THE WOLF STREET REPORT: Return of the Bond Vigilantes Sends Shockwaves Around the Globe

Deficits don’t matter – until the bond vigilantes ride into town (you can also download the WOLF STREET REPORT wherever you get your podcasts).

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  224 comments for “THE WOLF STREET REPORT: Return of the Bond Vigilantes Sends Shockwaves Around the Globe

  1. Mark T says:

    Good summation of UK, Wolf, however you haven’t alluded to the fact that Truss is as thick as mince on whom a senior civil servant once remarked, ‘a politician whose ambition is only matched by her stupidity’. With her time limited, it could be former GS, Sunak, moving in to number 10, with former GS Dicky Sharp’s BBC providing support… Gold-filled Sacks all round, hurrah.

  2. steve says:

    Great explanation for a learner in NZ. Thankyou, steve

    • 2banana says:

      Within the last three days:

      The bond vigilantes are back!
      — Wolf Street

      The U.S. Treasury Department asks major banks if it is a good idea to buy back US Treasuries.
      — Yellen

      • Wolf Richter says:

        The Treasury had a meeting with primary dealers to explore this. They had these discussions at least twice before that I know of, in 2015 and last summer.

        They would offer to buy back less-traded bonds that they’d issued years ago and replace them with new bonds that are more easily traded. But this is very complicated because any buyback at market price now would be below face value. If they buy them back at face value, it would instantly mean that yields would have to plunge to meet those levels.

        They ended up not doing anything the last two times they discussed this, and there is a good chance that this will go nowhere.

        • 2banana says:

          We, the few and the merry that like charts/data, even having a discussion on the odds of this happening (well above zero) means we are on the cliff doing handstands in a 50 mph wind.

        • historicus says:

          “They would offer to buy back less-traded bonds that they’d issued years ago and replace them with new bonds that are more easily traded”
          similar in nature to a “sterilization”

        • Wolf Richter says:

          No. It has to do with how older Treasuries trade. If you have a 30-year Treasury with 10 years left, it’s hard to find a buyer for it. They’re designed for buy and hold to maturity. So if a big fund wants to sell lots of 30-year bonds with 10 years left, it can do so but only at a big discount to market price of a newly issued 10-year note, though they should trade roughly with the same yield – both have 10-year maturities left. This is a well-known issue, and I have run into this too. That’s why I always buy with the intent to hold to maturity because selling those bonds years later is hard and will cost you. For the Treasury Department to buy back these old 30-year bonds and replacing them with new 30-year bonds, or with new 10-year notes, might solve that problem, but as I pointed out, this is hellishly complex.

        • NBay says:

          I hope it goes nowhere, looks like a gov’t loss to me.

          So I check the changing list of primary dealers once in a while, and also auction results at TD.

          As I understand it, these 21 or so HAVE to bid at each auction.
          My question is how do they force them to make a “reasonable” bid rather than become “vigilantes” and just lo-ball whatever they want. I think they are there to ensure liquidity, right?

          Anyway, the front article (excellent talk) comments move too fast for me, so no hurry if anyone is going to try to answer a likely stupid question, as I’m headed back a few articles where things have settled down, and see what the thinking is…..more sociology than finance, which I am a total ignorant dolt at. I don’t even understand buying a house, never done it.

        • NBay says:

          Never mind. I went to Wiki and then the Fed site and tried to figure it out. I should have known what a Rockefeller buddy told Bucky Fuller remains even more true today.

          “Why make business simple when you can make it

          Did get this, though, FWIW,

          Arguably, this group’s members are the most influential and powerful non-governmental institutions in global financial markets. Group membership changes slowly, with the current list available from the New York Fed.[3]

        • NARmageddon says:

          Some well-informed people on twitter indicated that the “buyback” scheme really is a “reverse-operation-twist”.

          That is, swapping long-term bonds held by investors for new short-term bonds issued by UST.

          (Maybe a stealth way of making PD banks more “liquid” while pretending not to do any new QE.)

        • Wolf Richter says:

          It’s conceptually wrong to compare what the Treasury might do (redeeming one bond and issuing a new bond to replace it) with what the Fed did (buying bonds of one type and letting Treasury bills rolls off). Apples and oranges.

        • historicus says:

          “similar in nature to a “sterilization””

          Essentially exchanging a preferred debt instrument for an undesirable debt instrument….seems similar, IMO.

        • Lune says:

          Unless the Treasury buys them at the market rate (ie with a discount) how is this not a subsidy? And if they do buy with a discount then what’s the big deal?

          I get what you’re saying but if this is a well understood problem then let those sophisticated buyers solve it themselves. Why does Treasury even have to have a role here?

        • NBay says:

          Lune makes total sense to me…….and the US Gov’t IS getting screwed if they allow them to do it. (even if I am being rightfully ignored based on my financial ignorance).

        • Currency SWAP Arrangements says:

          Hi Wolf, I’m reading articles that Fed, Swiss Central Bank, and ECB have entered into Billion Dollar in currency SWAP arrangements recently through the SWISS bank swap line, seems stealthy. What do I make of this?

        • Wolf Richter says:

          Nothing ” stealthy,” an implication that’s just ignorant BS that you picked up from some idiot blogger out there or whatever. The Fed has had a swap line with the SNB for many years. The New York Fed publishes the swaps on a daily basis, all you people have to do is look it up.

          I have already shot this crap down in the comments yesterday. Here is what I said yesterday in reply to a similar question:

          These are 7-day swaps. The $3.1 billion swap of Oct 5 already matured and is gone. The swap of Oct 12 of $6.27 billion is still outstanding and will mature on Oct 20. So the total outstanding right now = $6.3 billion, not “$10 billion.” The idiot blogger where you read “$10 billion” doesn’t know even the basics of how swaps work.

          2. $6.27 billion in swaps with the SNB? So what!!! they could just sell $6.27 billion of their $140 billion or so in US stocks, hahahaha

        • NBay says:

          Heres 2 cents on bonds…..a really fast check posted daily, when bond mkt closes….I guess it’s CBOE closing, not sure. I have a button on favorites screen for it.

    • Colin Davies says:

      Agreed. Many thanks, Wolf.

  3. BuySome says:

    I will gladly pay you on Thursday for a Porkburger today. What! You expect interest on that? Guess George Pal was right…Worlds do collide.

    • Leo says:

      Bond Vigilantes: Investors who buy govt debt with the expectation that central banks with buy it from them at higher prices through QE and not with the expectation that government will use the debt for productive tasks that can generatereal interest. Now central banks no longer buying and real interest rate is deep negative (-4% to -6%).

      There are only 3 ways out:
      1. Destroy asset bubbles and financialization of assets to make productive businesses like agriculture, manufacturing etc profitable. Will be very painful.
      2. Go back to QE and run with hyperinflation, misinformation and “divide & rule” hoping that peasant’s revolt can be beaten and rising powers don’t corner us. Will be very painful again and more so if revolutions start.
      3. Postpone painful outcomes as long as possible with tiny QT and negative real rates to protect asset bubbles and run high but hyperinflation. Doesn’t solve any real problems, will result in one of the 2 above very painful outcomes in less than 2 years.

      • Rudolf says:

        Hey, what about Grandmaster Jerome’s magical stick or something? Can’t he just go ‘whoosh’ and roll everything back? He’s a professional, he must have a way out /s

      • Augustus Frost says:

        All three “doors” lead to lower living standards. Door #1 to an immediate economic depression.

      • NBay says:

        Good thinking Leo. Don’t know about calculation of “real interest”, but the rest makes sense.

        Here’s hoping for #1 and more time and integrity (and honor) among “leaders” and citizens on #1 or #3.

      • cb says:

        @ Wolf
        @ Leo
        Leo said: “Bond Vigilantes: Investors who buy govt debt with the expectation that central banks with buy it from them at higher prices through QE”

        Is this the real definition of Bond Vigilantes?

        (I am unaware of the “with the expectation that central banks will buy it from them at higher prices” part of the definition.)

        • Wolf Richter says:

          No, it’s a line of BS. QE killed the bond vigilantes. Leo clearly didn’t listen to the podcast. Just mouthing off based on the title. I should have deleted his comment for violation of commenting guidelines #1: don’t comment on the article if you haven’t read the article (here: don’t comment on the podcast if you haven’t listened to the podcast).

    • joedidee says:

      gee those interest rate derivatives gave yo 1% return when NIRP was here
      now they are going to sink you financially
      now that bond vigilantes are waking all you leveraged fools up

  4. phleep says:

    It was FOMO and YOLO, buy, buy, buy. Seems so long ago.

    Now it is nowhere to hide for investors, buyers’ strikes on investments and consumer goods, no buyers anywhere. And the buyer of last resort is in retreat.

    And sudden vertigo for asset holders, gazing into gaping chasms. Soft landings? Better than no assets though, as for those masses, it will be truly fraught.

    Policy makers step carefully, lest vigilantes, or any number of goblins, lurch up and upset the latest brilliant project.

    • phleep says:

      UK staggers into the casino and rolls the dice, comes up snake eyes. Not pretty.

      • Implicit says:

        Jacks, Kings and Queens in England of olde
        exerted new tyranny- self righteous and bold

        times can change as the masses get screwed
        when financial repression becomes unglued

        bond Vigilantes rise up against the scam
        tax cuts for the rich, no thank-you mam

    • historicus says:

      “When you drive interest rates down all the way out it forces investors to taking bigger steps on the risk spectrum.” Former Fed President Fisher PBS Documentary “The Power of the Federal Reserve”

      “FORCES INVESTORS”…..take away the fair return on interest bearing securities, a return that at least covers inflation, and you can “force” investors to do things they might not otherwise have done.
      Which mandate of the Federal Reserve is this? Worked for a while…until Congress saw the cheap cost of creating debt.

      • Wisdom Seeker says:

        Federal Reserve Mandate (Section 2A of Federal Reserve Act, as amended 1977)

        “The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy’s long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.”

        Note that this is actually a quadruple mandate:

        Maintain long run growth of the monetary and credit aggregates commensurate with the economy’s long run potential to increase production

        So as to promote effectively the goals of…

        Maximum Employment (NOTE: not “minimum unemployment” – there is a difference!!)
        Stable Prices
        Moderate Long-Term Interest Rates

        The Fed is at 0-for-4: EPIC FAIL.

        They screwed up Money & Credit Growth, and are now having to QT to fix the mess. The economy is below Max Employment as Wolf has repeatedly documented here. Stable Prices became “transitory” inflation and is now an economy on fire. And Long-Term Interest Rates cannot be described as “moderate” when they’re below inflation!

        • historicus says:

          “Maintain long run growth of the monetary and credit aggregates commensurate with the economy’s long run potential to increase production”

          Yep. But I will give the Fed the max employment chip….so they are batting .225.
          “Monetary and credit aggregates commensurate with …..”how is it that they injected so much money to such a non commensurate degree? Who was there to say “Hey, wait minute there Jerome.”
          Money supply should expand as a PULL from the GDP, not a “flood the markets” and watch the numbers get bigger…which is what they did with the TRILLIONS of whimsical creation. What power.

      • Wisdom Seeker says:

        P.S. The average bond fund investor, as measured by any of a dozen bond market index funds, has earned a big fat zilch for the past 4 years. The ride up from October 2018 through August 2020 has all been wiped out in the plunge.

    • 2banana says:

      I sometimes enjoy watching Cramer.

      I don’t take his financial advice, but he is correct when he says “There is always a bull market somewhere…”

      Off the top of my head…for the next 12 months
      Short term Treasuries (cash)
      Big defense contractors
      Big agriculture

      Feel free to add or subtract.

      • Old school says:

        I like Warren Buffett analogy of sometimes you are swimming with the current and sometimes against it. Seems like we are going to be swimming against the current for a while.

        If you are focused on very long term, then tide going out allows you to pick up shares from panicked sellers at some point. Got to know your long term hurdle rate. If it is 3 – 4% you can buy SP500 now. If it’s 6 – 8% you have to wait til SP500 under 2000 imo.

        • Will V says:

          The value of equities especially now should be based on earnings and expectations are way too rosy. Not a doomsday guy but the “E” of the P/E is about to drop fast for many still overvalued companies. In reality the top “need” costs are still rising (food, utilities, shelter, local taxes, etc). This is monies that will shift away from the wants (Nike inventory glut). Yup let’s buy some $LCID and $RBLX now, NOT.

        • Wolf Richter says:

          Clearly, Warren doesn’t have a lot of experience swimming in open water with currents. In open water, there is no end of the pool where you can just stand up and rest. You have to keep swimming, so you cannot sprint and exhaust yourself. A good distance speed that swimmers can maintain for miles is about 2.5 to 3 knots, maybe a little more for top swimmers, about easy walking speed. In the San Francisco Bay, tidal currents can be 4 knots, 5 knots, and more. If you try to swim against that kind of current, you’re screwed, you’re going backwards, and you’ll never get there. You drown. To survive, you must try to get out of the current.

          But to not put your life at risk, you should plan your swim to where you don’t have to go against that kind of current, or cross than kind of current, but where you can go with the current or against a much slower current that you can handle. These are tidal currents, and they change direction with the tides, and you know this ahead of time and can plan accordingly. Not financial advice.

        • VintageVNvet says:

          Good analogy Wolf!
          Will always remember the first time I swam across the Ohio river between WVA and Ohio after many years of shallow water swimming, parallel to the shore, sometimes many miles in the GOM.
          Luckily, was with another 16 year old buddy who was local, and he coached me to START WAAAAYY up river from where we wanted to land…
          Swam that river multiple times that summer, and learned something new each time…
          Thanks for your reporting and this lesson too.
          May the GREAT Spirits help us all!!!

      • phleep says:

        I hope you are right.

        But, overpriced energy, war and cigarettes?

        Add pawn shops and fentanyl?

        Cause to celebrate. I’m sure everyone in the UK is lifting a glass to Cramer as we speak. At least Truss doing a Maggie Thacher dance, but with a perkier cheerleader cadence, provides some smiles? About like Xi trotting out his shopworn schtick.

        • 2banana says:

          It’s a corrupt debt based system run by crooks who enrich themselves on it while putting the working man into the poor house.

          If run by sane noncorrupt engineers…

          There would be a ceasefire in the Ukraine in 24 hours and peace within a week.

          Oil would be at $20 a gallon.

          Government would live within its means.

          And any politician that purchased a $16 million beach vacation house, without ever having a job outside government, would be investigated and jailed.

        • Depth Charge says:

          ^^What nanners said.

        • Mel says:

          buying the companies you hate the most has been a profitable trade for a very long time.

      • Mora Aurora says:

        Re: a bull market somewhere:

        Agreed, in essence then, increased focus on bread and circuses or needs (food, energy, cash) and distractions (tobacco, drugs, entertainment, war).

        From bubble excesses to hunkering down, perhaps a similar fallout from the economic turbulences of the 1980’s is in the cards, where idolization of richness gave way to more common struggles.
        Dallas vs. Roseanne comes to mind.

        • Cas127 says:

          Very sharp perception on the Dallas/Dynasty vs. Roseanne shift.

          (I like using Dynasty even better…same network as Roseanne (ABC) and even more over-the-top than Dallas…who can forget Joan Collins or the Moldavian wedding massacre…)

      • Biker Chique 01 says:

        Big defense contractors = CASH COW
        AS US defense budget approaches $1Trillion and worldwide tensions remain elevated, EVEN if peace were to break out, this sector will continue to grow and amass large profits. Never bet on this sector to suffer from recession. A new fear or enemy, however feeble, will be created faster than a rivet can be manufactured and few trillion dollars will be budgeted to meet it. We can never allow the balance of power to shift against us. So we will maintain always a ratio of 100;1; 100 F35’s at $150 per copy to deter ONE old Toyota pickup truck costing $2,500 armed with an antiquated 1950’s era surplus Soviet machine gun.

        • Implicit says:

          Here are the 10 countries with the most nuclear weapons:
          Russia – 6,257.
          United States – 5,550.
          China – 350.
          France – 290.
          United Kingdom – 225.
          Pakistan – 165.
          India – 156.
          Israel – 90.

        • Iona says:

          Defense is white collar welfare. Once you understand that it all makes sense because most of the money spent goes to programs that go nowhere.

          And currently the defense stocks are going down, so any fantasies of riding out this bear market in them is a pipe dream.

        • NBay says:

          They aren’t all old. Toyota still makes a great absolutely NO frills CHEAP 85-95 styled pu that carries an honest 3000 lb, more with chassis/spring/axle (maybe tire) options. Sells like hotcakes to Militaries/Warlords everywhere. Forgot name, but it probably varies, anyway, as they are world wide.

          An Australian guy here was saying that they can get them there, too, and they’ll take 3400 no problem. And I bet it’s powered by an update of the TOTALLY ABSOLUTELY LEGENDARY 22R-E, (maybe the V-6 if you want it) which started as a tractor motor (Toyota made tractors first).
          But do WE get it here? Even with ONLY CA grade smog added? Shit no!

          They say we all WANT gadgets here. Who is WE?
          And yes, it could carry a damn BIG battery pack.

        • Sams says:

          Re Nbay, Toyota Landcruiser LJ76. Toyota just do not want to sell them to consumers outside Australia.

      • Augustus Frost says:

        There is a bull market in all declining asset markets too, if you are shorting it.

      • NBay says:

        Back during the GFC, someone on CNBC mentioned the new “Sin Fund” as a possible safe buy…aka the 5 B fund.
        Booze, Betting, Broads, Bombs (or bullets), and Butts (as in cigs).
        Maybe today you could add a 6th, Buds.

    • John j says:

      I have a question please, At treasury direct I’m going to reinvest my maturing bills into the next bill of the same “type and term” so it says at treasury direct. My question is about the interest rate of this reinvestment, does same “type and term” mean same interest rate as well? I don’t want to reinvest if the interest rate isn’t to the ever rising rate.
      And of course thanks wolf for making this site accessible for myself and others.

      • Harvey Mushman says:

        No, you are not locked into your old interest rate. Your money will be re-invested at the current rate.

        • Johnj says:

          Thanks HM, if I could, another question please, I was wondering if the timing is good enough between my bank and “treasury direct” that the maturing funds of a 4 week bill would be available the same morning to buy an 8 week bill since the maturing date and issue date are the same day.
          I’m left with near zero now in my wells Fargo account to buy with, but I was hoping i could purchase a 8 week note at auction with money I don’t have, unless the100 thousand from my maturing bill get into my bank account in time to buy the other. I’m trying to do the ladder thingy and am realizing much to learn to take advantage of events. Thanks

  5. Brant Lee says:

    When you can’t fix everything with a good old-fashioned tax break, you know you’ve got problems. Just how can we pump more money to the rich to keep this thing stabilized?

    • Miller says:

      just have to lol at the idea that trickle-down economic policy would have ever worked, ZIRP and QE and the Everything Bubble they caused are a direct product of that short-sightedness

      • Old school says:

        Playing around with monetary policy usually just buys you time, but doesn’t solve economic problems. As history shows a bankrupt government can’t solve it’s problems with creative monetary policy.

        US and EU had the opportunity to get their financial house in order the last decade and rejected the idea of constraining government spending to a reasonable growth, so the monster keeps growing. Once you get to where government is about half of the economy per capita income can’t grow imo.

        • AB says:

          Old school

          Exactly! It’s just time shifting and deferred reality that never went away.

        • Old Ghost says:

          As Libertarian Super Hero Alan Greenspan said (and I quote): “The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default.”

        • Cytotoxic says:

          Alan Greenspan is in no way shape or form a libertarian super hero. If printing money could really pay debts, Zimbabwe and Venezuela would be flying.

        • DustyDuo says:

          Zimbabwe and Venezuela have to borrow in US dollars, euros, or some other currency, which they can’t print. The United States, at least for now, issues debt in US dollars and therefore will be able to pay its debts because it can indeed print US dollars. I’m not saying it’s ultimately a good position, but it is factual.

          If there will ever come a time when we can’t sell dollar denominated debt – I’m not smart enough to finish the thought.

        • NBay says:

          Was watch book review on the recent (1980 up) history of conservatism in US on C-Span 2 last nite. When they got to “Tea Party” movement, one of their rallying cries was, “Damn gov’t, keep your hands off my Social Security and Medicare”.
          I had a good laugh as did the audience.

          Why you idiots give the corps a free pass is TOTALLY beyond me. Somehow in your twisted brains the Gov’t is Satan and the so called “Free Market is god. Calvinism on steroids?

          I guess I never listened to enough Rush and the rest of AM talk radio?

  6. BS (ini) says:

    Fascinating to hear the term bond vigilantes. And so happy to hear they won the first street battle . Energy subsidies government spending tax cuts to rich and businesses the list and playbook by governments have only one play. Re-election. No productive Capital allocation.
    The UK with the decline of North Sea oil and gas have been heading down a path where energy costs threaten their jobs and high quality of living they have enjoyed for decades. The British people are resilient and very smart so the government reacted quickly. That too is a great signal. Bank of England said they would step back I think after Friday last week. Will see if the bond market has settled down or if the vigilante re-emerges and possibly globally.
    Wolf has said this is not necessarily a liquidity issue but a refusal to purchase at interest rates below inflation . That is a consumer revolt . Energy is the key . OPEC does not want to subsidize the world with cheap energy and China is happy to purchase cheap oil from Russia devalue their currency then export cheap manufacturing goods globally for their jobs growth locally. No idea how the people in China are surviving these shutdowns locally.

    • Miller says:

      China in reality has been having very few shutdowns despite all the media obsession on it, we had to go through a report on supply chain issues recently and almost none of the Chinese population is under lockdown and they haven’t been a pandemic focus since early 2020, around 3 to 5 percent of pop. Even when they do occur they’re now short-lived, small and closely targeted to slow outbreaks and increase testing in affected regions–with food and supplies delivered and manufacturing even continuing within a shut-down region–so the product deliveries aren’t even being affected much. Our team in the Chinese cities has been saying the main focus of China’s pandemic steps has been improving the air-flow and filters in buildings, lately delivering a vaccine through the nostrils that reduces spread, one of the guys there said the frequent testing can be annoying but it’s just a minor inconvenience and it means you can actually go to concerts without infection concern or even needing a mask, though in public transport most still use them. As said before the US media reporting on anything China related has been generally wrong about everything for decades (our first investment group lost bigly on investments there due to all the misinformation), esp financial journalists usually don’t even speak Mandarin so are blind on what’s actually going on.

      And Western media’s obsession about lockdowns–in practice very minor part of pandemic policy that doesn’t get reported on much–is like a “dog ate my homework” excuse for Western policy on Covid not doing much of anything at all. In fact the supply bottlenecks lately in the USA have been more caused by having millions of Americans sick with Covid, not just immediate cases but also long Covid and all the people having problems with their lungs, neurological, heart or other organs from all the subtle damage it keeps causing, even the WSJ and Fortune are now covering this. There was even a report a couple weeks ago where they did imaging of the lungs of kids who got Covid, a year later even the kids with mild Covid cases were seeing about a quarter of their lung function reduced and that looks to get worse with each new Covid infection. The pediatricians are now saying the children’s hospitals in the US are filling up and a huge percent of the American kids who got Covid months ago are now turning up with weakened immunity to RSV or getting diabetes or clotting problems, and of course millions of their parents out sick, and whole classes across the US are shutting down because both students and teachers at schools are home recovering, same with many offices and warehouses. That’s where the supply chain problems are coming from.

      • Escierto says:

        US life expectancy is declining fast soon to reach Third World levels. Like 1900s Argentina expect the US standard of living to drop like a rock for the next decades. You will live in a cardboard box and you will like it!

        • Depth Charge says:

          The Hoovervilles were nicer than what we have going on today. It’s despicable. And yet they are importing millions of people from south of the border while defecating on legal citizens. Our politicians are corrupt filth. All of them.

      • Biker Chique 01 says:

        Wrong causation … “In fact the supply bottlenecks lately in the USA have been more caused by having millions of Americans sick with Covid…”
        Hospital admissions do not bear out your assertion. Self diagnosis for avoiding work on basis of COVID is simply a lame excuse.
        Supply chain bottlenecks are a construct of the naïve media and the new attitude of America towards performing work – yes performing as little as possible and making work very low on list of priorities. Yes, I will perform work so long as it does not interfere with my social life, my exercise routine, shopping, etc. And of course, I expect to be paid more than before because I am doing increasingly less work.

        • Depth Charge says:

          The “supply chain issues” narrative has always been a lie, or at least a gross exaggeration of what’s truly going on. It was excess (artificial) demand, NOT a supply shortage.

          Let’s say you have 2 bike shops in a town (an homage to your moniker), and they normally sell 100 bikes per week combined. Then the government, in their infinite wisdom, gives everybody in town money to go buy a new bike. All of a sudden there are no bikes in either shop, and they are on backorder for 2 years, is that really a “supply chain issue?” No, it’s an excess (fake) demand issue, which is exactly what the government and central bankers did.

      • NBay says:

        A lot of PR was made about how VERY fast we got ventilators, and how expensive and complicated and expensive to build they are, and how we got the best very fast at the best price (because it was negotiated by an incredible dealmaker).
        Anyway, the avg person doesn’t know much about them, I do, and being put on one is pretty much a death sentence, even if you just have a cold, and probably accounted for the first MASSIVE wave of deaths in NYC.
        You can look ventilators up if you don’t believe me.

        • NBay says:

          Oh, and every time someone had been on one for 20, 30, 40 days and lived, they wheelchaired them proudly out to great rejoicing.
          Made great news, lotsa tears by all.
          Nothing about how long the person lived afterward, but then there NEVER is, as the FDA has relegated that follow-up duty to the drug and device makers….so it’s never done, for this or that also ignored reason, I suppose.

    • Miller says:

      There aren’t many lockdowns in China, US media obsesses about that but our own teams over there reported on the pandemic policy and it’s mainly about air-filtration, filters, a new vaccine they’re giving through the nostrils and testing, and even the lockdowns are targeted, small and short when necessary. The frequent testing is a bit annoying but it means you can go out to concerts or restaurants without worry about being infected, don’t even need to mask unless on public transport. To contrast, millions of Americans are out sick with Covid or dealing with long Covid or lung, neurological or heart damage from prior Covid, now the studies using imaging are showing that even mild Covid is causing lung function to go down by about a quarter a year later. That’s where the supply chain bottlenecks are coming from.

      • Wisdom Seeker says:

        I know several people with family in China who are reporting experiences quite different from what you’re describing.

        Your comments on the US situation are also quite different from what I am seeing and hearing. I communicate with hundreds of people and if “millions of Americans” were out sick with COVID-related anything, I’d be seeing some effects of that.

        There’s propaganda and deceptive reporting coming at all of us from all political/financial interests. Which means there’s a bull market in Common Sense.

  7. perpetual perp says:

    The inflation will retreat only after supply chains are shortened and repaired. That will take some time. Biden has chosen jobs over unemployment and ‘Disaster Capitalism.’ The Deficit Hawks will get their butts handed to them, once again, when the Federal Reserve decides to take their pound of flesh.

    • Wolf Richter says:

      “The inflation will retreat only after supply chains are shortened and repaired”

      Do you ever read ANY of my inflation articles? Nope. But OK, I’ve been telling you and everyone for many months: Inflation has moved into SERVICES, unrelated to supply chains, and some goods prices have actually come down a little.


      Which includes many charts on inflation by category of goods and services, so you actually see what’s going on so you don’t have to make a fool of yourself here, including this:

      • sunny129 says:


        your response to PP is similar (paraphrasing) to that one can bring the horse to the edge of water, but if he refuses to drink, what one, or can any one do?

      • Dennis Dickmann says:

        Curious about your thoughts on manufacturing labor issues. Here’s my personal scenario as an electrical contractor, but every industry seems to have issues somewhere – try and get a doorframe these days. Last few years, switchgear and light fixtures were delayed due to lack of chip set availability for circuit breakers and LED modules. Now, the factories have the material but nobody wants to come to work to assemble it. They are paying skeleton crews tons of OT and DT for assembly. The only items normalizing are standard products (small panels, etc.) which are built in Mexico. Anything custom for large projects is nearly a one year lead time (historically been 3 to 4 months). We see it in the trades, too. Numerous projects go unbid due to no manpower. Nobody wants to be an electrician at $90k a year plus $12/hr into their annuity and paid health care. Young people do not seem to care about good benefits. We may need to need to reduce benefits and increase wages on the check to get people to work. Weird times.

        • Lauren says:

          Many blue collar jobs suck and/or will suck the life out of you. Source: I am a blue collar worker (surveyor). We have the same staffing issues in heavy civil construction.

        • NBay says:

          YEP! The only thing that makes it kinda fair is the cube and desk bunch eat the same unhealthy shit and live the same unhealthy lifestyles. But it sells lots of product…..I still like the commercial where the zombie comes one after a days work, sits down to watch TV, reaches for remote, his arm falls off, he sighs, and says, “Alexa turn..”. Then his ear falls of and he again looks disgusted and asks her to turn up volume.
          The zombie apocalypse was no lie!

    • Biker Chique 01 says:

      Supply Chains in their current forms worked well for the last 20 or 30 years. Long supply chains are by themselves do not cause inflation. Long supply chains existed for thousands of years. The Roman Empire fed it capital Rome with food product imported form far away colonies, such as Egypt. If they made it work 2000 years ago, we should be able to make it work today, with so much more sophisticated technology at our disposal.
      Reshoring, manufacturing will not make products cost less, hence it will be inflationary. Do we want to re-shore manufacturing to the USA when workers refuse to go to work? It is better to keep manufacturing offshore and contract workers who want to work, not attempt top entice those who are allergic to work and avoid it as it were an infectious disease.
      It would be refreshing for a change if someone would take the time to state specifically the problem within the supply chain, instead of the categorical statement “supply chain bottleneck”. It is amusing that every supply chain action is diagnosed as a “supply chain bottleneck” whether it is demand or supply related, such as – ship shortage, container carrier chassis shortage, slow port offloading, low port throughput, excessive inventories, poor forecasting, excessive production, obsolete inventory, excessive seasonal product inventories, ect. Of course, we gave up on being analytical and identifying specific causes by spewing out the catch all excuse – “supply chain bottleneck”

      • Jon says:

        I don’t think your comment is analytical at all. You have used the narrow lens of re-shoring bad because Americans are lazy.

        There are very good reasons involved with re-shoring. National Security is a major issue. China wants Taiwan, which is where many chips are manufactured. What will we do if we have no chips? Having shipped our manufacturing overseas is a detriment to having a strong military.

        Also, giving Americans decent jobs at a fair price is not “Americans refusing to work.” I would recommend taking a trip through the heartland of the US and explaining to those folks that they were lazy and that’s why their jobs were shipped overseas.

        History, politics, international relations… these are just as important as bean counting. They look years ahead into the future rather than just the next quarter.

        • c_heale says:

          Well that’s what the book Britannia Unchanged said about British workers – that they were the laziest in the world. Britannia Unchained was written by Truss, Kwarteng and some other conservative MP’s currently running the UK government.

        • NBay says:

          You know who the bad guys are. It ain’t Mexicans.

      • Auto-outsider says:

        Nobody wants to say out loud “government mandated lockdowns are reducing production within supply chains.” With JIT inventory, nobody can get back to full production.

      • Auto-outsider says:

        Another issue; why would someone take a tough auto factory job when they can work at the local air conditioned big box store for more money? Most people would take the easier, higher paying job.

        • El Katz says:

          I sincerely doubt that you can make more money at an “air conditioned big box store” than you can on an assembly line for an automobile manufacturer. I’d love to see the data that supports your theory.

          I might also add that modern automobile assembly plants are fully air conditioned and have been for decades. My ex-employer air conditioned their plants in the 1980’s.

          Hard work? It’s physically taxing, but many of the assemblies are assisted by fully automatic as well as employee guided robotics or robotic arms. The days of the sweaty line worker beating a fender into place with a mallet are long gone. The company I worked for …. the line workers wore white coveralls and white cotton gloves. There is also job rotation to ensure cross training and reduce repetitive function injuries… as well as reduce burnout.

        • Auto-outsider says:

          Replying to el Katz. Working for the big three or auto suppliers factories in southeast Michigan gets you $14-$17/ hour starting pay. Or you can go work at Meier and make $15.40 like my kids. These are not the white glove jobs you mentioned. Nor are they all air conditioned. This is reality not theory. 28 year veteran here.

      • lordsunbeamthethird says:

        Interesting me tion of the long supply chains of the Roman Empire. When that empire collapsed there was no local knowledge to take over i.e. pottery and plates shipped from the Mediterranean to the UK simply became unavailable.
        The supply chains didn’t shorten, they collapsed leading to the infamous “Dark Ages” during which all had to be rediscovered and developed.

      • Jimbo says:

        Supply chains?

        Ever look at the worldwide mail and package system?

        It takes longer now to get a letter to many countries than it did 150 years ago.

        Prices have also gone through the roof for domestic letters in many countries and even worse for foreign letters.

        Looked at the price of mailing a package between countries? Prices have soared.

        What’s the problem?

        Who knows………………

    • Cytotoxic says:

      “Biden has chosen jobs over unemployment and ‘Disaster Capitalism.’”

      You don’t get to do that. Biden has no such powers, his delusions to the contrary notwithstanding. And our supply chains worked just fine before Trump decided to smash them up. Globalization kept the world supply network alive during COVID.

    • Augustus Frost says:

      There are no deficit hawks in Congress.

      The idea is farcical. It’s as nonsensical as claims of “austerity” in any number of countries even as governments are swimming in a sea of red ink.

  8. Benjamin Cole aka The Tin-Foil Hat Economist says:

    Not for Japan.

  9. John says:

    Oil, gold and silver are the assets to have.

    • SanityTaken says:

      I keep telling my wife that. Whenever she brings up all the silver I bought at the start of the pandemic but never sold.

      “It’s a LONG TERM investment, sweetie!”

    • polecat says:

      Well … that and perhaps a sack (or ten) of potatoes.

      Would Yukon Golds suffice?

      • Biker Chique 01 says:

        Yukon Gold – good investment advice. Judging by the price increase of potatoes during last 12 months, potatoes increased more in price than Gold. To diversify, you should consider adding to your portfolio few more from the list following:
        Russet – extremely popular
        Sweet Potatoes and Yams – diversification move
        German Butterball – international play
        Kennebec – short supply chain play. Made in MAINE!
        Bintje – sounds exotic, but it is the most common potato grown around the world. ( Buy as Bigger Fool theory – some image conscious group will snap it up because its name sounds “exotic”
        Red bliss – source of inner calm … could come in demand now as millions are self diagnosing mental heath conditions
        Vitelotte – luxury name! The upper 1% will be able to afford regardless of the inflation rate, “supply chain bottle necks”, GDP, unemployment numbers, recession, etc.
        Russian Banana – rebranding could restore demand in the marketplace, or sold as “smuggled in black market goods” could appreciate in price well above inflation. No danger of sanctions lifting during the first century of 2000. Could be big contrarian play.

        • NBay says:

          Try some Theriac…..used since 50 AD or so…and as late as 1900..might have to make your own……pharmacists used to compound….no more….more efficient corp methods in place now, ya know? Hell, they don’t even count pills, techs do.

    • Flea says:


    • Escierto says:

      You gotta be kidding me. Gold and silver are worthless rocks, the currency of ancient history. Now the US dollar rules and destroys your precious metals. Paper cover rock!

      • Cytotoxic says:

        The USD has been falling against GOLD for most of the years since 2000, particularly in first several. To date, we haven’t found a better monetary system than the gold standard.

        That being said, there’s little reason to hold gold right now. The feds are serious, that price is only going to decrease for the time being.

      • phleep says:

        It is all belief, all the way down. Faith-based. “Moneyness” is the widespread belief that something will work as money. Any commodity, tangible or intangible, can gain or lose it.

        There is not some magic talisman that is durably a store of value, medium of exchange and unit of account.

        • Wisdom Seeker says:

          Both Phleep and Escierto are missing the point that items derive value from their usefulness. Durable items of intrinsic scarcity but enduring general usefulness are stores of value.

          The dollar is not “destroying” precious metals. The metals are still here. It’s true that after losing 99.04% of its value against gold over the past 100 years, the dollar has rallied modestly and is now down only 98.79%.

          There’s no faith required. “Moneyness” flows from thoughtful assessment of both how scarce and how useful something will be in the future. Focusing on “belief that something will work as money” is just chasing fads, as most cryptocurrencies have proven.

          Choosing your money wisely is not so different from choosing your investments, your spouse, or the place to call your home.

        • Auto-outsider says:

          Look at gold priced in Turkey’s currency. For locals there, PM’s will save some of them from total destruction.

        • eg says:

          No, Wisdom Seeker, “moneyness” is whatever your government demands in payment of its taxes, fees and fines. It’s Chartalism.

      • ru82 says:

        Good luck with putting USD paper in a mattress. Let me know if it will buy you anything in 10 years.

    • HowNow says:

      Will Wesson work as the oil investment?

    • NBay says:

      .22 bricks, if you want to take societal/financial collapse that far…..F precious metals. And you can’t save oil easily, better get solar and wind and batts and LEARN them. I used it way back in the hills off-grid. Cost a lot more back then, pre 2000.
      Now, as an old fart with a trashed lower back from blue collar life, I’ll just go down with the ship.

  10. AB says:

    Recent turmoil in the UK was a foreshock.

    Rather than attribute the fallout to incompetence, observers could instead interpret what the incompetence revealed.

    The underlying fault line is failing bonds, worryingly, at rate levels yet to dampen inflation.

    While raging inflation is burning above ground, bond tremors are rumbling below.

    While the Fed can be given a mandate to control fires, it can’t foil earthquakes; although it will probably try.

  11. Cobalt Programmer says:

    Wolf: Bond vigilante is a figurative term.
    Wolf: Bond vigilante were taken to the back and shot.

    I am just asking for the knowledge. Why dont we buy treasury bonds and hold it to maturity? What is the advantage of these bond funds mixed with corporate and junk bonds? Is it all about the yield?

    • Wolf Richter says:

      In the podcast, I call the term a “figure of speech.” And then I explain what they actually are, often in leveraged and derivative positions: insurance companies, pension funds, hedge funds, you, me, etc.

      • Zero Sum Game says:

        Will bonds soon be printed with the likeness of Charles Bronson (‘Death Wish’ series) or Uma Thurman (‘Kill Bill’ series) as a hat tip to the dawning age of bond vigilantes?

        • Depth Charge says:

          Charles Manson.

        • Zero Sum Game says:

          Depth Charge: Unlike the movie characters portrayed by Bronson and Thurman, I have some doubts Charles Manson would be considered a ‘vigilante’.

        • NBay says:

          Tim McVey, he decided (like many here) government was the source of ALL our problems and took action himself.

    • HowNow says:

      Buying short term treasuries is like swimming against the current in San Francisco Bay, as Wolf illustrated. If you swim at 2 knots and the current is moving out to sea at 4…

      • rick m says:

        There’s metaphorical room in S F Investments Bay for the currents, fog, boat traffic, hypothermia, and the occasional Great White who’s over sushi.

  12. Spencer says:

    You can thank John Maynard Keynes for this mess.

    • Bobber says:

      Ah, I think you mean Greenspan, Bernanke, Yellen, Powell, Bush, Obama, Trump, Biden, McConnell, Pelosi, and many more.

    • Cytotoxic says:

      Keynes is bad but…not all bad. He really meant it when he said that governments should pay off the debts during good times. None of his supposed students really got him. I think he even said of a meeting, ‘of everyone there I was the only non-Keynesian’.

    • phleep says:

      Have you read Keynes? I thought not.

      And as far as debasing currency goes, it probably started in Lydia — the first known place to coin it.

      • HowNow says:

        Keynes’ prescription was to stimulate when the economy was moribund, and to withdraw the stimulus when it was running nicely. He can’t be blamed if governments can’t help but to pander to their wealthy, powerful constituents who want to keep the party fueled up. That’s why we need to cut out lobbyists (constituents) and campaign finance that controls candidates for office. This isn’t complicated… But if you’re caught up in, “It’s Tweedledum, not me, Tweedle-dee”, you’re only bringing a smile to the faces of the puppeteers.

        • Iona says:

          The prescription makes sense but as we all know it runs counter to human nature and political reality. Nobody wants to take the punch bowl away in the middle of the party. That’s why Keynes theory is deeply flawed.

        • Flea says:

          Until there are consequences for corruption,banisters going to jail for fraud ,same for spac’s just a free game of theft

    • Ccat says:

      Not true. Keynes never supported endless deficits.


    • Max Power says:

      Absolutely false. Keynes advice is for government is to act in a counter-cyclical manner so as to smooth out the business cycle. This means government spending during recessions and surpluses during the good times.

      The problem is not with Keynes but with politicians (on both sides) who insist on executing the deficit part at all times, regardless of the economic situation.

  13. Catdaddy says:

    The entire system is a house of cards. Wolf breaks it down so even I understand. The banks that sold the strategy go 180 and enforce margin calls. This , to me , amplifies one of the biggest reasons we are in so much trouble. The brightest folks go into finance which creates nothing. They see too much opportunity- where the greed and corruption is amplified. If they went into physics / engineering/ etc we may have solved fusion by now. I honestly don’t see how fiat currencies can last much longer.

    • cb says:

      “The brightest folks go into finance”

      there is a hell of an assumption …………..

      All the Goldman types?

      Are these the brightest or just manipulators chasing the buck?

      Finance has been developed for centuries with the design to separate productivity from production to a class of money lenders and fraudsters who create and lend “money”.

      Of course fraudsters, lairs and cheats would prefer to attribute themselves with intelligence rather than larceny ,,,,,,,,,,,,,, and under cover of law. Telling lies “truthfully” and stealing legally.

      A good supply of legend believers, fools, dupes, powerless, vested interests, hired hands, compromised people and bought-offs make the fraud easier.

      • Wolf Richter says:

        All of them are very “bright.” Tho they may not use their knowledge and intelligence in the way that you would like them to.

        • Doolittle says:

          Bright thieves!

        • libdis says:

          Why is it everyone assumes the people in charge are stupid?

          After all, they are in charge, so who really are the stupid ones.

        • sunny129 says:

          But they use their knowledge (insider info) to enrich themselves.

          B/w there is NO Ethics class in any of the MBA programs in US or outside. Legal training ‘may’ have have it, but they ignore it b/c there is more money in ignoring it.Majority of our lawmakers are attorneys by training.

        • Flea says:

          Wolf every comment I make is in moderation again

        • Wolf Richter says:

          Yes. Spreading lies about a couple of items, including FDIC insurance. Zero tolerance.

          Just because you read these lies on another blog or wherever doesn’t mean you get to spread them here.

        • cb says:

          It’s a big assumption to attribute success based on manipulation, lying, shrewdness, cunning, etc. to being the “brightest.”

          You can buy it if you want. Not me.

        • Jon says:

          People in charge are the smartest ones. They may have gotten their moral compass wrong though.

          These people in charge know for sure how to exploit the system for their own good.

      • tom10 says:

        ” bright” …the new participation trophy…

        • cb says:

          “brightest”………………….. in financial terms …………… we are the best and you lackeys should be happy with any crumbs you have that we haven’t yet stolen

      • economicminor says:

        Very Smart also believing they are Privileged

      • Brant Lee says:

        It’s because they know the correct answer to this:

        A baseball bat and a ball cost $1.10 in total. The bat costs $1.00 more than the ball. How much does the ball cost?

        No, it’s not 10 cents.

        • Lauren says:

          The ball costs 5 cents.

        • NBay says:

          So, our local Pomo Indians used base 8 for counting (before we killed 99% of them…was State Law….Eel River Riders, Clearlake Massacre, etc,etc). Go to Sacramento Bee records 1850’s.

          Anyway, they knew numbers were NOT REAL. So they counted the spaces between their fingers.

          Smarter than us from the get go.

      • HowNow says:

        No, cb. Your prejudice has gotten the upper hand when it comes to thinking. Many MDs, physicists, engineers are busy getting MBAs or law degrees related to their educational backgrounds – in biotech, genetics, energy – for patent work and as analysts for fin. orgs. because they know where the money is. Michael Burry quit his internship, Jim Simons (prof. emeritus at MIT and worked in the defense industry on the side then pioneering Rennaissance Tech) and Vlad Tenov (Robinhood) was working on his PhD in mathematics at Stanford…
        If you don’t like the capitalist system, well that’s another matter. Want it better regulated? Then you have to do battle with the GOP.

        • cb says:

          @ HowNow –

          1. Do you think the brightest folks go into finance?

          yes or no

          2. Do you think

          Greenspan, Geithner, Bernanke, Paulson, Powell, Diamond, Blankfein, and the Goldman types are the brightest?

          3. and for fun ,,,,,,,,,,,,,,, do you think Cramer is the brightest?

        • Happy1 says:

          Better regulated? You think elite unelected regulators are the answer to the problems of the excesses of capitalism? The Fed is the regulator of money supply and they have been captured by the banks and are utterly corrupt. Sound money as in gold standard is the only cure.

      • Swamp Creatu says:

        All the deadwood always rises to the top.

    • phleep says:

      > I honestly don’t see how fiat currencies can last much longer.

      The road to (some, temporary) credibility is pegging the currency to something, i.e., money supply and interest rates (as Volcker did). Non-fiat has its own opposite problems: deflationary breakdowns due to inflexibility (USA 1929-33).

      Things break unexpectedly and flexibility is handy, but this time, it was abused for a prolonged time, and the core thing broke, as Wolf observes: price stability. As you note, a huge amount of pressure is on those trying to hold this line.

      Inflation says, credibility of currencies is still falling. Bond vigilantes appear, trying at least to protect the value of their own piles of lucre. They are yanking the leash of governments. On the other end, the fiat-payees will be restless. Stresses are piling on all sides.

      Possible redemption lies in productivity holding up, and some vaguely reasonable policies being held on currency. It has happened before.

      • cb says:

        the core thing was creating huge amounts of dollars, and price stability has been broken for many, many years, first primarily in asset prices, but overall in everything.

      • Escierto says:

        Speak of other inferior currencies, not the mighty US dollar. The USD is the King Kong of currencies destroying everything in its path.

    • Biker Chique 01 says:

      Such poignant remark.. “The brightest folks go into finance which creates nothing. ”
      I experienced this in my own career. I worked in corporate America. My specialty was Supply Chain, Logistics, Procurement. I created annually, for many years, $millions in operational savings. My projects were “analyzed” by a Finance Manager, who was received greater salary, than I was paid and received annual bonuses and promotions.
      So he explained what I did and was paid more for it than I, I who created the program, did the analysis, took the risk of failure, and delivered consistent revenue – year after year.
      Difficult not to be cynical of the role played and emphasis placed on importance of the geeks of Finance.

      • Zero Sum Game says:

        Over the millennia bright folks invented tools and methods to lower the daily toils, strains, and agonies of hard physical labor.

        Finance represents the pinnacle of bright minds using mental gymnastics and symbolic manipulation to avoid the anguish and toil of daily hard physical labor.

      • HowNow says:

        Well, if you’re as analytical as you claim, you should recognize that your personal experience is not representative of everything in the world of finance.
        I don’t want to defend the financialization of American industry. We’ve all worked under bosses and leadership who exploited the ideas and efforts of others. But generalizing your idiosyncratic experience does not a theory make. It just fans the flames of the lynch mob.
        But maybe that’s what you’re trying to do.

        • Zero Sum Game says:

          HowNow: Do you believe lynch mobs are disproportionately attracted to Wolf of Wall Street articles, then?

        • HowNow says:

          If you mean “Wolf Street”, I think there’s a lot of venting, a lot of conspiratorial comments, a lot of scapegoaters, but, no, I don’t think Wolf Street “attracts” them. I think the anonymity of the commenters is what allows soft thinking and venom to seep out. And I also think that there are many extraordinarily smart and talented people who are attracted here. Lots of worldly wisdom and commentaries. And, of course, there are few sources of in-depth information on money matters that Wolf brings to his readers on a daily basis anywhere else! Quite amazing.

        • NBay says:

          As well she should, I’ll spring for a bellows for her.

    • HB11 Energy has probably already solved fusion. They’re operating on a still small budget, so the world 🌎 hasn’t heard much about ponderomotive CPA laser fusion with hydrogen and boron, no heating and no steam turbines needed, no neutrons, the output is electrical current.

      • HowNow says:

        Thanks, LH. As fascinating as it is incomprehensible.

        • Almost no one is following this (Australian) story. Run a search for a series of five articles on HB11 in the Asia Times.

        • HowNow says:

          I tried to post the HB11 website but Wolf clipped it. The technology is simply explained and illustrated, but a few light years ahead of my comprehension.

        • How soon we get fusion is about choosing the most promising technology and putting serious investment into it. HB11 just got $22 million from the Australian government. They need $100 million to build a prototype. ITER has $22 billion, but it’s a comparatively very primitive design. And yes, this thread isn’t about bond vigilantes!

        • NBay says:

          You know, of course, that even the so-called “H-bombs” don’t achieve anywhere near 100% fusion. In fact they really aren’t sure what per cent ANY of them do achieve.

          Leave that shit to the Sun, it’s been in the biz about 5 Billion years longer, maybe more….and it’s FREE.

          Go back to 200mpg carburetors or magnets on fuel lines….

          One of Wolf’s best deletions.

      • Prairie Rider says:


        For years I’ve used boron to generate electrical current.


        The cantilever that holds the stylus and moving coils in my cartridge is made of boron. While no steam turbines are needed, an album does need to be rotating on the platter to generate any voltage and current.

        Synthetic sapphire is now being used for the cantilever in some high-end cartridges. Haven’t tried one yet though.

        Seriously, fusion of hydrogen takes tremendous heat and pressure to create energy. As Bucky Fuller once remarked, “We have a nuclear power plant right where it belongs; 94 million miles away.”

        30% of the electricity from Xcel Energy that’s coming into my home is from fission generated at its two nuclear facilities near the Twin Cities.

      • c_heale says:

        The problem with fusion is that the process has to emit more energy than the energy put in to fuse the atoms. Fusion had already been solved but as of yet no-one has made it it produce more energy than was put in. The process also needs to be self sustaining and be possible to be done on a large enough scale to provide useful energy.

        If solves all these problems then I might be convinced. Color me skeptical for the moment.

        • Max Power says:

          Slight correction… humans have definitely figured out a way to achieve fusion with way less energy than put in. The only problem is that said method has the unfortunate side effect of also being able to destroy an entire city while being delivered in a nice little package atop a missile ;-)

    • ru82 says:

      Yep. You should go read the “Lords of easy money” The hedge funds are even playing in the RRP space that was supposed to be for banks.

      They are using the RRP to make leveraging plays. The FED a few years ago had to bail out a $400 million risky hedge fund play (to prevent contagion). So, the Hedgies get a free pass when playing with fire.

      I am guessing we will see more things break soon?

  14. cb says:

    Bond vigilantes???

    or just the absence of the FED put?

    • SeanDF says:

      Could be, the put still looms, market lemmings will jump on any hint of pivot to QE. The banksters are screaming for collateral to support CDS and other derivatives to bail out unbooked OTC delta losses, think Archegos multiplied by a hundred. Two things support dollar supremacy, the petrodollar money laundry, and the United States military. Ultimately, suppressed money markets will find a way back to price discovery, and the vigilantes will serve a systemic cleansing purpose in establishing a renewed bid/ask climate.

  15. Matthew Scott says:

    Business, Finance and MONEY. Thank You Wolf. If you could record this late Saturday every week. What a way to wake up Sunday morning, my coffee a newspaper and, “The Wolf Street Report”!

  16. Putter says:

    Financialization, as it is today, is merely different methods to leverage debt. Nothing of value is produced. A total waste of capital and talent.

  17. economicminor says:

    This is the problem.

    Risk has always been there. There is no system in which risk can be eliminated. Ignoring risk or imagining that you will be compensated for risk tomorrow has its limits. Tomorrow is now today.
    The system has run out of tomorrows.

    Debt is an increase in current spending in exchange for a decrease in future spending unless that debt creates an income stream adequate to repay the debt, interest, plus a small profit.  Instead the US Created money to buy what we didn’t produce. Inflation is the consequence of this.

    The compensation for the risk of loaning money is in the interest charged. When it is under priced by monetary and or fiscal policies, it doesn’t go away. History says it increases.

    Borrowing for consumption vs to increase productive activity is a hole that will have to eventually be refilled with future austerity. The bigger the hole, the longer the period of austerity. It seems to me out hole is ginormous.

    What the bond market wants is to receive compensation for years of unrecognized risks in higher interest rates. YET higher interest rates will reduce what we actually need and that is investment that can repay our existing debts.

    What has happened in the past to companies / countries that have lived off future income to the point where the income is inadequate to service these debts is major restructuring.

    The Bond Vigilantes are too late to save themselves or the system. Minsky was right.

  18. Cytotoxic says:

    Look, Truss screwed the pooch no doubt but I am real tired of this BS notion that the gilt meltdown is down to-gasp!-not stealing as much from the productive. This has been brewing for a long time through bad Labor governments and various Big Government Tory governments. That, and J-Pow doing the right thing. The only narrative more annoying than ‘Truss did it derp’ is ‘Brexit did it’. The Remoaners are essentially religious zealots.

    Tyler Cowen had an article not long ago that did a pretty good job demonstrating that really Britain is in better fiscal shape than France. The clock is counting down on the EU.

    Nonetheless, Truss is done as a force and that’s too bad because she had good ideas, like more North Sea oil and fracking.

    • Pea Sea says:

      Someone here is a religious zealot, but I don’t think it’s the Remainers.

      • Cytotoxic says:

        It’s absolutely the Remoaners. They are monomaniacal and the EU is basically their god. They will blame a stubbed toe on Brexit and claim it justifies rejoining the EU.

  19. Rico says:

    My son brought up inflation this morning saying it is going to get worse so I gave him this financial lesson: Money goes up hill to the pockets of the rich, not down hill.
    The rich detest inflation because they don’t like the chance that they will be using their dollars for toilet paper. They are more comfortable with deflation, depression, recession. Their stash is worth more.

    • phleep says:

      > they don’t like the chance that they will be using their dollars for toilet paper.

      Couldn’t you say that of savers? Or peasants, for that matter?

      Creditors and savers don’t like inflation, because it confiscates and redistributes what they have stored up. Grasshoppers play in the sunshine, ants save up for a rainy day. Who should be rewarded for such choices?

      • HowNow says:

        Grasshoppers when there’s inflation; ants when there’s deflation. And pesticides when you want a level playing field.

    • Cytotoxic says:

      The rich can just buy inflation-protected assets you fool. Indeed that’s what they do.

    • Pea Sea says:

      You’ve got it exactly backwards. The rich hold assets, not dollars. The poor who have no choice but to sell their labor for dollars are the ones who detest inflation the most, because dollars are all they’ve got, and those dollars are rapidly losing value.

      • eg says:

        The rich are also creditors, and inflation isn’t favourable to them on that score.

        • Augustus Frost says:

          The rich do not own a lot of someone else’s debt directly, not as a long-term hold.

          Of the 735 reported billionaires in 2021, I’d guess (almost) none of them own a noticeable percentage of debt.

          They didn’t get rich owning depreciating assets. Whatever they own is predominantly indirect, like loans by financial institutions or accounts receivable to their customers.

  20. Nevada22 says:

    Raging inflation and the Fed’s two core tools are dull and broken.
    Attending MBA school 1981-1983, I had a brilliant professor who had been with a rrgional Fed Bank just prior to teaching. She noted at the time that the Fed had two tools – the Fed Funds Rate and the Discount Window. She felt the Discount Window was becoming irrelevant as the use of derivatives by commercial banks was preferred to the use of the Window. Despite claims for years of what a great tool the Window continued to be,
    she proved correct. The Discount Window is barely used today. One tool essentially gone.

    To gauge the current effectiveness of FFR today, look at total bank reserves. Total bank reserves are about $2.5T, and $1.5T of that total is excess reserves (difficult to say exactly how much is excess reserves as the Fed now obfuscates the distinction between required and excess reserves). Raising the FFR has far less impact than it had prior to the current reserves dynamics. The FFR is a rate determined by the Fed, setting the rates at which banks borrow from each other with uncollateralized loans.
    Do commercial banks really care about the FFR when they get 3.0-3.25%(and rising) on $1.5T of excess reserves? No.

    It is becoming increasingly clear that the folks that make all the decisions, are no longer in control of the inflation situation.
    For the Fed, to at least make the FFR a useful tool again as it applies to commercial banks in particular, it appears necessary for the Fed to stop paying interest on reserves to reempower the FFR. Making the FFR relevant again is superior to any rationale of providing the interest payment on reserves. Yet, this is only likely to happen after another cycle of crisis.

    It is true that FFR today still influences the prime rate that banks charge their top customers.
    But with all the non-banking credit, huge spreads in consumer credit and the world of leveraged speculative finance out there – all now in an inflationary environment – no one knows how this will play out regardless of whatever the FFR might be.
    But we have clues from past events.

  21. Bob says:

    I would like to suggest an alternative explanation which I may have missed in the comments above.

    The recent turmoil in England only proves that the central bank is more powerful than the central government. The so-called vigilantes are merely attempting to front run the central bank exactly like they always do. These are the same vigilantes who are willing to accept negative interest rates when the central bank was moving in that direction. They have no principles and have never had any. The proof of this hypothesis is that when the Central Bank threatens discipline the vigilantes immediately cower. The back of England not the parliament runs the country. Parliament now understands that and will behave accordingly. It is the same in every country with a central bank that serves as it’s de facto dictator.

    • sunny129 says:

      ‘Parliament now understands that and will behave accordingly”

      I very much doubt it.

      Without deficit spending, the career of politicians will come suddenly to an end. GOP Conservatives apparently NOT fiscally conservative but below the belt issues.

    • eg says:

      I’m with you, Bob — central banks are an aristocratic institution which have arrogated to themselves authority which in a properly functioning democracy rightfully belongs to our elected representatives. Unfortunately, our elected representatives long ago abdicated their responsibilities in order to escape accountability for economic outcomes.

  22. sunny129 says:

    Nice re-cap of events of the last week., Which I was acutely aware of it.

    The question is, what’s the end game?
    Does it spread to other countries, including USA?
    I suspect all sovereign countries have the same skeletons in their closet.

    Deficit spending will go on. Without deficit spending there is (lucrative) career in the politics.

  23. Paul Morphy says:

    I’m old enough to remember when access to credit was a privilege and not an entitlement.

    You had to have a savings record with an institution before you’d even have a loan application considered.

    Indebtedness was something which was regarded as a socially unacceptable. The debtors prisons of Victorian times are evidence of this.

    The Central Banks and politicians doing what they’ve done – do so in the “name of the people”

    Those of us who have been prudent and lived within our mean are being corralled into picking up the tab for the reckless policies and reckless behaviour of others.

    Thanks Wolf for continuing to warn the wider world about what is going on.

    • HowNow says:

      “Indebtedness was something which was regarded as a socially unacceptable.” In American colonial times, stockades were used to publicly shame deadbeat debtors. About that time in England, gibbets were used.
      Maybe it’s time to dust them off, sanitize them a bit, and position them along narrow Wall St., in NYC.

      • Paul Morphy says:

        Well the powers that be reckon that the ordinary citizen will once again be made pick up the tab – for profligate and greedy behaviour.

        Whether it is AIG or Ford or Royal Bank of Scotland – which is insolvent – the ordinary citizen was made to pay the price of the bailout of these insolvent, zombified entities.

        If an entity is insolvent – let it die. “Capitalism created the problem, let Capitalism solve the problem” Real capitalism lets the insolvent entity die. Socialising insolvency doen’ts work and, more importantly, it is unjust – socialising insolvency forces others to pick up the tab.

        The citizen needs to wake up because so long as the “safety net” remains delinquent and malfeasent behaviour will continue unchecked and without consequences

    • sunny129 says:

      Paul Murphy

      “when access to credit was a privilege and not an entitlement”

      That was gone when common folks got the Credit cards around 1952.

  24. eg says:

    You seem to have some familiarity with Japan, Wolf — why don’t the “bond vigilantes” seem to bother the BOJ?

    • Wolf Richter says:

      They are trying. But they’re not very powerful in comparison: The BOJ owns over half of JGBs. Government institutions and government-controlled institutions hold a whole bunch more. Banks, which aren’t going to go against the BOJ, own a bunch too. So that doesn’t leave much room for bond vigilantes. The BOJ controls this with QE.

      What the BOJ cannot control is the yen and inflation. And both are going to heck in nearly a straight line, which will eventually force the BOJ to pivot away from QE – and it has already started that process, but by shedding loans, and for now maintaining the rate peg with bond buys. Everyone is waiting for April.

      • eg says:

        I appreciate the response, thanks. I will be watching for any policy transition come April.

      • Cytotoxic says:

        Japan is a car bomb that’s been waiting to explode for decades. An Event is coming.

  25. Green Acres says:

    My health insurance will be increasing by 16% in 2023. Guess I should be glad it’s not 28% but 16% means it quadruples in price in 9 years.

    – – – – – –

    Good information about how the central banks have been chasing away bond vigilantes… until now.

    Last time I heard / read that term was in the 1970s / 1980s in a book named “Paper Money” by Adam Smith.

  26. Swamp Creature says:

    I’m waiting for the Bond vigilantes to hit the High yield Junk Bond market. Wait till all those BBB rated bonds go down to BB and saturate the market. On top of that there will be no buyers for the lower rated junk which will be wind up selling for pennies on a dollar. The Fed can’t buy this crap so this will trigger the next financial crisis worse than 2008.

  27. Nevada22 says:

    I am well aware of all the Fed’s tools. Two are impaired, one is verbal, and the others add complexity to the system.
    Much of the last 30+ years has been driven by the ability to buy cheap financial insurance dur to those tools, and when that insurance doesn’t work or becomes too expensive to carry, systems break.
    With the availability of cheap insurace, why not take even more risk on and buy more cheap insurance? This cycle has now been repeated many times since 1987.
    I worked for 3 Wall Street firms for over 30 years, with a one year stint as a market maker at the Chicago Board of Options Exchange in 1987. I have vivid memories of my first experience in a full breakdown of a functioning system(and others in the years after), while working on the floor as a market maker in IBM and the S&P500 pits. In this case, the beautiful math and theory of Portfolio Insurance broke down. The basic premise was to increase the hedges on large portfolies as the portfolio fell in value. The whole story is complex, but in the simplest terms THE OTHER SIDE OF THE REQUURED TRADES DISSAPEARED. Market makers need to hedge their risk as they book trades. For example, in a falling market they need to be able to short underlying stocks(no uptick rule required), or short futures at the CME. On Black Monday many stocks took hours to open, but the orders to buy puts and sell calls were literally flying in, in a tidal wave right at the open. How does a market maker who is becoming synthetically long a specific company hedge when that company isn’t trading?
    They can’t.
    The answer is to turn over your badge pinnned to the lapel of your jacket. Step away, and try to survive.
    In the indexes, many market makers would hedge by taking opposing positions in futures. But at that time the increasing equity of a futures hedge to offset the losing equity in a market makers book was not available same day! Calls for instant collateral were being made by yhe CBOE, and it was not yet available from the futures exchange due to settlement rules.

    That was later corrected.
    But the point is when the fear hits and waves of de-risking orders hit any complex market (UK Pension plans a recent example), that is when the flaws in the underlying concept become visible – at the worst possible time.

    Is 1987 too long ago? How about LT Capital Mgt in 1998, and and the CMO collapse in 2008. They and others followed a similar pattern.

    Since 2008 the Fed’s “emergency measures” with all their tools have been at work since.
    Wolf, I hope you are right, and the Fed can navigate everyone out of all this.
    Ultimately, the way it is going, it looks like over time as each of these tools trips up in some way, we are doomed to perpetual balance sheet expansion by all the central banks.

    • Max Power says:

      The inner workings of the financial system are too complex for most folks to understand, at least not without further study.

      Your post reminds me how I was trying to explain to someone on this board a few days ago the difference between a market maker and an investor. He was conflating the two concepts… and still is.

      This was BTW in the context of how volatility in the treasury market (as evidenced by the extreme level of the MOVE index, accentuated by the simultaneously relatively-calm VIX) is making it very difficult for market makers in the government fixed income space to operate today. If market makers in bonds can’t function, we will have a critical event in the financial markets. It’s probably one of the biggest (yet less-well-appreciated) risks in the markets today… creating a potential situation reminiscent to how the 1987 crash you describe unfolded.

    • sunny129 says:

      Neveda 22

      The liquidity when most needed suddenly disappears.

      Lower volume on the days with Mkts up and higher volume, on days down

      More & more intra-day swinging of S&P (like now!)

      When and What every one knows, no longer matters.

      How many were truly aware of 7x-10x leveraged LDI bets by Pension funds in UK a couple of weeks ago?

      Casinos are in chaos and Fed/CBers are NOT in control!

      What more black swans are there?

      • NBay says:

        NOBODY understands what Billions of people are going to do next…..even the most powerful ones…….NOBODY!

        Dude never shoulda eaten that damned apple, just to get laid.
        Most expensive piece of ass ever…….or so some folks say…….

        I wasn’t there, had nothing to do with it…..just another victim.

  28. Giacomo Cambiaso says:

    Thanks Mr Wolf, but I have an objection. Was it not quite a coincidence that the minibudget was announced right on the same day BOE had to revised the interest rate and present the roadmap for their QT? Was it not quite a surprise for the market the discision to rise just 0.5 rather than 0.75 like BCE and FED just few days before and as widely expected by the matket right in consideration of the very high inflation rate? It was not more than expectable a speculative attack on the £ in front of too dovish BOE and the announcement of the QT? Was the minibudget not just a decoy and great excuse to cover up the central bank mess punctually unfolding after?

    • Wolf Richter says:

      Look at the chart of the 10-year gilt yield. This started in August when the 10-year yield was 2%. Six weeks later it was 4.5%. This didn’t happen on one day, just like Truss didn’t just dump her policies on the market in one day. She ran on those policies. She’d outlined her rough plans for weeks, and that’s when yields began to rise.

      I can see maybe that the BOE tried to give the Truss regime a chance to get settled in, and so it raised by only 50 bpts to give them some breathing room.

  29. dang says:

    I was just sitting here, listening to the White Trash at the Fillmore East 71, and a thought came to me about the topic that you featured.

    The Bond Vigilantes. While I agree in principle that the dead and buried being revived is definitely a good thing.

    • dang says:

      Joking about our worst nightmare, the “night of the living dead”, which I suggest is apropos to the current chaos enveloping the markets for over valued capital assets.

      • dang says:

        The word “Vigilenta” seems a bit over the top. I would refer to them as the “pony patrol”.

        The GILT, one of the dogs of the European wreckage is selling for a manufactured price.

        Who are they laying the risk and loss on.

        • dang says:

          My working hypothesis is that the Fed will have to raise the FFR to 9% at which time I will lock in for thirty years and forget about it.

          I will try to continue to be thankful for each day.

        • dang says:

          They are laying the risk and loss on you and me on the premise that their corruption is beneficial for the people. From one aspect, that may be true.

          I think only a dunce would think that the Federal Reserve Bank of the US is pure. It is a cravenly corrupt den of thieves that have by law, you, me, us by the short hairs.

          Another observation that qualifies for dunceness is they overlooked fact that

    • dang says:

      Fast forward and I’m listening to Miles Davis, “Kind of Blue”. Which changes the whole scenario building basis.

      All this fuss over negative interest rates which continue. Not negative 0,5 but negative 11 pct in the case of the GILT at 4.5 pct yield with 15% rate of inflation.

      This is why I scoff at the current claim that bond holders are about to stage an insurrection while losing capital at >10pct/yr while being clinically comatose for all these years.

  30. viraj shah says:

    Hi Wolf,
    I want to say your blog is the best on the internet for financial analysis, for me.
    I will donate as soon as I recover my losses on natural gas longs this winter!
    Here are my questions:
    1) 90 bill budget deficit+60bill qt+ 50 bill foreign selling of treasuries, almost 200 bill to be sold a month. Do you think fear is the only way to get these sold, or could we see some of that reverse repo money come into these if yields go high enough?
    2) how high do you see them go quickly, I agree the ten year old should actually be around 8%, but before it gets there, is there a possibility of corporate or emerging market debt blow ups?
    3) Could they reduce the return on Reverse repos to force that money into the market?

    • Wolf Richter says:

      I’m not worried at all about Treasuries. Yields should rise (prices fall) which brings out more buyers. Each time yields rise, there are more buyers. Bond buyers LOVE higher yields. What they don’t like is if yields rise AFTER they bought their bonds. But OK, for investors that hold to maturity, that doesn’t matter. The 10-year yield is way too low — about half the rate of 8%+ inflation — because there is still way too much demand at 4%-ish for 10-year yields. With these low yields, Treasuries are still a terrible investment, but they may be one of the least terrible investments out there right now — and that’s why there is still so much demand that yields remain so low.

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