patrick.net

thedailypr "It SQUANDERED it on it buddies, bets friends, insiders and foreign banks."
Unfortunately some people still view the government as some sort of ally against corporate abuse when they work together often to create the abuse!
Fines paid by companies to the govt, help fund regulatory jobs and help the govt regulators write regulations that keep out smaller competitors.

0.25% interest rate rise = $1 TRILLION in extra borrowing costs

thedailypr "0.25% interest rate rise = $1 TRILLION in extra borrowing costs"
Another reason they need to keep rates low-perhaps THE reason
There are some progressive economists who take the view we should borrow MORE because rates are low!

smaulgld says

No problem if rate are rising because the economy is improving.

But it is not.

That's exactly why rates can't go much higher.

Analyzer says

Right, stock and home appreciation should be by-products of job and wage growth. I don't see any direct correlation at this point. What a waste of time for Obama to talk about fixing housing without addressing the root cause.

The whole strategy is the exact opposite: if housing rise, it will force more people to take debts, and therefore the economy will run better.

No one seriously think people should actually have revenues to buy housing. That's heresy.

heraclitusstudent "That's exactly why rates can't go much higher."

That would normally be true if the Fed were not buying massive amounts of bonds.

However, rates are being kept down because the Fed buys the massive issuance of US treasuries that funds the US government's operations and deficit.

If the Fed does not buy those bonds and there is not another buyer (s) who can/will buy what the fed is currently buying (70-90% of ALL new issuances of US treasuries), then demand for the bond drops and interest rates soar.

Keep in mind the fed has bought over $2 trillion in us treasuries in the past few years and is currently buying over $45 billion a month
When they stop rates will go higher purely because in order to attract buyers to fill the $45 billion a month gap, higher rates will have to be offered.
Right now the reason others buy US treasuries is they know the Fed will always buy them

and when rates head higher and there is an impact on the stock and real estate markets and the economy, the Fed will Untaper and buy even more than before to try and keeps rates down

And if the feds QE5 doesnt lower rates that's when the economy crashes

and that's when the Fed does an ABE and finally creates hyperinflation

smaulgld says

That would normally be true if the Fed were not buying massive amounts of bonds.

However, rates are being kept down because the Fed buys the massive issuance of US treasuries that funds the US government's operations and deficit.

If the Fed does not buy those bonds and there is not another buyer (s) who can/will buy what the fed is currently buying (70-90% of ALL new issuances of US treasuries), then demand for the bond drops and interest rates soar.

If the feds didn't buy those bonds, the economy would tank, and therefore investors would rush back into government bonds because they are safer than everything. (in particular stocks or real-estate would be a much worse place to keep money).

Or the Feds could buy much more bonds and force rates down further.

Such is the balance of the financial repression currently going on.

There is no real escape for a lot of the money involved.

A rise in rate can only happen if the participants hope the economy will work better and the Feds pulls back.

heraclittusstudent "If the feds didn't buy those bonds, the economy would tank, and therefore investors would rush back into government bonds because they are safer than everything. (in particular stocks or real-estate would be a much worse place to keep money).

Or the Feds could buy much more bonds and force rates down further. "

That MAY be true-investors may seek safety in Tbonds but it might not make sense for them to do so given they would be counting on the Fed backing them again but that is probably what the fed would do, thus rewarding those that bought bonds during the crisis!

I believe the fed will taper a bit but come back as a buyer stronger than ever because as you say there is no real escape for the money or the fed

I have tagged a lot of articles on my blog "fed exit strategy" covering this topic
http://smaulgld.com/tag/fed-exit-strategy/

If the gov is bankrupt, think about social security not paid, investors/banks losing $16 trillions, the army brought home, taxes raised, etc... Think of what would happen to the economy, to real-estate, to stocks.

It really has to be understood the extent to which if the government is bankrupt, then we are all bankrupt. There is simply no possibility for most of the current wealth to continue existing if the gov was bankrupt.

Which is why rates are low, whether the Feds are buying or not. That's a function of the risks elsewhere. In fact rates fell last time they stopped QE.

smaulgld says

Fines paid by companies to the govt, help fund regulatory jobs and help the govt regulators write regulations that keep out smaller competitors.

Those regulators are either politically appointed, handshake jobs or industry insiders.

Heraclitisstudent"It really has to be understood the extent to which if the government is bankrupt, then we are all bankrupt. There is simply no possibility for most of the current wealth to continue existing if the gov was bankrupt."

You are making some thought provoking comments!
I think you are assuming that if the government was bankrupt that it would still exist and that all its citizens would feel an attachment to the bankrupt government or that the bankrupt government could enforce itself.
More likely what happens in a govt bankrupt situation is the currency of that govt dies and is replaced. Markets continue to function without the interference of govt (called black market)

I don't believe that wealth is impossible with out government, indeed government is the mechanism to over promise to redistribute wealth in excess of the wealth that exists!

the dailypr "Those regulators are either politically appointed, handshake jobs or industry insiders."
true-they feed off each other

smaulgld says

I think you are assuming that if the government was bankrupt that it would still exist and that all its citizens would feel an attachment to the bankrupt government or that the bankrupt government could enforce itself.

No. I'm saying if you removed even just the $16 trillions of gov debt from the economy (gov defaulting on debt), right there all banks are bankrupt, most companies are too, all assets are down to a fraction of their values.

Dependencies are everywhere.

heraclitusstudent- "Dependencies are everywhere"

True but once those dependencies are broken there is no turning back-'you can't step in the same river twice'
and the beat goes on

smaulgld says

No problem if rate are rising because the economy is improving.

smaulgld says

If you own no stocks and don't have a home-where is the improvement?

The global economy is loaded with cash. There is so much cash in the world people are actually using that cash to buy Real Estate.

Just kidding, but it is a fact that we are past a too big to fail economy, and speculators would put money into long term investments, like government, mortgages, and capital improvement to get returns.

Those returns will be less, the economy will take a hit, but the United States would be stronger for it.

I think that is the Obama strategy, he will make the United States an economic power house before he leaves office, and get Democrats back in control of both Houses.

I think this is a very simple thing for the Fed to cooperate on.

We do a little taper, then a little more. The investor community will figure it out.

DavidLosh "We do a little taper, then a little more. The investor community will figure it out."

Correct Markets are always smarter than central planners

If rates go up the US ability to pay back its debt becomes a huge problem
http://patrick.net/?p=1228046

smaulgld says

Correct Markets are always smarter than central planners

No truer words were ever written.

The market will figure it out, and we will have deflation, heck we are almost there now, depending on how you read the data.

So, I don't think rising interest rates are going to be a problem.

About paying back the national debt, we are already on our way, and it will help if we stop printing more debt.

We already had the sequester, tax hike, and growth. I see foreign investors loving our bond market.

David Losh says

smaulgld says

Correct Markets are always smarter than central planners

No truer words were ever written.

The market will figure it out, and we will have deflation, heck we are almost there now, depending on how you read the data.

So, I don't think rising interest rates are going to be a problem.

About paying back the national debt, we are already on our way, and it will help if we stop printing more debt.

We already had the sequester, tax hike, and growth. I see foreign investors loving our bond market.

David-please let us have your thoughts on this thread :
http://patrick.net/?p=1228046

I looked at the thread, and there's nothing to respond to.

You already made the point that other investors may already be willing to step in.

QE is probably doing more harm than good at this point.

The conclusion I've come to is that the Fed will taper, the United States economy will become more robust, and the Democrats will look like the way to go in the upcoming elections.

Oh, and yes there will be a problem with falling commodity, asset, and equity markets, but so what? The cash will scramble to be in place as quickly as possible.

David Losh says

I looked at the thread, and there's nothing to respond to.

You already made the point that other investors may already be willing to step in.

QE is probably doing more harm than good at this point.

The conclusion I've come to is that the Fed will taper, the United States economy will become more robust, and the Democrats will look like the way to go in the upcoming elections.

Oh, and yes there will be a problem with falling commodity, asset, and equity markets, but so what? The cash will scramble to be in place as quickly as possible.

Thanks- the issue is at what price will investors step in?

why would you think the economy would be come more robust if the Fed tapers.

I think longer term that would be the case but short time I think the economy takes a dive on the taper.

robertoaribas says

smaulgld says

why would you think the economy would be come more robust if the Fed tapers.

Other way around. Fed is tapering, because the economy is becoming more robust. They have quite a bit of more timely info than we do, from the beige book and other sources. They are predicting around 2.5% gdp growth for the second half of 2013, after 1.7 rate first quarter and 1.1 rate second quarter. That bodes reasonably well for a much better 2014.

The issue then becomes-can the predicted "robust" growth continue absent QE-what portion of the growth has been attributable to QE and how much is organic.

I say all of it and that with out it there would be a deflationary depression.

The interest rate rising issue is tied to the US cost of borrowing. So even if rates rise because of the "robust" growth, the US would still have a higher cost of borrowing and funding its deficit spending.

robertoaribas says

Fed is tapering, because the economy is becoming more robust. They have quite a bit of more timely info than we do, from the beige book and other sources. They are predicting around 2.5% gdp growth for the second half of 2013, after 1.7 rate first quarter and 1.1 rate second quarter. That bodes reasonably well for a much better 2014.

What is so enthusiastic about some growth in economy? It means little or nothing for middle class. Most corp. income is created oversees, or by higher work load on existing workers, or part-time employee with limited benefits. The REAL growth is only in field of oil and gas exploration. Create real domestic jobs and temper increase in energy costs.

smaulgld says

why would you think the economy would be come more robust if the Fed tapers.

smaulgld says

The interest rate rising issue is tied to the US cost of borrowing. So even if rates rise because of the "robust" growth, the US would still have a higher cost of borrowing and funding its deficit spending

REpro says

The REAL growth is only in field of oil and gas exploration.

You asked a question then answered it.

The Fed is creating debt that will need to be paid back, no matter what, it's just the way it is.

We already had the sequester, tax hikes, and are looking for tax legislation.

If, and in my opinion it's a certainty, the Fed gets out of the way the cash reserves that have been stock piled by the wealthy, banks, corporations, foreign investors, and managed funds will step in for long term investment rather than speculating on short term commodities, and assets.

Oil is a great example. We are at over $100 per barrel right now, for no reason other than speculation, and an attempt to create a false sense of inflation.

Other people argue with me about the state of the global economy, but the way I look at it the United States is where I would want my money right now.

DavidLosh "If, and in my opinion it's a certainty, the Fed gets out of the way the cash reserves that have been stock piled by the wealthy, banks, corporations, foreign investors, and managed funds will step in for long term investment rather than speculating on short term commodities, and assets. "

Interesting take-would in that case mean that the speculation in real estate would stop too?

Rates are rising today- is it because the economy is improving??that retail spending report rise .2% must be it!
Rising gas prices is always the sign of an improving economy, isnt it?
recovery addicts need to go into full spin mode

The ultra short REIT crap ETFs still looking good, SRS up over 20% since started dabbling in it. I think it's currently only a small hedge for most, but the shorting could take off once serious big money decides to switch sides.

The price of the ten year note is up 4% today- to kenynesians they say not to worry - its a sign of a growing economy!
Yep 4% a day! Its a sign the Fed may not longer be the purchaser of near only resort of US tbonds

smaulgld says

Interesting take-would in that case mean that the speculation in real estate would stop too?

What has happened before is that the lenders make loans based on the value of the property with some leeway towards the promise to pay. When the property is foreclosed it goes to auction or is sold as a REO.

The property values are what got screwed up, but nothing a little mortgage magic can't fix.

These rentals that have been bought can be converted to special financing loans that are held in portfolios. In a few years the loans will be upgraded, and sold to other investors.

We'll have a correction in the market place, but it will bring back home ownership.

REpro says

What is so enthusiastic about some growth in economy? It means little or nothing for middle class.

Quit it with the middle class thing. There is the 1% and the working class ( many who are out of work).

DavidLoash:

"We'll have a correction in the market place, but it will bring back home ownership.

"

Yes this little episode of rising home prices
makes homes less affordable and creates wealth disparity http://smaulgld.com/the-dark-side-of-rising-home-prices/

smaulgld says

The price of the ten year note is up 4% today- to kenynesians they say not to worry - its a sign of a growing economy!

Yep 4% a day! Its a sign the Fed may not longer be the purchaser of near only resort of US tbond

It's up 0.12% to where it was 12 days ago.
The percent rise of a percent is second derivative that can fluctuate without much real changes.

It's mostly a sign of foolish optimism.
The whole economy is relying on a tenuous housing rebound that could fizzle out quickly for no particular good reason.

Heraclitusstudent says

smaulgld says

The whole economy is relying on a tenuous housing rebound that could fizzle out quickly for no particular good reason.

that's it

ditto for the stock market and the "recovery'' will be gone as its nothing more than artificially pumped up real estate and stock markets, there is no long term productivity or infrastructure gains

REpro says

robertoaribas says

Fed is tapering, because the economy is becoming more robust. They have quite a bit of more timely info than we do, from the beige book and other sources. They are predicting around 2.5% gdp growth for the second half of 2013, after 1.7 rate first quarter and 1.1 rate second quarter. That bodes reasonably well for a much better 2014.

What is so enthusiastic about some growth in economy? It means little or nothing for middle class. Most corp. income is created oversees, or by higher work load on existing workers, or part-time employee with limited benefits. The REAL growth is only in field of oil and gas exploration. Create real domestic jobs and temper increase in energy costs.

How about we end QE today as a litmus test and find out where we really are?

smaulgld says

Yes this little episode of rising home prices

OK, you lost me here.

Real Estate is like stocks only much harder to move. Some properties are good, some are worthless.

The trick is to know the difference.

Bernanke can say whatever he wants, it makes no difference to what you, the individual can buy, and sell.

At the very top of the market there was a house for sale that had one of those hitching posts outside. The owner obviously didn't care about who would be looking at the house, and the house just sat there.

I had a listing where the owner accepted an offer, then wouldn't sign off on getting the agreed to repairs done. It didn't sell for years, but I thought it was a great deal.

There is a deal a day in Real Estate, and if you don't like your market you can move out a few miles.

You can always build wealth, it's up to the other guy to watch out for themselves.