The Crazy Stuff & Asset Prices that arose during Easy Money are coming unglued as Easy Money ended.
By Wolf Richter. This is the transcript of my podcast on Sunday, December 18, THE WOLF STREET REPORT.
The era of money-printing and interest-rate repression in the United States, which started in 2008, gave rise to all kinds of stuff, and the easy money kept going and kept going, and all this money needed to find a place to go, and then money-printing went hog-wild in 2020 and 2021. And the stuff it gave rise to just got bigger and bigger, and crazier and crazier. And much of this stuff is now in the process of coming apart, I mean falling apart, or getting taken apart in a controlled manner, and some stuff has already imploded in a messy way. And we’ll get to some of this stuff in a minute.
All this money-printing and interest rate repression finally gave rise to massive consumer price inflation, and now we have a real problem, the worst inflation in 40 years, and way too much money still floating around all over the place with businesses, with consumers, with state and local governments. Which means that this raging inflation has lots of fuel left to burn, and the government is making it worse by handing out hundreds of billions of dollars for all kinds of stimulus spending, from the new EV incentives to $50 billion handed to the richest semiconductor makers.
And some state governments are handing out inflation checks or whatever – in California, households can get up to $1,000. And they’re all spending this money, and thereby throwing fuel on the inflation fire. We’ve already seen automakers raise prices of their EVs to eat up the EV incentives, and there we go, more inflation.
The poor Federal Reserve has to deal with all this, and it’s out there raising interest rates far more than anyone expected a year ago, and it’s doing quantitative tightening, and it’s saying all kinds of hawkish things, but the markets are blowing it off, and they’re not taking it seriously, which means that the cold water the Fed wants to throw on financial conditions, and therefore on inflationary pressures, isn’t getting there, and it has to throw a lot more cold water on it, so higher rates for longer, and maybe for a very long time.
Last time we had this kind of inflation, it took over a decade to calm it down, and interest rates went a lot lot higher than they’re today. I have the feeling that this raging inflation today will dish up lots of nasty surprises, which is what raging inflation does.
So now we got all the stuff that money-printing and interest rate repression gave rise to, and this stuff must have continued money-printing and interest-rate repression to exist, but now we have soaring interest rates and the opposite of money-printing: quantitative tightening.
Perhaps the most spectacular creation of the money-printing era is crypto. It started with bitcoin in early 2009, just after the Fed’s money-printing got started. And the promoters fanned out all over the social media and everywhere and touted it as an alternative to the dollar and to fiat currency in general and to what not, and people started hyping it, and promoting it, and they’re trading it, and the price shot higher.
And then come the copycats since anyone can issue a crypto currency. Suddenly there were a dozen of them, and then there were 100 of them then a 1,000, and suddenly 10,000 cryptos, and now there are over 22,000 cryptos, and everyone and their dog is creating them, and trading them, and lending them, and using them as collateral, and all kinds of businesses sprang up around this scheme, crypto miners, crypto exchanges, crypto lending platforms, and some of them went public via IPO or via merger with a SPAC.
And the market capitalization of these cryptos reached $3 trillion, trillion with a T, about a year ago, and then when the Fed started raising its interest rates and started doing QT, the whole thing just blows up. Companies go like POOF, and the money is gone, and whatever is left is stuck in bankruptcy courts globally possibly for years. Cryptos themselves have imploded. Many have gone to essentially zero and have been abandoned for dead. The granddaddy, bitcoin, has plunged by something like 73% from the peak. The whole crypto market is also down about 73%.
Crypto was one of the places where liquidity from money-printing went to, and now that the liquidity is being drained ever so slowly, the whole space started to collapse.
Another thing that came about during the era of money printing was an immense stock market mania, and when the money printing went hog-wild starting in March 2020, the stock market mania went hog wild with it.
We at Wolf Street tracked a bunch of these stocks, crazy IPO stocks and stocks that went public via merger with a SPAC over the past few years, and they shot higher and they spiked on a wing and a prayer with nothing there, companies that were losing tons of money, that didn’t have a business model, that didn’t have anything, and they were suddenly worth $10 billion or $30 billion or whatever.
It was all driven by what I call consensual hallucination and the effects of money-printing and interest rate repression. Those were the fundamentals.
But then in February 2021, when inflation started to heat up, causing the Fed to brush it off, well that February 2021 was when that craziness peaked, and many of these stocks then collapsed by 70% or 80% and over 90%. We tracked over 1,000 stocks traded in the US that have imploded by 80% or more from their highs within the past couple of years.
But other stocks too – big stocks of real companies with real incomes – got inflated over the money-printing years to ridiculous levels, and they’re heading south, a bunch of them have plunged by 50% or 60% from their money-printing highs, including Amazon, Tesla, Meta the former Facebook, chipmaker Nvidia, and many others.
The Nasdaq composite index has plunged by 34% from its high in November last year, the S&P 500 index has dropped 20% from its high at the beginning of this year. If it weren’t for energy and healthcare, the S&P 500 index would look a lot bloodier.
This incredible spike in stock prices that we saw in 2020 and 2021, on top of the huge surge from 2009 was fueled by money printing and interest rate repression. And now we have QT and surging interest rates, and the whole circus is coming apart. Lots of these startups that became highfliers will end up in bankruptcy. Some already have.
But it will drag out for a few years because there is still so much money floating around, and people are still dip-buying, and they’re still picking up these now penny stocks to try to make 100% in three days or whatever, it’s just like crypto trading.
Then there’s real estate. Housing. We had a ridiculous bubble during the money-printing and interest rate repression era. In some markets, home prices spiked in two years by 50%, 60%, and more, on top of the already huge price surge before the pandemic. The whole world went nuts. Consensual hallucination everywhere.
But it’s over too. Mortgage rates are over 6%. Which doesn’t go with these ridiculous prices, and there are other factors.
In San Francisco, for example, one of the formerly hottest and most expensive housing markets in the US, house prices peaked in March this year at over $2 million median price for a single-family house. Then prices began plunging. In November, the median price was down by 21% compared to a year ago, and down by 27% from the peak in May. That’s a huge drop in a short time.
This is a horrible-looking chart. Seasonally the lowest months are generally December or January. But then during the spring buying season, who’s going to buy these houses, amid all the layoffs now hitting the Tech and social media industry? I don’t know either.
In San Mateo County, which comprises the northern portion of Silicon Valley, home prices have plunged by 26% from the peak in April. In Santa Clara County, which comprises the southern portion of Silicon Valley, home prices have plunged by 19% from the peak. They’re down year-over-year in all of them. In the San Francisco Bay Area overall, prices are down 20% from the peak in April.
Other cities have similar stories. There has been a sea-change in the real estate market. And it’s not pretty. But the bubble was so huge, and so magnificent, fueled by money-printing and interest rate repression, that the deflation of this bubble must by definition get messy.
Money printing and interest rate repression have spent 13 years inflating asset prices, feeding consensual hallucination, and bringing about the biggest scams, such as the entire crypto space, before consumer price inflation finally exploded.
Then there is something else, a little further afield but with direct impact on asset prices in the US.
The Swiss National Bank is trying to keep the Swiss franc within an exchange-rate band primarily against the euro and the US dollar, but other currencies too. When the money printing started inflating everything, some of the dollar-liquidity and euro-liquidity went into Swiss francs.
This was a huge trade in 2010 and 2011. People were buying francs because they wanted to get rid of dollars and euros because of all the money-printing. At the time, the Swiss National Bank had a peg on the franc.
But in late 2011, the SNB took off the peg, cut its policy interest rate into the negative – which started the negative interest rate absurdity that then swept over Europe – and it started printing francs but NOT to do QE, but to sell the francs for dollars, euros, and other currencies, and then it used the dollars, euros, and other currencies to buy assets denominated in these currencies.
The SNB doesn’t disclose what it bought, so we don’t know much. But it must disclose its US stock holdings under SEC rules. So we can see in the quarterly SEC filings what the SNB is up to with regards to US stocks.
Over the years, the SNB has become a HUGE hedge fund, buying US stocks hand over fist, over two thousand different stocks, with the biggest US stocks being its top positions, Apple, Microsoft, Amazon, Alphabet, etc. But in the second and third quarters this year, it started dumping shares, from Apple on down, and it reduced its stock holdings.
You can get the details on Wolf Street. I list the SNB’s top 50 positions and the number of shares, and how they changed this year, and you can see how many shares of Apple it sold, etc. I did this in an article titled, The Swiss National Bank Began Unloading its Biggest US Stock Holdings, incl. Apple, Microsoft, Amazon, Alphabet, Meta.
So what the SNB has done is a dual craziness:
One, it instituted negative interest rates. And two, it instituted a unique racket: printing francs to buy foreign-currency denominated securities, including US stocks. But this was only possible under money-printing and interest rate repression in the US and the Eurozone, which created massive demand for francs, just like it created demand for cryptos and all this other stuff.
But now, there is QT in the US and the Eurozone, and interest rates are rising, and inflation is raging, and asset prices are sagging, and so the SNB has been taking massive losses on its stock holdings, and has started to sell stocks, and it starting hiking its own interest rates, which are now positive.
What the SNB did in those years was something close to doing QE in the US and Europe by using its own printed money to buy those dollar and euro assets. And now it’s unwinding some of those dollar and euro holdings, and it’s thereby doing its own form of quasi-QT in the US and Europe – including in the US stock market.
This whole racket was one of the craziest things out there, when you think about it, but it was enabled by the huge demand for francs, coming from dollar and euro liquidity that was looking for a place to go, and some went into cryptos, and some into US stocks, and bonds, and some went into real estate, and some went into Swiss francs, which the SNB then created, and sold for dollars and euros, and then used the proceeds to buy US stocks and other assets with.
There’s other crazy stuff that came out of the money-printing and interest rate repression era. And all of them are now coming apart, some slowly like the racket by the Swiss National Bank, and some more rapidly, and some have already imploded like a thousand US stocks and a gazillion cryptos and crypto companies.
These 13 years of free money have turned out to be very costly afterwards, as we can now see. But on the positive side, this process provides a much-needed clean-up of the mind-boggling messes created by free money.
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> Crypto was one of the places where liquidity from money-printing went to
… which would be disinflationary, right? Or just a wealth transfer to crypto promoters?
Crypto will disappear when the grid goes down.
Everything goes if the grid goes.
You going to wheelbarrow around your Gold and Silver making deals?
Better carry some lead with that gold and silver.
It doesn’t take that much of either to buy what most people actually need. The bigger problem is that it’s not practical to get change for gold.
I saw that in a Humphrey Bogart movie.
Gold has traditionally been used as a store of wealth and silver for every day transactions. This was true for many centuries. Then the age of fiat financial engineering started and it’s been downhill ever since.
Silver will buy the potatoes.
Gold will buy the farm.
“You going to wheelbarrow around your Gold and Silver making deals?”
I normally don’t like to laugh out loud so hard before falling asleep. Is math that hard for you? At today’s gold price, a pound of gold is almost $30,000. Last I checked, you didn’t need a wheelbarrow to carry around a pound of anything. Do you use your wheelbarrow to carry your pound of bacon from your car to your house? C’mon, man, do some math.
So, if folks know you are carrying gold, how are you going to juggle your defensive weapons and get a micro-sliver of your assayed to buy something? That scenario is like a silly childish cartoon. It is a gold-bug’s silly unworkable fantasy.
This is a problem solved in Medieval times at the latest, by that awful innovation: paper representations of value. So, SOME paper or digital proxy will be used. Which is what the world already does every day in lieu of carting gold around.
I have a generator so I will be fine for about 20 days based on my fuel supply.
Depth charge for the win, sew some gold in shoes or jacket, I know of 2 folks who escaped communist rule by doing just that, Poland and Vietnam
People still do not understand that the problem is the overpopulation and excess labor. If every citizen was propertied, self sufficient in their small community there would be no need for a grid, or greed. If we’re lucky we’re going back about 2 centuries, if not, maybe millenia.
You should buy some more bitcoin and a few NFT tokens. Take out a 2nd mortgage on the house.
It seems simple really. If gold wasn’t important then why do so many central banks and governments own it
Buy one of Trump’s NFT tokens. They are being sold out. Price is going through the roof. You can’t get hurt.
“For those who don’t own Gold know nothing about history or economics” ~ Ray Dalio
As cryptos and real estate jumped crazy high, many stupid+greedy agents picked up assets (cryptos and houses) to gain from this jump. These were not only the big ones like Zillow and FTX, but many small ones also.
Their commissions business would have earned money irrespective of what happened to markets (Remember Fugazi in wolf of wallstreet). But their greed effed them into taking leveraged positions that will now yield devastating losses.
That is why all these agents (including wallstreet) are now crying for Fed Pivot. Sticking to commissions principles would have isolated them from market crashes and they only needed to maintain healthy trade volumes that are easy in free markets.
Instead now we are seeing real estate freeze up as idiots have taken sides.
It seemed such a long wait to see good sense and fundamentals reasserted. (Time seemed distorted since the pandemic hit.) Meanwhile there was mocking from these supposedly more swift and nimble characters.
Now all these little castles of sand are collapsing as rapidly as they arose: SPACs, crypto, fake disruptors, Cathie Wood, etc.
The “poor” Federal Reserve banksters kept interest rates low from 2000 until the subprime crisis and so sold millions on adjustable rate mortgage, subprime loans that got defaulted on in 2007-2008 when the Fed Funds interest rate went to a still low 5%. The increased mortgage payments were unpayable by poorer and middle class, Americans who bought mini mansions.
That started the YEARS of even lower interest rates. Look at the Fed Funds rate history and recessions. It is available even on Wikipedia’s page on sub prime crisis.
Imagine if Econ 101 and 102 (Micro and Macro) were Flying Lessons. Would you get in a plane with Greenspan, Bernanke, Yellen or our current Pilot?
MMT cheerleader in the cockpit: “Physics is just a social construct.”
This guy in Switzerland, Daniel Bernoulli, published ‘Hydrodynamica’ in 1738. It explains how an aircraft’s wings generate upward lift.
My Regional Fed President has a B.S & M.S. in mechanical engineering. I’d trust him. The others? Not so much.
Angle of attack is literally all there is to flight. Bernoulli is just fine tuning.
And as far as the condition of the aircraft or the pilot goes, our favorite saying was, “After you get to 2000 ft, it just makes a good story”.
All crypto is a PONZI scheme…
All fiat currency will eventually return to its intrinsic value…which is Nothing!
But…gold backed Fiat currency is the “flavor of the day”, and holds the world’s attention…
Perhaps the creation of gold backed Crypto would be the solution to not having to do deals directly in Precious Metal?
And probably also why we will never see it used…since government criminals will never give up control without a fight.
Our trendlines indicate that
Morty Mc Mort, may be the first to comment!
Further, a pie chart, entirely created in Morty’s head
Demonstrates that Morty was right 98.7% of the time
During the last year!!
Morty McMort would like to thank
Wolfstreet
(Although he does still miss Testosterone Pit)
Sad,,,
Merry Christmas One and All.
Merry Christmas to everyone!
Merry Christmas!
Happy Merry Christmas Wolf, have enjoyed your insights and mostly spot on analysis since subscribing.
World Sovereign Debt Crises will lead to:…..? And when?
Wolf: It is very rare to find a resource that is both so valuable and so entertaining. Thank you so much, and Merry Christmas!
Merry Christmas Wolf.
Merry Christmas Wolf!
Please consider the labour force participation rate, or the employment-population ratio: the charts peaked and rolled over with Y2K.
Grey is the new black; baby boomers have mostly retired. Hence, they have become consumers of goods and services, but they are not engaged in the production of goods or delivery of services. So, at both ends, supply and demand, they are generating inflation. So far, they’re OK; they’re spending the retained earnings of the post war economic boom, and their net worth has been goosed by the stock market and real estate booms courtesy of Central Bankers.
The trouble is, central banks cannot print human capital. Look at the number of professions where the average age is over 65. From farmers to accountants, mechanics to nurses—bee keepers!—
labour shortages will be a fact of life until the last baby boomer dies. Then the economy will reset (ouch) and a new economic era begins; one in which the West will have a much smaller share of the global pie. (note: Sam Zell said he’s been selling his real estate holdings for 10 years. Not a bad idea.)
Merry Christmas to you!
Merry Christmas!🎄
Merry Christmas, Wolf!
Merry Christmas!
You are amazing, and I hope you and your family got to enjoy time together. You have made a profound difference in my life by helping me (barely) understand the stories behind business, finance, and money.
Your work is original, insightful, and cogent. Your prose is snappy and enviably well written. I eagerly look forward to it. Thank you.
Merry Christmas and happy new year!
Merry Christmas, Wolf, though I’m a little late.
Merry Christmas, and thank you for all the work you do!
Merry Marry Christmas Wolf. As a fellow sail enthusiasts I hope you find time to cruise the Bay soon.
Merry Christmas!
In a small town in NW GA, I got quote to replace my dad’s AC & furnace. I started out with the prices of the Goodman equipment that I wanted from acwholesaler.com. Basically, they tool the equipment cost, $6250, and doubled it. The time to do the work is at most 6 hours, since the equipment is easily accessible, no attic. So basically, this company wants $1,000 per hour in labor to do the job which would take two guys making MAYBE $20-25 per hour.
As Wolf notes, there’s still tremendous inflationary pressures in services and, based on this eye-popping experience, doesn’t appear to be slowing down at all.
Increasingly, it looks like the only cure is at least a moderate recession of 5-6% unemployment for 18-24 months. Housing as to drop 30% to restore a reasonable level of affordability.
And Wolf may be correct in drawing a connection to the 10 years in the late 1970’s – 80’s to reign all this excess in.
can’t wait til next week when NEW REGULATIONS come in for HVAC
gonna make every 30-50% higher
MANDATED – they can’t install ole units
glad I bought 4 units about year ago
A Goodman? Every AC guy I talked to told me the same joke, “A Goodman? It’s no good, man.”
Like realtors, your AC guy is not necessarily telling you the truth.
Installed Goodman units for years. No more problems than with Trane or other manufacturers.
Agreed. More critical is quality of tech installer. Proper evacuation, using N2 in purge while brazing, accuracy of charge. Also add filter drier, lp, hp switches, over current protection if these are not already installed. Go to YouTube and review ac installs and learn before you buy and then supervise install. IOW become knowledgable buyer, not vegetable.
Lastly don’t fall for shysters who prey in peak of season, esp ac time. Run capacitor on compressor goes out ( common ), but you hear compressor won’t run, need all new unit, but we can do it tomorrow to keep you cool. Oh and big bucks. Vegetable says yes and spends alot of money, where as new capacitor is $15 part. Buyer be aware
Same on wells. Capacitor blows, shyster charges 5k dollars to rewire and install a new pump using an auto crane on a work truck to make a big show.
Meanwhile a 40 dollar capacitor could have been soldered in for 15 minutes of your time.
People are paying whatever it takes to get the job done. Here is northern Florida where we winter in an RV, fix-it tradesmen are charging $125/hr to do pretty much anything. A neighbor had plank flooring installed, with materials about $800, and the installer charged two days of labor at $125/hr. I feel sorry for those people who barely get by changing a light bulb. In the future they will be toast.
My dad who is 93 just repaired a water leak under his house including cutting out copper pipe and soldering in a new pipe. He saw the leak when he was under his house rewiring an electric circuit.
The next day we put new light assemblies in my 19 year old car. Probably everything together would have been around $2000 for labor.
My experience is the high prices contractors charged during the last 2008 housing bubble stayed around with little discount after the housing bubble popped. You may not save anything waiting on this housing bubble to pop?
Jay
One of the problems with Government/the Fed reckless money printing, profligate spending is the death of Price Discovery. My experience in the 1970’s and early 80’s (and for what has happened the past 2 years) is that too many sellers start to pick random, ridiculous prices out of their rear ends.
Their asking prices are absurd, with no reference to cost.
So “take it or leave it” for you has to be “leave it”. Unless you have an emergency on your hands, you will survive waiting, your supplier will not.
In the manufacturing business I am in, prices dropped (they were absurdly high) 40% in less than 30 days when demand stopped.
In 1974 when I sold Cat equipment, the factory order file on key items dropped from over 1 year lead time to 1 millisecond in less than a month.
Agreed. I had done a search for HVAC in Cedartown GA at some point. Several days later, I opened up Google Maps, hadn’t done a new search yet, and the lone company shown on the Cedartown city map was the company that came out to give me a quote. So they’re paying Google some decent advertising coin to get this kind of placement. That’s an indicator of how much EXTRA money they’re making.
1) Go to hell NYC, the most expensive city in the world, producing
market makers, bankers and media hatred.
2) NYC population shrank 20% since the sixties, because the cost of distance is down.
3) The top 10% of the income, consuming expensive food, housing, private
jets, are moving elsewhere. The middle class, consuming yoga, is down, but men and women in their sixties, producing a family tree with 70/100 branches, is growing.
4) They consume housing support, food stamps, ER, medical centers… making doctors, pharma, Kosher Hershey and Pepsi wealthier.
5) Those who flipped hamburgers in the south produce Boeing, BMW
guided missiles and LNG trading their goods all over the world, earning higher wages, with automation, making the dollar strong.
NYC population currently 8.5mil. 1960s averaged 6mil population.
Over 60 yrs lots of people made lots of babies.
NYC is too crowded, no one wants to live there anymore.
Yogi Berra: Nobody goes there anymore. It’s too crowded.
…remember the lead-in voiceover of: “…there are eight million stories in the naked city, this is one of them…” from ‘The Naked City’ NYC detective tv series of the early ’60’s. (…and how did they know how we would be swimming way back then???).
may we all find a better day.
“I jumped across the ocean
Found a Big Apple
So I took a bite
She teased me with a taste
Laid my soul to waste
Stabbed me in the back
Hell’s kitchen is a crazy place
I’m never coming back, no no no”
-Ian Astbury & The Cult, ‘New York City’
The South? Only very small parts of the South are experiencing prosperity. Most of it is depopulated hollowed out shells of a former civilization. You can travel all over the South on the back roads and see people with nothing to do living in Third World poverty.
Such ignorance. This is not emblematic of the South, but of rural America in general, whose civilization has been destroyed by government policies.
The fastest growing areas are in the Sun Belt.
The deep south is still poor. Especially the rural deep south.
But that is the “small part” of the south now. Florida is ascendant, growing faster than any state. Atlanta, Nashville, Charlotte, and the Research Triangle of NC are among the fastest growing areas of the country, highly educated, and they are growing in wealth faster than the Northeast, which is in decline both in population and wealth. Not to mention TX, Austin and the suburbs of Dallas and Houston. These are the new lands of opportunity, along with the urban interior West. I’m not a southerner and have no interest in living there, but your notion of most of the south being poverty stricken applies to a small number of states in and around the Mississippi Delta, not the “new south”.
And some of the poorest communities in the country are now in the less favored parts of our wealthiest states, such as rural upstate NY, parts of urban Connecticut, the Central Valley in CA, and downstate IL. I have spent time in all of these places off the beaten track, and they aren’t that different from the rural deep south, except in racial composition.
For those few who still care about facts here are the facts:
North Carolina is #38 in per capita income and #25 in percentage of adults with a college degree.
Tennessee is #36 in per capita income and #39 in percentage of adults with a college degree.
Georgia is #35 in per capita income and #24 in percentage of adults with a college degree.
Texas is #23 in per capita income and #28 in percentage of adults with a college degree.
The states which have the highest per capita incomes and most education are the states that those with a conservative political ax to grind hate the most. The South is a poorly educated low income region with urban pockets that are well off.
Nobody in the South wants to waste tax dollars on education.
Escierto
Quality of life. Cost of housing. Recreational choices. So forth as people look for alternatives to live their life, versus just make more dollars ( per capita ).
As manufacturing reshores, where is it being located, hint, not LA or CA, or NY or Detroit, etc.. Medium size towns in the south, eg. Knoxville. Population growth 40% over last 5 years with fairly low cost of living, ample jobs of all kinds and wide range of housing.
Friend in Elizabethton, ( about 8000 pop ) far eastern TN. Works at valve manuf plant, product is so in demand they sell world wide. She sets and runs NC machine for milling. Only HS degree.
The US and changing world can not simply be reduced to some statistics, as you have quoted and hence draw conclusions from.
Everything is cyclical. Texas and Florida will continue to get hotter and be hit by worse storms. People with means will have to get out of dodge in the brutal summers, so they’ll look North again. Especially for vacation homes. Adirondacks, Northern Michigan, Wisconsin, etc. lakefront is the place to invest…
Even Alabama has nice, growing areas. People just like to generalize. Ohio, PA, and NY have a bunch of craphole rural towns too. I’d rather be in Florida than NY, but I’m glad not everybody has that same opinion.
E, those “urban pockets that are well off” are a significant population. There are individual counties in Florida that have more population than a handful of entire states.
@ Escierto
You said “3rd world poverty”.
The numbers you provided show state level mid to lower US level per Capita incomes and education. Without adjustment for much lower cost of living.
Take a more careful look at the cities I mentioned.
The data I cite below are 2019 Per Capita income adjusted for local cost of living per US Census from Wikipedia. So they are “facts”.
The Nashville MSA is the 6th wealthiest large Metro in the US, ahead of NYC, DC, LA, and Chicago, behind only SF, San Jose, Boston, Seattle, and Denver.
Austin is 12th. The other cities I mentioned are in the 20s and 30s, Atlanta being the poorest at 38th.
All but Atlanta are wealthier than LA, San Diego, and Portland.
You can say what you like about what these places are like to live, but people are voting with their feet by the 100s of thousands. A person with average income lives a far better life in any of these cities than NYC or LA. That’s why they are moving even though the weather and culture and politics may not be to their liking.
It’s very true that the wealthiest and best educated cities are “blue”. No one disputes that. That’s not the point of my discussion.
My point is that your picture of the south is outdated. Facts are facts. Nashville is a better place to build wealth than any large city in the northeast except Boston. This is a backwoods town that was known for country music and not much else just 30 years ago. It beats cities that have massive natural advantages including our nation’s capitol, the financial capitol of the world (NYC), and the entertainment capitol of the world (LA). If someone had suggested 30 years ago that Nashville would be a wealth capitol, they would have been laughed out of the room. Things are changing and the south is the future.
South: Highest obesity rates; lowest educational levels; urban areas = Blue; rural areas = Red.
Facts are disturbing to the right wingers but not disruptive. Denial is in full bloom, even during the winter, so the beat goes on.
Yes, it really grinds their gears to think that Massachusetts tops the charts when it comes to income levels, educational levels and overall quality of life. The southern states they tout are miserable hell holes with high crime, poverty and low educational attainment. I have lived in some of these places!
All those PHD’s are centered around those ghettos and barrios.
Facts are disturbing. Decades ago HP founders were concerned with the state of CA, especially what appeared to be the widening gap between the have and have nots. They funded a think tank to study all things Californian. The Public Policy Institute of CA was born. It is considered the gold standard of CA non partisan think tanks. They calculate that when the actual cost of living is considered 33% of Golden Staters live in poverty or just slightly better. It is the largest group, by both percentage and numbers, of impoverished people ever assembled in the US.
Yes, Rhonda, how disturbing those “facts” can be.
So I checked the “info@statisticsanddata.org” website which shows the percentage of poverty by state, from 1980 – 2019. And they show the following order from worst to best: 1) Mississippi (has remained the highest in poverty since the inception date of 1980); 2) Louisiana; 3) New Mexico; 4) So. Carolina; 5) Arkansas; 6) W. Virginia; 7) Kentucky; 8) Tenn.; 9) Alabama…
Info@Statisticsanddata.org, could be a front for a sex-trafficking operation for all I know. Your statement about the Public Policy Institute didn’t have a date. Was it a recent study? Do you know why California has a lot of poor people?? Do you think it might have something to do with the illegal immigration that was started in earnest in the ’60s when large (massive) land/farm corporations discontinued the “Bracero” (guest worker program) because it was expensive for those employers and just opened the borders for nearly free labor with no corp. accountability, housing, medical care… That’s what’s still going on on the hog farms, chicken farms and slaughter houses throughout the South.
Hope you enjoyed your Chick Filet today or a juicy Big Mac.
Rhonda, I happen to like the South, live here, and like the courtesy and civility that most people show. What I don’t like are the people who romanticize the scene, contrasting wicked city dwellers vs. sweet and so very innocent, God-fearin’ country folk; the city mouse and the country mouse – that myth/fairy tale is complete bullshot!
Those simplistic dichotomies work well for the ninnies. Maybe I’m writing this to a ninny.
How – a small addition to your well-measured response to Ronda.
Before throwing a rock at California (or ANYWHERE), especially in terms of gross numbers of anything, do the sums vs. land area, and most important, population and economic opportunity, and lay that template over your slice of heaven first, then ask yourself how well you would handle the enormous difficulties of maintaining an effective civil government and general welfare (the better the second is generally aids the first) faced with the same numbers…
(i’m the son on my mother’s side of a large band of Arkies, Okies, Tennesseans & Kentuckians who departed for the west from the ’30’s forward, and I remember my elders’ many tales of privation and why they left. Then, as now, migration follows opportunity, and areas of opportunity are never static).
Best to all, and
may we all find a better day.
I don’t see anyone denying this. I don’t live in the south and have no desire to (my home is in metro Denver).
But I do see literally 100s of thousands of people moving from NY, IL, and CA to these states. If all you have is “people in the south are fat and dumb”, you are the person in denial.
@ HowNow
Official poverty rates do not account for income related to government transfer payments or local cost of living. They are therefore very inaccurate.
The Census Bureau does a “supplemental poverty measure” which includes government transfer payments (SSDI, Welfare, Social Security, etc), and also accounts for local cost of living.
By this measure in 2021, the most recent available data, CA has the highest poverty rate in the country, at just above 15% of the population.
Again, just stating facts here. There are a lot of uninformed opinions and people using inaccurate measures. CA has the highest percentage of poverty with the best Census measure.
“If it weren’t for energy and healthcare, the S&P 500 index would look a lot bloodier.”
Nice tidbit there.
There are many other hidden costs to the society due to money printing and interest rate suppression.
– Labor became worthless while financializaton became the norm. Many workers realized that they could not survive earning living wages while inflation is at 7% or more, so they turned to speculation and dropped out of goods producing industries. This has created all sorts of distortions in the economy.
– By 2030, about 40 percent of American women will be childless and single. Many men cannot afford women any more and are dropping out of dating and marriage. This will hugely impact housing and the economy. Japan reached this point earlier because they pursued the same policies as the Federal Reserve.
– The interest rate suppression and the money printing has encouraged other nations to diversify from the dollar, which will have massive implications for the empire.
“The best way to destroy the capitalist system is to debauch the currency.”
Vladimir Lenin
So how seriously should we take Lenin? The Soviet Union collapsed in utter failure and Lenin is dead.
If supply and demand apply to labor too, less children should over timer make it better paid to work…
Sams – way to pick up that 7 – 10 split!
may we all find a better day.
The shift by the Japanese as the marginal buyers of debt will possibly in the future be regarded as the turning point of debt yields, because the governments of the world are now starting to compete for funds.
Are the funds even there?
Clearly the very worst store of value is money. Are we going into a decade+ of rising yields? I think so.
(Merry Christmas…bah… I only want confirmation that the sky is in fact falling upon my own head.)
The funds are always there…because the G prints with one hand, to sorta pay the endless deficit spending of the other hand.
(Actually just the interest. So far.)
It is history’s most moronic and suicidal game of two card Monte…the conversion of government debt (to buy off the most needed factions, up to and including “bodyguards” for the political class) into inflation imposed on all 330 million benighted USD holders.
But at least the lobotomized hirelings of MMT can declare, “The US can never go bankrupt!!”
There are far more than 330 million benighted USD holders. The USD is used in many Third World countries as a de facto currency along with that country’s fiat. One half of the US currency in circulation is being used in foreign countries.
Very right you are…I just tend to think of US citizens as the most ripped off – since we are essentially compelled to hold debauchable USD by “our” government.
In a very real way, you can see why political classes tend to prefer having the maximum number of “citizens” – it creates the broadest possible pool of exploitable labor for easily dilutable currency.
This is the second order way that governments get people to do their bidding…they bribe them.
First order – Get people to believe them.
Second order – Bribe them.
Third order – Threaten them.
Fourth order – Shoot them.
Oh, it’s One Card Monte, but you don’t get to pick the card.
Yeah, my analogy was poor.
It might be closer to the G playing pocket pool with itself, using alternating hands.
Visited my grandson in DC today and got a $250 ticket for parking in the wrong place at the wrong time. They put the sign so high you couldn’t see it or read it. They are taking a page out of Mayor Koch in NYC who did the same thing in Times Square to raise some revenues. Ms Swamp and I both missed the sign.
I’ve got no choice but to pay the ticket.
Merry Christmas Everyone
“I’ve got no choice but to pay the ticket.”
Sounds like a case of discrimination against short people. Try calling this number and if they cant help you their legal counsel may be able to assist:
National Headquarters
Little People of America, Inc.
617 Broadway #518
Sonoma, CA 95476
Toll-free: (888) LPA-2001
In Chicago they would tow your vehicle and charge 4 times that to get it back (damaged).
Ted – cue the late, great, Steve Goodman’s ‘Lincoln Park Pirates’…
may we all find a better day.
100% true.
Same thing happened to me in Worcester Mass a couple decades ago. The ‘no parking’ sign was on the side of a building up twenty feet so didn’t see it. I guess the locals are aware of the trick, leaving out-of-towners to pay the freight. In my case the fine was $50, which at the time was a lot of cabbage.
SNB is crazy like a fox: you want francs? Sure, we’ll print them fresh for you out of thin air in exchange for dollars that we’ll buy equities with and then sell at a profit with a zero cost basis since they were all bought with newly printed francs. Oh, you want to keep the francs in our banks? No problem, but we’ll charge you for the service (negative interest rates). Gotta admire SNB’s pragmatic approach to profiting from all the stupidity.
A heck of a trade, wasn’t it? If folks throwing money out in the street (like Eugene Fama’s imaginary $100 bill laying out on the sidewalk), why not grab it? If not, someone else will eat that lunch. There’s no fraud or theft involved. As Wolf observed, it is an index of the madness.
WSJ today says SPACS are closing at the rate of 4 per day, similar to their rate of spawning at their peak: inverse madness. Opportunists and suckers find themselves skating on strips of hot bacon.
They were stupid to buy equities. Even if they intend to sell all the FX assets they bought, they can’t fully drain the CHF they created because of the losses.
Instead of doing what they did, they should have implemented exchange controls to prevent foreigners from buying CHF for speculation. I presume they didn’t because of the financial sector.
Someone is going to pay for that mistake.
The valuations were cheaper in the summer of 1929. I could never fathom it either why they bought U.S. stocks when they could have just played the two currencies against either other.
Excchange controls that is China. Only China do get away with that.
Among other countries it is a no no, that will bring down the wrath of all central banks.
(Well, Island actually got away with it too, probably because they are that small that it did not make any impact.)
Good thinking Ben! – What people do not seem to think about is the fact that if SNB had not done this, the Swissy would have gone through the roof and our economy down the drain.
Thus, with all the crazyness in this world, the SNB was rather smart in doing this.
It should not be forgotten, that all this was done in agreement with the FED and ECB. The execution was mainly given to Blackrock and its Aladin.
That’s why the SNB should have implemented FX controls to prevent foreigners from speculating in the currency. No foreigner has a right to buy another country’s currency for speculation.
It was stupid but you seem to think it was smart because the consequences to the Swiss economy aren’t evident yet.
The SNB has done that in the 70ties and it did not produce the expected results.
With the new policy, they printed Swiss FRANCS which were changed immeditely into USD and EUR and consequently, we did not have massive QE’s here. Once all the foreign positions have been unwound, the SNB can destroy the received Swiss Francs without overheating the Swiss economy.
The real question is now, whether they can unwind their foreign positions without making a huge loss.
By the way, SNB has during the whole operation put the majority of the profits aside in order to have a certain cushion.
Last but not least, we have a positive balance of commerce. The inflation is at 3 pct and the SNB interest rate is at 1%. The mortgage rate for 10 years is at 2.2%. The debt of the federal gov is at 35%.
Swissy, if the SNB anyway will destroy those recieved Swiss Franc, do a “loss” on unwinding their foreign positions really matter?
They created Swiss Francs to keep the exchange rate stable, they destroy Swiss Francs to keep the exchange rate stable.
The SNB “printed” Swiss Francs from thin air, losing them or not is just book keeping.
From nothing, to nothing, nothing lost😉
Happy Merry Christmas, have enjoyed your insights and analysis for a while now.
Remember and revisit F. A. Hayek “The Road to Serfdom”, still a timeless classic.
1. I never imagined that on Christmas day, I will be writing comments on wolfstreet. Money never sleeps. Cops or strippers.
2. Happy Christmas to everyone.
3. Wyoming has a state surplus and no taxes. Their population did not increased a lot. I wonder why.
4. By 2030 most women will be singe and childless not because of Fed rates but feminism.
5. Please thank our congressmen for voting against the minimum wages because it may cause inflation
6. I am older than the internet as we know it. I can see your fake names a mile away.
> By 2030 most women will be singe and childless not because of Fed rates but feminism.
So, rather than doing in-home service (food prep, cleaning clothes, child care) they can fuel up the new car, commute on a nice freeway and get a wage to do same? Meanwhile, in tandem, men in that labor market lack the pull to be breadwinners. So a whole social class is priced out of reproduction?
I might have been pioneering in that. 40 years ago I decided it just didn’t pencil out, with any modicum of authentic personal freedom, time, initiative and wealth left over. I opted out. I will pay for it, when old, but voluntarily.
“I opted out. I will pay for it, when old, but voluntarily.”
I again attribute this to money printing and the materialistic society that the Fed and its beneficiaries (social media) have created.
This is indeed the problem: men “opting out” rather than giving up. Many counselors do not understand that men are opting out of relationships due to financial pressures and unreasonable expectations for creating a perfect life for their significant other. The book “Men on strike” clearly explains this phenomenon (written by a woman). 91% of the time on dating apps women reject men!
50% of the time you end up in divorce court, with 2/3 of the time the woman initiating it. The other 50% have far too many problems while staying together.
Anyway, let’s be in a good mood: Merry Christmas everyone.
Yeah, Merry Christmas, John and Cobalt.
So, rather than let feminism run amuck, would you suggest that women be remanded to a barracks where they can be bound and gagged (stop that incessant complaining) and impregnated? You know, help the retired males with their social security receipts by producing more wage slaves?
Gosh and gollies, it’s the fault of feminism that we’re struggling with low birth rates.
And if you notice any problems in the economy, any problems at all, it must certainly be the fault of the Federal Reserve. You’re so right that they’re the cause of “materialism” in American society. And probably the reduction of faith in religion. The Fed should be shuttered.
But thanks for wishing (some of us) a Merry Christmas. And please author some books on how to think. You know, on big picture thinking.
“Doctor, you mentioned the ratio of ten women to each man Now, wouldn’t that necessitate the abandonment of the so-called monogamous sexual relationship, I mean, as far as men were concerned?”
“Regrettably, yes. But it is, you know a sacrifice required for the future of the human race. I hasten to add that since each man will have to do prodigious… service along those lines, the women will have to be selected for their sexual characteristics which will have to be of a highly stimulating nature.”
“I must confess, you have an astonishingly good idea there, Doctor.”
Dr. Strangelove, I presume?
At least you are smart enough to recognize that your anti-natalism is going to have some serious prices attached to it in retirement. It seems like most of the childfree crowd hasn’t bothered to think that far ahead.
Look at how expensive elder care services are right now, when there is still some sort of numerical parity between the retiring boomers and their millenial children. 25 years from now, when the millenials start to retire, the age demographics are going to make it rough for anyone who isn’t quite wealthy.
Well I for one will chose to exercise my 2nd amendment rights when I’m old and feeble and still a staunch anti natalist. Hopefully guns that shoot one bullet will still be legal by then.
All this boo-hooing about single men and childless women trip me out. If there is one thing humans won’t ever stop doing, it is sex. And that leads to pregnancy. Population might shrink and there will be issues with it, but society won’t collapse. Besides in 50 years Zuckerberg’s meta bots will clean up my incontinence for a monthly subscription fee. I’ll be immersed in the digi-land and wont even know I’m rotting in my own filth.
Sheesh, you’d think Armageddon was in 20 minutes with a lot of this nonsense. Don’t be late! They’ll run out of torches and or pitchforks!
Simple problem solved by immigration. Right wing cuts off its nose to spite it’s face.
I have been trying to move to Wyoming for 2 years but my wife isn’t let me… something about cold and other kids for our daughters to play with.
Have you ever been to Wyoming? Live there for a year and then tell us about it. As for women and feminism, I like women with freedom and I have had no trouble finding women for short and long term relationships. I have seven children so they didn’t mind procreation in spite of being feminists!
Are you sure they’re all yours?
I mean some people are just gullible and beleive anything.
Count me gullible too because I believe I fell for that crazy rule about I-before-E, even if I throw dashes out like the giver-nment tossing pearls to rich swine.
Simpin’ is why you’re still single.
There is also a big rise in single mothers, so some men have to be contributing to that. Its not just Elon and Earl Simmons creating baby mommas.
Can’t be that hard to run a surplus when someone else is paying your bills, Wyoming in 2nd place for federal handouts:
https://taxfoundation.org/state-federal-aid-reliance-2020/
Been that way for some time:
https://www.gillettenewsrecord.com/news/wyoming/article_e9b925fc-8518-5326-a4db-bf5c01d67933.html
I hear the Taliban has an effective approach to combatting that evil feminism, works wonders for their economy. Just imagine the boom in textiles stonks.
May we all find a better day.
“ and all this other stuff.”
Nice touch Sir!
And to exacerbate inflation further, the omnibus bill being passed right now mandates 3% of income 401(k) saving by default applied to any business having 10 or more employees. That is a huge amount of inflow to the markets created out of nowhere, instantly.
Employees can opt out. There is nothing forcing them to put money in a 401k.
Yes, it is set up to put more money in the stock market.
Nah. What the bill changed: employees used to have to opt in. From now on, they’re opted in automatically and they will have to opt out if they don’t want it. People who have to spend every dime to make ends meet will opt out. It’s the same people that didn’t opt in — really because they can’t. Most everyone else already opted in.
I’m glad that when I was more young and foolish, I was automatically enrolled in a retirement plan. It may be a lifesaver.
Conscription can present one of the greatest dangers to a republic based in “voluntary service” where it’s your choice to risk death for the “better cause”. As you extend that drill to more facets of life you run the risk of total destruction of that republic. Cloaking it in the robes of Democracy where “most everyone else” has gone along is one step away from the proverbial hanging party where your fate is already sealed. “Oh, sorry. The smartphone app window for disenrollment closed while you were busy shoveling horseshit over in the rich landlord’s stable. Try again next year while standing in the line run by the Soup Nazi.” Stench has a way of creeping up one vapor at a time. But that’s okay if 8 out of ten New Yokers think the city smells vundervall.
Good time to be an American in times such as these, inflation and all this happening is just repeated history again and again.
“ But on the positive side, this process provides a much-needed clean-up of the mind-boggling messes created by free money.”
Or snicker snicker the kings and their money changers have no clothes.
Ps it ain’t worth analyzing anymore.
I just got an Email from Lake County Illinois asking everyone to reduce electricity usage to prevent a rolling blackout (its 12 degrees outside and dropping). So much for Wolf’s EV utopia.
You whale oil merchants are going to resist the future to the bitter end! A long time ago I learned that life was better and more rewarding if you embraced the future instead of resisting it.
Ted T,
Switch on your brain? Think, dude!
1. You plug in your EV in the middle of the night when there is a large amount of excess capacity, even now, DUH!
2. Since you don’t drive 300 miles every day, you only top off your vehicle a little every night, which doesn’t take a lot of juice.
3. If you want to conserve some juice, well, then you don’t top if off for a few nights in a row, DUH.
These dumb drive-by comments are getting cold. Don’t people think anymore at all? Just post whatever nonsense comes to mind?
Maybe you should switch on your brain. Like in the winter when the temp gets colder at night and people are at home. Of course what should we expect from someone who lives in California.
Tony,
Look at the frigging electricity consumption data by the hour. The internet is a great thing, you can find stuff on it if you just try, instead of posting garbage.
So electricity demand data by the Midcontinent Independent System Operator, which covers that region, for December 22-25:
The lowest electricity demand was between midnight and 7 am, with the low point at 3 am.
Demand goes along a wave shape. From the LOWEST POINT in demand at 3 am, then an increase until 10 am, then a drop off until 3pm, then an increase until 7pm, and then a sharp drop-off until 3 am.
To there is lots of idle capacity in the middle of the night, between midnight and 5 am. Just about everyone except you knows this. Ignorance is bliss, dude.
Do you ever get out of the house and see what makes America tick? It’s NOT YOU sitting on your ass at 3 am watching TV with the electric heater maxed out. It’s industrial, offices, retail, etc. Go have a look…
And BTW, lots of people heat with gas, natural gas and propane, and in New England with heating oil.
Adios.
Tony,
I think your brain is frozen just like other heat pump, electric heating systems.
However, our! California will not see the severe cold like North-east, but the electric heat pump heaters will work in Cali better that other colder areas, the out door coil will be frozen and can’t perform well. Solution?
Gas burning heater are the way go in the cold winters, dude. Any you will feel and think better with the gas burning heaters.
<>
Thank you, Herr Richter — for a much-needed belly laugh this evening.
Short-term gain, long-term pain. Congratulations, Chair Powell: you got your Christmas wish. 😑
Crypto 2022 = Tech Bubble 2000
The Tech Bubble 2000 (what we called it back then), made me change careers. I remember NY AG, Elio Spitzer, prosecuting corrupt Wall Street’ers.
I didn’t understand anything back then (financially, speaking), but crypto is like these pet.com stocks being pushed “to the moon”.
I digress, but the people I feel badly for are the people actually doing the “right thing”: Nurses, Teachers, Accountants, Chemists. They worked hard, went to school and the system is fvcking them.
One has to wonder if its even worth going to school anymore. We’ve created a society where the working man “is” a sucker. Sad.
You know, the WWII Generation had billionaires. But, from 1945–1980, Americans could still work their way through college and become a nurse or an accountant and live a decent life. It’s all gone.
What does America mean, anymore?
My DIL is a nurse. She is single and works 2 shits of 10 hrs to pay her mortgage and other bills. And has money left over to have fun.
Still money in health care.
My daughter is a traveling nurse. She takes a few gigs a year and pockets a very nice income. This gives her time to renovate old houses and pal around with her old father.
I’m confused. Wouldn’t your daughter in law, by definition, be non-single?
Someone has been nipping at the eggnog.
Even a widow might be called single? “Be nice. No matter where you go, there you are.” And if that is the case, I wouldn’t begrudge any parent a bit ‘o nip at eggnog, apple cider, or anything stronger once in a while. “There are things in life far worse than death.”
My wife is a nurse GREAT profession for the otherwise unencumbered. But, as a young family, half her take home goes to daycare and the work life balance is pretty terrible. If student loans ever resume we’ll net something close to $18k/yr. That’s fairly paltry especially after adding in ~1300hrs of call time on top of a 40hr work week plus scheduled late stay. When she does run out in the middle of the night for a call, more often than not her employer cuts her hours later in the week to offset OT.
She doesn’t get called too often but $3/hr to be on call means the entire family is somewhat restricted one weekend every 4wks and one night the other 3/wks. No camping, bike rides, hikes that will take her out of range, and if I want to go to Home Depot, I need to bring the kids with me, just in case the phone rings… cause… $3/hr to sit at home half-available to your family.
At the end of the day, nursing is a standard wage for excessive commitment with the (admittedly very nice) OPTION of doubling your effort and pay IF you don’t have anything else going on in your life.
Don’t get me wrong, we’re happy, do well, and will be even better off when the kids age up another decade or so. If we were in our twenties and childless I’d absolutely encourage her to pick up shifts and stack hours, just as I would (and did when I was a younger childless wage earner). However, if she had chosen the path of a homemaker, and I had been freer to focus on my career, I’m very certain I could have covered the 18k net that she brings home and MORE of the economic value of her time/effort would be retained by the family. Not the right path for us, nor am I advocating it, just saying that families may not always profit from dual income strategies and average hourly earning may not be what they seem.
Enjoy the kids. Child wearing is the most joyful time in life.
I have always felt like easy money helped give rise to Amazon’s delivery model.
Profit? Wall Street just didn’t care. Revenue growth is all that mattered in the free money environment. Everything can be rationalized away as long as stock prices continued to appreciate. Earnings, why would anyone care about such things.
If Amazon had a business soul, all was lost yesterday on Xmas eve.
In the past, the goal has always been to get all drivers off the road and home as early as possible. My DSP brought in 10 extra drivers to help make this happen, all for free as Amazon pays per route.
The owner/manager of my DSP was visibly upset as late/exhausted drivers streamed in on what has always been seen as an easy day.
2023, is likely going to be brutal as Wall Street begins to ask questions, they have long ignored. Why does Amazon, deliver so much Junk for free? Customer’s matter but absent a free money environment, profit is still the primary goal.
Point taken. I would argue tho that it was Bernanke/Yellen/Powell that flooded the world with so much cheap money that working-class stiffs have no choice but to take on two or three shifts just to pay for rent and groceries. In merrier times, they would be at home with their families, especially when large swathes of the country are colder than the surface of Mars.
And we saw what happened when some railroad workers wanted to push for more than one sick day in a calendar year: the Establishment rolled in, ran news broadcasts that made the workers seem like terrorists, and Congress rescued Warren Buffet from worrying about his fat dividend for another year.
You left out Alan Greenspan.
He’s the first one who accommodated this mania psychology starting with the 1987 Crash, then the bailouts when LTCM blew-up, and then cutting the FFR to 1% after the dot.com bubble which the FRB greatly facilitated burst.
He was no “maestro” and monetary policy under his watch was a disaster for the country.
Trudat. He’s the one that got the avalanches started. Good comment.
Greenspan 2.0 was a disaster. Greenspan 1.0 was a gold bug.
One must ask how Walmart can make money with their employees ‘shopping’ for customer pickup. Pay someone $18/hr to shop, for say an hour to put together a hundred dollar order? Even if Walmart is grossing 20% it seems like a money loosing proposition to me.
Merry Xmas yall! Thanks Wolf for the work you put into this and giving us some light into this dark financial world… your articles are part of my daily routine now.
The No.1 action Americans took in 2022 to build wealth was to Invest the stock market. What will change in 2023? Being rich is not about being wealthy, but having options. I’ve seen child prodigies at the age of 30 create a business model to extract billions of dollars out of investors, only to be arrested to go home and live with their parents as though it never happened. The Truth hurts just a little bit more every time I come too Wolf Street to read it.
> The No.1 action Americans took in 2022 to build wealth was to Invest the stock market.
I think, after November ’21 (peak of almost all financial assets), it was to disinvest from the stock market. That has only been partly undone in Q3 and 4..
> child prodigies at the age of 30 create a business model to extract billions of dollars out of investors
Respectfully, I would rephrase to:
… fake child prodigies at the age of 30 used a very old and familiar, indeed classic, fraudulent scheme to entice billions of dollars out of gullible and greedy gambler-speculators, predictably, in an age of over-issued money and credit.
Your first sentence to my recollection comes from a survey which I read on CNBC.com in article.
I agree with you. Buying into the most historically overpriced stock market ever isn’t a viable way to build wealth. It’s the path to the poor house.
Merry Christmas to Wolf and all. Regarding shorts, it could have been done this year, and maybe next, at the same time “Not Fighting the Fed”, and for great profit. I hope you don’t get too wealthy and close down your website to cruise the world. Your website is too important. Thank you for all the great, insightful posts this year.
I am getting links to wolfstreet on google news now. My fear now for the beloved site is over-saturation. But Wolf has enough backbone and character to guide the ship.
If you are a pretty conservative investor seems like the thing to do right now is just ride the rates up in t-bills or money markets til Fed tells you they are done raising. Then figure out your next move.
Yes.
OS, I’ve learned a great deal from your posts, so thanks for sharing your wisdom.
And a (belated) Merry Xmas and a great new year to you, Wolf.
Thank you Tom. Hope you are having a wonderful Christmas.
There is no cheap asset class at current prices, not even close. Stocks, bonds, and real estate will have to fall a lot further before it will be a “value driven” buying opportunity.
Old school
Good strategy. I’m a risk adverse investor. I take sure things. Ridin the CD wave upward seems like a win, win.
I must add my Thank You to Wolf for the past year of thoughtful articles which focus on economic reality.
Oh… Happy New Year to Wolf. May it overflow with new donors. You deserve it!
I always believed that the true role of the financial industry, Wall Street, was to create bubbles which, when popped, result in real long-term value. The railroads which were overbuilt by about 10x, resulting in the bankruptcy of almost everyone; the electronics industry that spawned movie studios and radio stations that there was no demand for; dozens of aircraft companies–now down to a small handful; even the dot-com boom that gave us frauds like Global Crossing actually put real satellites into the sky and real data cables zigzagging across the oceans. Enron actually had real pipelines and a real trading business, once upon a time.
But this latest boom-bust hasn’t resulted in anything real or lasting at all, even at 99% off. Junk NFT’s. Junk crypto. Giant bubbles in residential real estate, even as commercial was getting wiped out. It’s like the investment managers and the dumb money all just decided that it wasn’t worth it to even try to build something that had a 10% chance of making it when the tide went back out, and so instead made selfie sticks, live-streaming, and a gender transition industry.
Brilliant comment. But I am seeing bits of tech that are going somewhere. Chat robots are opening quite a door, wider than just chatting. Energy, biotech, there are real advances. But I would go with your basic model here, and say this will be over-hyped and uneven before these yield serious meaningful widespread value creation. The ratio of junk to valid innovation was bad in this cycle. I somewhat credit that to over-printing.
Helpful.
That is a very interesting perspective. Perhaps the tulip bulb craze is another example that did not result in lasting value, compared to railroads, etc. In many cases, there is a real innovation, that increases wealth….other people want a piece of the action….and then you have the bubble. Since most people don’t get it on the ground floor, e.g. internet, railroads etc, waiting for the bubble to burst and then buy.
There is no guarantee of (meaningful) material progress and increased living standards for the population. It’s an article of economic faith from the last 200 years but it’s not a given.
Right. And the glaring reality is that the best of times are in the rear view mirror, with no hope of returning. The future’s so bright I gotta wear….trifocals?
KW – sounds like the operating system then is to constantly answer questions that aren’t really being asked, ‘fix’ things that aren’t truly broken, and trust whatever sticks carries things forward?
may we all find a better day.
Great end of year piece.
2023 is going to be quite an experience for all of us.
Meant constructively and most certainly not as criticism; as SPACs and Crypto fade in relevance, I would suggest some kind of tracking monitor on larger Corporations’ Market Cap by Stock Buybacks or underlying Balance Sheet health. Top 10 or 20 or whatever.
AB: That’s a very good idea. I continue to wonder where the next wealth-generating industry is going to come from.
It seems as though many of U.S.’ blue-chip former wealth generating companies, and even industries, have been asset-stripped, loaded up on debt, and not resourced (invested in) appropriate plant and equipment to generate nearly as much wealth going forward as they have in the past.
Some index that expresses this “readiness to compete” would be most helpful, especially if that metric had a stock-price aspect, like P/E associated with it.
As the bubble pops, we investors are going to need to sort through the rubble to find equities to invest in. We’re not going to keep up with inflation by buying CDs or gov’t securities.
I hope some of you experienced investors will chime in on this subject in the months to come.
My view of the local economy is a mixed bag. I have seen a slow down in housing, but nothing serious yet. Nothing like the last time.
Fuel prices are currently going down, so the consumer is getting relief there, while at the same time, gas, heat, and electrical has definitely gone up. No relief in food prices.
No real slowdown in our business other than the holiday slowdown.
Over the road drivers are feeling it, and at the same time, the local drivers are looking for places to rent, with plans to expand for the Spring. I have a fairly large backlog of demand.
I can only assume inflation will continue for some time. 2023 should be interesting.
Don’t know how you do it Wolf, but I sure appreciate the work you put in.
Local housing here in the inland northwest has went into a catatonic state. Few new listings, everything still priced way, way over value. A few dreamers late to the party are listing their isolated off grid shacks for astronomical prices. Nothing selling.
Trucking jobs in this area are getting fewer and fewer. Massive sign on bonuses being cut. I’m looking for something without the extreme manual labor. Not much. LTL carriers have stopped all hiring here.
Used vehicles still really over priced but I don’t see them moving as fast.
Local consumer crap markets I follow for what it’s worth. Seems like it’s the calm before the storm to me. But I never have had a crystal ball that worked. Need to see if I can divine the future with tarot?
I don’t have any LTL carriers, other than Amazon, and they seem to be doing OK yet. I do know that the auto carriers have slowed down. Most of them hauling between Denver, Phoenix, and Houston.
Sometimes the change is sudden. Might be what I’ll end up seeing.
The article centers around the “era of money-printing and interest-rate repression in the United States, which started in 2008” but does not describe what should have been done differently. Presumably less money should have been printed, and interest rates should have been higher? Should we have had higher taxes? Maybe government spending cuts?
With respect to the pandemic response, what should have been done differently? No economic response whatsoever on the part of the government? Just see where things land? Tell people to rely on their emergency savings?
I guess the point of the article is that the government overshot the mark with money-printing and interest-rate repression for too long, but it does not lay out an alternative universe that could have transpired. It’s not all on the government, by the way, in that people have been free to spend their money as they see fit, and we are seeing the results of “a fool and his money are soon parted.”
Stymie makes some good points.
Stymie,
The “alternative” – Fed’s FFR target above core CPI and no QE — would have meant that the economy would have been in better shape, with more resources going to labor instead of capital, and labor actually spends the money it earns; and with higher yields for savers and yield investors (such as retirees), that would then have also spent this money.
But the wealth of the very wealthy (0.1% and the 1%) wouldn’t have been pumped up exponentially as it was, and I understand that this would have been a huge problem for them, but not for the economy:
https://wolfstreet.com/2022/12/21/fed-tightening-reduces-horrendous-wealth-disparity-that-qe-and-interest-rate-repression-have-wrought-fed-data/
I am guessing the top .1% and the rest 1% probably pay hardly any taxes unless they have bad accountants.
———————————
Buffett’s wealth grew by $24.3 billion between 2014 and 2018 but he only paid $23.7 million in taxes, a rate of 0.1 percent, after reporting taxable income of $125 million, according to an article published Tuesday by ProPublica. He defended his practices while insisting that he is in favor of tax reforms in a lengthy statement to the nonprofit news outlet.
Buffet makes less than a million a year last I checked. His wealth is from the market value of the shares he owns. I don’t think he has cashed in any of those ever,but maybe a few I don’t know about.
He is in process of donating all his shares to charity I think. That’s how the rich pay no taxes. I don’t know if that is right, because a lot of charities are anything but that.
Definitely not wanting to argue, but looking back to March 2020, I don’t think the Fed had a choice in what it did. The ultimate mismanagement of trump/congressional stimulus funds is a matter worthy of theoretical interpretation.
If the pandemic had run its course for three months, without socialized government support efforts, more than likely, instead of a bubble to the upside, we would have all been destroyed by a downside anomaly (globally). I seriously doubt society as we know it today, would be functional. It’s unknown how many would have died as well as the amount of people displaced — what we have now, is a decent alternative — which continues to unfold, we go into recession.
I think we have a pretty good idea about mortality in that scenario. Probably not that many more people would have died. Lots of work continued in my field of work, healthcare, and business and manufacturing would have continued probably without that much difference, the money for most people covered a month or two.
Landlords would have written off more rent, businesses would have booked more short term losses.
There certainly would have been a deep recession.
But now we have a puffed up asset bubble and the inevitable recession won’t be any smaller. And we have inflation robbing the poor and elderly in a way it certainly wouldn’t be hard we not spent crazy Trillions.
What are the mechanics of “more resources going to labor instead of capital”? Let’s say capital expects a real return of 5% per year, and can go anywhere on the globe to get it. Somehow it can be trimmed to 4.5%, let’s say, with the 0.5% difference going to labor. I do not see how this can work, when there are 8 billion people on the planet, and only 330 million in the U.S. (~4%). Capital will just go elsewhere, right? It’s literally a click of a button to shift capital from the U.S. to ex-U.S. It also incentivizes investment in eliminating labor (or at least expensive skilled labor), via efficiency improvements and automation. If the policy shifts to make the U.S. less friendly to capital, won’t there be consequences?
This is a great comment, and needs careful attention. Wolf is absolutely right that more wealth needs to be directed toward labor; our economy can’t function without a healthy middle class.
Why all the debt and money-printing? To compensate for the fact that labor isn’t making enough to consume all the production. U.S. production is already extremely labor-efficient and getting more so all the time. Labor has been, and will continue to be systematically wrung out of the production equation.
Which leads to the question “what, then?” If labor is being automated and globalized out of the U.S. production equation, what does labor do?
My answer is “labor becomes capitalist” and designs, builds, buys and most importantly owns production capacity, so that labor (which would then actually be capitalists) gets the benefit of automation instead of being the perennial victim of it.
Well, how do you do that, Tom? How do you convert a “worker” into a capitalist?
One worker, one product, one household, one home-grown production process at a time.
“But that’ll take forever!”.
Sorry, I’m not magic. I’m pretty sure I’m right, but I can’t make it easy.
hahaha, you twisted around who is doing the “going.” I didn’t say “capital is going to..” I said “resources are going into capital.”
Meaning asset holders are taking an ever larger share of the fruits of production, while the share of labor (wages) has been shrinking — for decades. Lots of good long-term data and charts on this. Go google around some.
Doesn’t it more or less require at least a quasi-agreement or standoff – or brute force – to maintain the system of how wealth created by combined labor and capital is shared out? I’m not talking about politics here, but about the culture and society at large (in which politics plays a part). Or are there other mechanisms which better account for the division of the spoils?
If social/cultural norms are malleable – and I think they are, within limits – then they can bend. In fact, they can _be bent_ by external factors like what is most advertised, who/what gets favorable mention in the press, what parents believe in and teach their children.
Don’t want to go any further with all that. Not claiming that it explains everything. But do believe that it explains part of the picture. And if it does, then premeditated manipulation of those norms can be a quite powerful practice – and profitable for some.
I think that changes in these norms account for part of the long-term ebbs and flows in concentration of wealth seen in the US over the past two centuries. But what do I know? I’m neither economist or historian.
I know the GOSPEL – what should have been done.
Michel de Nostredame
I just finished reading a somewhat older book: “Money Changes Everything” published in 2017.
(There was a song from the 1980’s with the same name.
Since antiquity – Mesopotamia, Greece, Rome, China etc. – when governments created more money than the things it could buy the same thing happened.
It appears that Milton Friedman IS back in charge. “… inflation is always and everywhere a monetary phenomenon …”
From 1633-37 there was rampant speculation in tulip bulbs. There was even a Dutch futures market for tulips that were planted, but had not matured. The bubble popped and panic set in. People lost their retirement savings after speculating in vain.
There is risk of food inflation. Germany has lost hundreds of pig farms since 2020. U.S. drought west of the Mississippi has caused meat inflation. Many cattle were sent to the slaughterhouses due to rising feed prices and loss of pasture. Fertilizer prices rose since the invasion of Ukraine. Potash mines will expand production.
DH – I’m a broken record, here, but far too many of us are firmly convinced that breathable air comes from the sky, freshwater from a tap, and food from the grocery store…
may we all find a better day.
Potash mines will maybe not expand production. To little marktet, because the prices are to high.
They may even reduse prouduction, due to less demand due to high prices….
The “price” of easy money? Just is a bad joke on those who partake in the easy money schemes. It is akin to the “price” a drunk driver pays when he runs down a crowd of pedestrians. Yes, there is the drunk’s “price” but all by standers pay as big, or bigger price.
Useful idiots have always led societies into ruin. Why not into financial ruin?
Cities and Counties and States Flush with pandemic funds? We will know the froth is gone when the media starts reporting stories that pension funds are near collapse and that the pensioners checks are not going out…
This is just like cities in trouble, immediately blackmailing the people into higher property and other taxes with threats to fire and police funding. Not a word about cutting spending or reducing things like bus routs with no passengers such as we have here in Reno?
Remember San Bernardino, Stockton, and Vallejo? All went bankrupt last crash.
The household average wealth : the top 0.1% in a bubble, but the
rest don’t participate. The remaining 1% are $130M below. There are
not enough fools to sell to at the bubble top. The top 0.1% are stuck with what they got. They can sell to people like themselves, but nobody else. They might lose it to inflation or in a major assets correction.
Of course, stock market crashes and housing investment bubble bursts always affect the top 10% the most. Wealth inequality narrowed dramatically during the GFC. The top 10% have the money to speculate without dire pain. Since it is speculation money, they will likely not be homeless or starve.
This time is the same for the top 10% but is currently different for the working lower 50%. Low income wages are increasing while speculation equities are plummeting. The wealth gap is narrowing.
When the housing bubble curve intersects with the inflation rise curve, all will be good again. Housing should track inflation. For current homeowners who purchased to live there, this is not an issue. Well, except to their heirs who stand to inherit the house with a stepped up basis.
It is more difficult with equities. A steep plummet will destroy 401K retirement income. 10’s of millions of Boomers may find an issue with this after being told that this is the future. They may have to go back to work just as the Fed wants to stabilize wage inflation. Any 70 year old can ask: “Do you want fries with that” for $15/hour.
The transition from easy money to hard choices is always fraught with financial peril, but we wouldn’t have it any other way.
With investors you want to dump assets as soon as you see a trend change, be willing to take a little less money to protect capital. I just wonder if that is also true with central banks. They all bought up massive amount of assets during the bubble. All of them have large unrealized losses on their assets. So are they all just going to roll off the assets as they mature, thereby not taking losses? If market prices continue down and the unrealized losses get larger and larger, does there come a point where the markets begin to question the future of these entities? Can large unrealized losses lead to more oversight and less flexibility for central banks to continue the crazy policies they instigated?
And could China decide to sell Treasuries as a way to cause financial instability in the US, as part of a strategy to take over Taiwan?
We have not yet seen what will happen as home equity really starts to vanish for a large percentage of the population, who now realize that they dont have any retirement assets apart from the vanished home equity.
This seems like a debt bubble that has just barely begun to unwind.
Best real life story : ArRoW and his wife, a nurse, spending half of her income on a daycare, making $3/hr on calls…
NOT “on calls.” But when she is “on call.” Meaning, when she is “on call,” she goes about her life, taking care of her kids, shopping, whatever, and when the call comes, she has to go to work. So if she is “on call” for the weekend, say 48 hours, she makes $144 (3×48) without having to work. But when the call comes, she has to go to work and gets paid for her work.
Empires building is hard. Empires liquidation are harder and dangerous.
2 moves the Government will be making in the near future.
1) 401k balances will become part of an asset tax scheme, to tax “Wealth” (so popular among the uninformed). Like the Federal income tax, only a tiny 1% of your balance due the IRS.
2) How can the US be so cruel as to not allow such a large percentage of its population not to vote and have a say in their communities. After all this is a Representative Republic or so the argument will go.
Please post if you think these are not coming if not immanent. Also, given the existing and foreseeable Government, how and who is going to stop it?
The government right now gets the job done through income. Social Security is tax free. Start taking withdrawals from your IRA and you quickly start running up into effective tax rates that make you feel like a sucker especially when you add inflation tax on top of it.
I am 66, and began converting small amounts to Roth about 6 years ago to try to manage my income lower when RMDs kick in. My friend who his 75 didn’t plan and after her husband died her RMD is so high that her tax rate is painful. She keeps telling me to convert more than I do because I am wired to kick the tax to later.
I always smell a rat. Fed % of GDP take was at 19% plus some additional take with the inflation tax. There is always tax leakage, and adding 87,000 more agents tells me they are serious about squeezing more out of the economy.
I would be happy with a sales tax and get rid of 99% of IRS but that does not allow politicians to play their role.
Social Security is not tax free, unless your combined income is less than a set amount.
In Minnesota, Social Security is taxed at the state level for income tax. Removing this tax is a key issue in this year’s Legislative session. In one week when legislative session for 2023 kicks off, the state House, Senate and Governor will all be Democratic, but there is a big split within the DFL (Democratic-Farmer-Labor as it’s called here) party on this issue.
In the most recent statewide poll, over 80% of the people want the state’s SS tax to be removed.
Current budget surplus in Minnesota is $17 billion. The SS tax on Minnesota’s retirees brings in $500 million or so to the state each year.
Sorry, got a little off topic on that last one..
“Last time we had this kind of inflation, it took over a decade to calm it down, and interest rates went a lot lot higher than they’re today. ”
Canadian Hoomers, asset-owning Boomers, and even cryptovesting Doomers dislike this one weird trick!
Canadian realtors be like, the Bank of Canada will pivot tomorrow like day trading penny stocks.
“Perhaps the most spectacular creation of the money-printing era is crypto.”
Which is exactly why we need a United States Crypto Central Bank, another Fed.
Because the existing Fed is a party pouper, as your description of the existing Fed coming too the morning after Woodstock 1, is attempting to do a monumental CYA ( cover their asses for fumbling the ball caused by not understanding the basic fundamentals of the game)
As you claimed, fiscal spending seems to be opposing the Fed. My take, because it is misspent on the rich.
Fiscal spending is the only cure for depressions. Which are created by monetary experiments.
Fiscal spending on the median and below is probably money well spent.
I predict that 2023 will be a momentous year, in many ways.
In the sense of the macro economic effects of monetary policy (which was once called the business discipline science of Finance) that this blog seems to be considering. I predict that the withdrawl from the monetary moon shot that just occurred will reduce the volume of three of the four major bubbles the the Fed’s rescue caused.
The fourth bubble will be dealt with when the interest rate burden shows up on the Congressional check book.
I think that Americans should know that America has a fiscal problem called the trade deficit, currently running somewhere between 6 and 8 pct of GDP. A GDP deficit of that magnitude requires government spending to make up the difference according to the simple Keynesian equation:
GDP = cons exp + govt exp + exports – imports.
holding personal consumption and government expenditures constant, the negative 6 pct of exports minus imports, leaves only a US government deficit to support GDP.
America has ridden itself of obsolete manufacturing and is currently in heat.
The dominance of a manufacturing industry follows the most recent, commercially successful installation that rotates on a generational time scale. Like the blast furnace.
It is a complex relationship that the US government has in facilitating the rise of the CCP, the Chinese Communist Party, under Chairman Xi, who monitor the working population, inappropriately, by western standards which is the dystopian question.
Does one prefer to work and live under Xi or make so many mistakes in the US and still deserve a fresh start. I prefer the latter.
The trade deficit has to be monetized by issuing sufficient dollars for the Walmart and Apple imports to be converted to good old American dollars which can be hidden from the nasty American tax authority. What agency funds the trade deficit, the Fed.
The Fed, a private banking cartel, constitutionally acquired the power to control the growth rate of the money supply from Congress. who is specifically empowered as the only authority who can issue American money that is backed by the full faith of the US government.
The reason I bring it up is that it suggests a scenario that would explain what the hell the Federal Reserve Bank of the United States has been about. I suspect it is not a wholesome story rather like a prisoners lament.
That’s a good piece of writing right there, Mr. Wolf
We seem to have descended into the realm of commenting upon failed policies of Government, and which failed Government policies are more or less failures than others. Perhaps attention is better placed upon getting them and their hair brained policies out of businesses and out of personal lives.
There I go again, can’t seem to help myself. Comes with age I think.
The real question becomes why did the Fed insist upon expanding the monetary base at a much higher velocity compared to the underlying economic growth. It is well known that excessive monetary expansion leads to asset inflation. Something like 90% of all institutional-quality assets are owned by the mega banks, mega corps and the uber wealth, additionally the Fed is controlled by its member banks. Accordingly, asset inflation is good. However, now that inflation has become embedded and wage inflation is taking hold, wage inflation is bad and must be killed at all costs. Our overlords simply refuse to allow the peons any chance to stay even or catch up.