid and Mr. Putin for their failures! The Sheeple will swallow their Kool-aid!

    • John H. says:

      New to the game-

      The idea of a central bank as guarantor of economic stability needs to be rethunk. A new Monetary Commission could begin this process. The debate would need experts from the “less government” camp to offset the preponderance of “more government” faction.

      As Wolf said, re-examination will only happen when the public demands it of Congress. (Surprisingly, the public was much more informed about money in the late 1800’s than they are now, perhaps because money was tangible, in the form of gold coins; think WJ Bryan’s Cross of Gold speech).

      Given the public’s lack of understanding of the complexities of money and banking, combined with the public’s financial illiteracy and apathy, that day might never come.

  43. Elven Piper says:


    I stumbled across your writings, and I must say, you have an amazing understanding of the fed and markets, and the wide assortment of commenters seem very engaged and intelligent as well. I think I have found my tribe.

    I think you correctly point out in a prior article that the FED’s actions have led to the greatest economic injustice in recent history.

    I feel the need to scream from the mountain tops that it is not capitalism, or racism, or communism, or this ism or that ism that keep the rich getting richer and the poor getting poorer, it is primarily monetary policy, set by the FED. The elites would prefer dividing us over anything they can to obfuscate the explicit fact that monetary policy is the primary threat to the 99%’s well being.

    With that being said, I am curious if you have thought deeply about what an alternative would actually look like. I have been trying to wrap my brain around what a monetary system and in turn what monetary policy would look like anchored to 2 core principles:
    Deflation is economically devastating with how it structures incentives. Because everything is going to be cheaper in the future, it leads to people hoarding their spending. Since one person’s spending is another’s income, it ultimately leads to devastating deflationary economic spirals like the great depression, which in turn lead to world war 2; nasty stuff. Because of technology and human ingenuity, if no new money was created, we would have perpetual deflation. Technology and human ingenuity is inherently very deflationary.
    The constitution states the power to coin money and regulate the value their of belongs to the congress. The congress reports directly to the people. Therefor any money that comes into existence should go directly to the people, evenly distributed. Not given to politicians and their friends and special interests, banks, and more recently directly to corporations and wealthy individuals to spend.

    Therefor there is an economic argument to say that we should have money printing to error on the side of inflation, and there is a moral argument that this money that can and should be printed should just be evenly distributed amongst the people.

    Now when you combine this with the current global situation surrounding massive sovereign debt loads, the only way out truly is to inflate.

    Unfortunately, the way we inflated in the US, from the monetary base money that was created by the FED, is that it primarily went to wealthy individuals, banks, corporations, and friends and special interests of politicians. It did this through:

    Significant increases in government spending, which went primarily to wealthy individuals and corporate welfare recipients. This took a variety of forms such as the 800 billion dollar PPP program where wealthy individuals could collect more than the 10 million dollar cap by collecting across all of their different businesses and subsidiaries. The money from the PPP program went exclusively into the pockets of business owners, some of whom received more than the 10 million limits. Some wealthy individuals received 10+ million dollars. This is all PUBLIC RECORD that can easily be searched! And all they had to do was retain their staff (which most need to do anyways to operate and make a profit). In addition to PPP there were a MYRIAD of covid programs that funneled a TRILLION+ dollars into corporate entities and their shareholders. The amount of base money created by the FED since march of 2021 was 4.714 trillion dollars, approximately 18,251 per adult person in the US. Most people saw no where close to that amount while a small few received significantly more.

    Repression of interest rates drives overall assets prices higher as Wolf eloquently points out.

    If you took away the FEDs ability to create base money, you would take away their most powerful tool to suppress interest rates. The FED would still have several levers at their disposal, they could adjust reserve requirements, or set the rate of interest on reserve balances at the fed, they just wouldn’t be allowed to create base money.

    Fractional reserve banking would still go on, and banks would be free to create M1, M2, or M3 through lending, the Fed just wouldn’t be allowed to create base money. But there would need to be a mechanism for all banks to fail, no bail outs if banks pursue reckless lending. In that scenario, the money distributed to the people would continue, alleviating any liquidity crisis’ that would cut into the average citizens day to day needs. Shareholders of banks would suffer, not the tax paying masses.

    A corollary would be that all government spending would be forced to come from tax revenue. Therefor the base money that does comes into existence, *OWED* to the people, could just be spent into existence, distributed evenly to the people, debt free, in the form of US dollars and not federal reserve notes, and all subsequent government spending would be forced to come from tax revenue.

    In my opinion, this would also allow for the entire overhaul of the entitlement system as a whole. Currently, you are not allowed to work (Unemployment, disability) or work too much (welfare) and still collect benefits. If we eliminated the stipulation of not being allowed to work from these benefits, millions of people more would be added to the work force just like what happened in the 90’s when Social Security beneficiaries were allowed to work for the first time and still collect their full benefits.

  44. John H. says:

    Is “deflation” of prices a source of destruction; or is it the unavoidable and curative result of the overly stimulative money manufacturing process itself?

    Your inflationist argument is flawed, IMO, starting with Core Principle 1.

  45. Elven Piper says:

    John H!

    Really appreciate you reading my long post and responding!

    I would have to guess that maintaining some form of monetary inflation (as long as the money coming into existence was given to the people and not politicians and their special interests, banks, corporations, and wealthy individuals) is much more controversial then the cause of CPI inflation/deflation.

    CPI inflation occurs when there are changes in the money supply relative to the total amount of goods and services (or changes in the velocity of money).

    You print more money, same amount of goods and services, prices go up.

    Conversely, if you have a fixed money supply, that is chasing an increasing amount of goods and services, prices go down.

    You seem to be implying that cpi deflation is an inevitable result of printing lots of money (and also the cure).

    I am saying cpi deflation is the result of:

    1. a reduction in the money supply with a stable amount of goods

    2. a stable money supply with an increasing amount of goods.

    3. decreasing velocity of money with a stable amount of goods and stable money supply

    I am also saying that a little bit of cpi or monetary deflation is much worse than stable cpi prices.

    I am also saying cpi deflation is inevitable with a stable money supply (or even a money supply that is growing slower than productivity increases) because of technology and human ingenuity.

    All these scenarios also assume a stable population. If you have an increasing population with a fixed money supply, that will lead to an increased rate of cpi deflation.

    I am also saying that there is a certain amount of monetary inflation annually that leads to no consumer price inflation. You can calculate this fairly easily by comparing money supply growth (m1, m2, or m3) against cpi inflation. Even though cpi is manipulated the rate of money supply growth is much much higher than cpi growth.

    I am also saying monteray inflation (occuring only through the masses and not through politicians and their special interests, banks, corporations and wealthy individuals) is better than monetary deflation. Definitely not talking about the current methods of monetary inflation which go primarily to the top 1%.

    Disclaimer, these scenarios also dont factor in international capital flows which can affect these numbers either direction also.

  46. Thomas says:

    Fantastic article!!
    Nobody that I have seen in the MSM is giving detailed and well sourced and well explained information like this.
    I do disagree with some of your conclusions, but in my opinion you are not only articulate but dead right about 99% of the time.
    First, I am not seeing this “skyrocketing inflation” showing up in the prices of goods or services, for the most part.

    Core inflation is still making comparisons between depressed, recessionary prices and recovered prices. The overwhelming majority of prices are back to 2019 levels. We haven’t leapt over the economic baseline we had back then in the general economy.

    And people are not seeing their wage gains being eaten up by inflation, either. They are paying 2019 prices with 2022 wages, which are 5% higher than they were back then.

    There are exceptions to my argument, but none of those exceptions are prices that are being elevated by “too much money in the economy.”

    Here are the exceptions:
    Beef and Chicken (that’s the grocery inflation) Beef is being investigated for price gouging after they failed, as a cartel, to bring prices back down after the supply disruption caused by hackers a few months ago. Chicken and eggs are elevated because there is a bird flu pandemic and 20 million commercial chickens had to be destroyed.
    Are those two things being caused by too much demand? No, but they are pushing grocery inflation comparisons up!

    Used and new cars. The semiconductor shortage began before the pandemic, in 2019, and the reason why hasn’t been investigated by any source I have seen.

    The pandemic, however, is the cause of the current severe shortage, because production was shut down. Taiwan says we are at the end of that shortage. It hasn’t yet brought down prices, but probably, it will in coming months. Again, this isn’t being caused by “too much money.”

    Fuel. Elevated priced are not caused by too much money or demand. Production is still recovering for a variety of reasons. Raising interest rates will not solve this source of inflation.

    You did a GREAT breakdown on the housing bubble. Is that inflation being caused by too much money or is it being caused by a lack of affordable housing in an anti-capitalist market?

    If tax shelters can sit there vacant with an unaffordable asking price FOREVER, then when does market competition correct that?

    I think in this article that you show that the 1% are the ones with “too much money” and they are the ones buying up these tax shelters at a ferocious pace and shrinking the supply of affordable housing. But you can’t solve that problem with interest rates or QT. You have to elect Democrats to change the tax law.

    Supply chain disruptions. This is responsible for the rising prices in building materials and metals. But what’s the cause? The pandemic. The rest of the world is still stuck in 2021.

    I don’t think we need to worry about the supply chain induced inflation. If we stop letting oligarchs control everything and start opening up the economy to capitalism, those supply chain problems can be resolved.
    The infrastructure spending is going to start that trend. Again, not a problem that can be solved by raising interest rates.

    If I understand your analysis about QT, then I think it’s a reason to praise Powell, not curse him. He IS moving bonds towards a more capitalist market. That is good for institutional investors. Maybe not good for hedge funds, but we have had over a decade of making them rich, and it is not helping the majority of us.

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