patrick.net

The Fed doesn't really have a good grip on what constitutes inflation because it doesn't recognize increasing assets prices as part of inflation. Instead it looks at consumer prices (and does a crap job of measuring even that).

What the Fed really targets when it wants to lower inflation is wages. To lower wages or to keep wages from increasing as much it raises interest rates. This slows the economy, putting people out of work and thus reducing how much businesses need to offer their employees.

It's a crap system, but that's what we have.

HunterTits says

Since when does the Fed restrict itself to look at just consumer prices?

It doesn't look at asset prices ie. houses or stocks.

When the Housing Bubble blew up, did the Fed apologize?

Did anyone lose their jobs over it (at the Fed)?

The answer is no. We now have the same incompetents at the Fed that we had then only now the lower ranking employees have gotten promotions with corresponding raises.

Do they care if the stock market were to go down 70%? --- Don't expect any apologies if it does.

They really don't care. They get their government checks (the worker bees) or they get cushy jobs at major banks if appointed to the positions.

The Fed can't raise interest rates.
The US Govn doesn't bring in enough tax revenue as it stands to service the interest payments on the current US debt which is now US$30,000,000,000,000.
They have to print to cover the interest payments and they are also printing just to pay the bills.
Household debt is now too at all time record highs.
https://mishtalk.com/economics/household-debt-soars-to-record-15-58-trillion-in-the-fourth-quarter?source=patrick.net

The Fed is not stupid, just disingenuous. All they really have is talk.
IMO, the timing of covid was very convenient as not only did it serve to quash a 'popularist' uprising (Trump in the US, Brexit, #YellowVests, Hong Kong, etc) but it also provided cover to enrich the elites before providing the scapegoat for a global economic collapse. How many in Congress, from both sides profited from the collapse?
https://www.thesun.co.uk/news/11214675/four-republican-senators-dumped-millions-in-stocks-after-classified-briefings-on-coronavirus-before-market-crashed/?source=patrick.net

The Fed knows all about rising gas prices, rising grocery bills and rising power bills. The main stream media know about it too but are paid to spread propaganda that the economy is awesome.
Raising rates, traditionally, would slow an economy. Not good as the US economy is not that healthy imo. The covid stimulus and media propaganda blurs that picture though.
The Fed is stuck. They may make token gestures of 0.25% here and there but older readers will remember times when interest rates were above 6% and more. Totally incomprehensible in today's world!

The Fed is trapped. They can't move but they can't stand still either. All they have is talk, but the clock is ticking. The March meeting if we get there, will be monumental. No increase and the markets will freak. Too big an increase and the markets will freak. A token increase and inflation will continue it's upward march.

My forecast is for very turbulent times ahead, but I think you knew that already. No returning to 'normal' I'm afraid. I don't think many seem to understand the ramifications of what is about to happen. People talk about mortgage rates and savings and paying the bills, which of course are very important. But if the US dollar goes tits up then that truly is the end of the US dollars global reserve status and the end of the US Empire.

No more rampant consumer spending (69% of US GDP). No more easy funding of welfare programs or Big Govn or war. Some would say this is a positive but how to manage the ensuing chaos?

I don't know what moves the powers that be have left to keep this shit show going.

.

Seems like the FED has just become a temple of insider trading for anointed Globalist bureaucrats. Kleptocracy and shenanigans, like the rest of DC.

Trump cut the Globalist/Vatican/City of London umbilicus and rolled it into the Treasury at long last, but the wailing of the disenfranchised vampires hasn't ended, and they want it back.

HunterTits says

Misc says

When the Housing Bubble blew up, did the Fed apologize?

Did anyone lose their jobs over it (at the Fed)?

The answer is no. We now have the same incompetents at the Fed that we had then only now the lower ranking employees have gotten promotions with corresponding raises.

Do they care if the stock market were to go down 70%? --- Don't expect any apologies if it does.

They really don't care. They get their government checks (the worker bees) or they get cushy jobs at major banks if appointed to the positions.

Doesn't answer my question: Who says the Fed doesn't look at those?

As in provides factual evidence. You just ranted about your beliefs. And then you brought up stuff that has no bearing on what we are talking about.

BTW, regarding that which has no bearing on what we were talking about: the Fed employees do not get government pay...

Ok, you win based on your question. The Fed does looks at those. They just don't care about the outcomes, and the BLS doesn't use asset prices as a component of its inflation measures.

The statement I made was "it doesn't recognize increasing assets prices as part of inflation".

Are you good with this?

charlie303 says

The main stream media know about it too but are paid to spread propaganda that the economy is awesome.

It's worse than that. The Media is literally IN BED with lobbyists, Democrat Officials, etc. to a level without precedence. It used to be perhaps board members hobnobbed with the Elite. Now the anchors, producers, etc. are married to them.

This is the same as when commies infiltrated everything after WW2 except now its Chinese controlled corporations mixed with the same liberals that pop up every 30yrs to try to wreck US.

Now we are screwed and have almost no tools left to fix the situation.

HunterTits says

I can be a asshole-stickler-on-details, I realize.

Not to mention cynical.

The babes balance out your persona.

HunterTits says

So that which the US Treasury can not role over cheap enough the Fed can simply monetize.

The Fed prints and the Treasury spends, and gets to collect any interest too! Sounds good in theory but that's not how I see it. Most people instinctively know that there's no such thing as a free lunch. Well, maybe every now and again, but you can't build a sustainable, prosperous economy on free lunches. The Fed and the Treasury are engaging in financial sleight of hand in my opinion. They are not the economy. They don't make semi conductor chips or tractors or cut hair or sell groceries.
When such chicanery has been practised in the real world the results have not been favourable. In Japan for example the central bank owns I believe two thirds of Govn debt and is engaging even now in more measures to try to prevent collapse in the bond market.

https://www.zerohedge.com/markets/bank-japan-offers-buy-unlimited-10-year-jgbs-contain-bond-rout?source=patrick.net

Europe is in big trouble. Having the central bank there buying Govn debt led to negative interest rates, a travesty of finance. I try to explain to people negative interest rates are like going to work and paying the boss for the privilege. Most instantly get that that is not right.

https://www.armstrongeconomics.com/world-news/central-banks/world-war-iii-in-financial-markets-begins/?source=patrick.net

https://www.armstrongeconomics.com/world-news/central-banks/world-war-iii-begins-in-the-financial-markets/?source=patrick.net

Many are surprised why events haven't come to a head much more quickly since the GFC and why massive money printing since then didn't bring about inflation pre covid. Problems were emerging for example in the repo market which nearly blew up in 2019 but then, almost conveniently, the covid pandemic appeared and the markets were treated to more largess (as well as the removal of Trump by those with an alternative globalist agenda). Maybe inflation didn't appear because China was exporting deflation. Who knows? That's a debate for another time because inflation certainly is here today.

The Fed can make token gestures of 0.25% here and 0.5% there but with inflation at nearly 10% depending on who you talk to, such raises are ineffective at saving the purchasing power of the US dollar. The fact that they haven't even begun to raise rates off 0% speaks volumes, especially with the 10 year Treasury now above 2%. I don't believe the markets can set rates with true price discovery as they have been distorted with all this money printing.

In short, one way or another, it blows up and I believe very soon, though I have been wrong before. Timing it though is a mercurial art.

.

If the Fed substantially raises rates, the debt service alone on our National Debt will consume the entire budget and we will have to borrow trillions to fund the government. That won’t help inflation AT ALL!
So basically the Fed is useless for the job it was designed. From this point on, it can’t affect inflation at all. Inflation will have to be curbed by other means, or something will have to be done to Zero out the debt. Either to somehow pay it off or to cancel it (which will crash the dollar).

That’s what the Great Reset is for, I think. One of two things will happen:
1)We go to a global currency, all national debts are cancelled but nations now have to live within a balanced budget.
2)A great harvest of moneyed individuals leads to an enormous surplus of death taxes, which bails out the federal and the state governments. This could be what the vax was for.

Seems the mainstream media is trying to get the Fed to do something stupid. They are putting out tons of articles all over the place about how bad inflation is and how it is up to the Fed to do something about it...like right now call an emergency meeting. They even have a voting member of the FOMC saying he wants short term rates raised by a full percentage point by July. The large banks are probably just going along to pump their stock prices so they can sell them at an inflated price (higher short term rates are supposed to give the banks big profits). The media wants the general public to get behind the Fed raising rates.

However, Joe Biden is president and it looks like he's gonna run the economy over a cliff. US GDP dropped 3.5% in 2020. It then gained about 10% in 2021 because of extra federal spending. Last year the federal government spent about $1.3 trillion more on Covid relief than they will this year. Only about $160 billion from last year made it over for spending this year. Joe's "Build Back Better" program went nowhere because of the Progressives' crap initiatives. So we are looking at a decrease of about $1 trillion in government spending coming up. With a GDP of about $23 trillion that means a contraction of about 4% (maybe a little less because we'll buy less crap from China). By having the Fed raise rates, that will suck even more money out of the real economy.

There's over $1.5 trillion outstanding in corporate junk bonds. I am expecting massive amounts of defaults. Mass layoffs are pretty much a given. Unless there is a huge giveaway from the Federal government somehow,

But who you gonna believe, a random guy on the internet or the mainstream media?

We had a print where an extra 30k people than forecast applied for unemployment. Housing starts are weakening, and once you factor in inflation; consumer spending going down.

Seems like the economy is weakening, but at least one Fed member still wants to hike aggressively into this based on CPI numbers.

https://finance.yahoo.com/news/feds-bullard-repeats-call-faster-144631778.html?source=patrick.net

The Fed hiking into economic weakness, what could possibly go wrong?

https://mailchi.mp/ronpaulinstitute/evilfed-115913?e=5289e1161e&source=patrick.net

Most policy “experts” and politicians, including President Biden, support interest rate increases to deal with inflation. However, some progressives oppose raising rates. Opponents of rate increases fear that increasing interest rates will slow economic growth, increase unemployment, and depress wages. These progressives believe the old fallacy that workers benefit from easy money. The truth is workers are inflation’s main victims.

Workers may see their nominal pay (pay unadjusted for inflation) increase while the Fed-produced price increases cause real wages to plummet. That is certainly the case today. In contrast, the Federal Reserve’s money creation benefits crony capitalists who receive the new money created by the Fed before the injection of new money causes prices to rise. This increases the elite’s purchasing power, furthering income inequality.

The Federal Reserve’s creation of new money does more than erode the value of the currency. It also artificially lowers interest rates, which are the price of money. This distorts the signals sent to market actors, leading to investment decisions that do not reflect the real condition of the market. The result is a temporary boom, followed by a bust. Workers who find new jobs in the boom lose those jobs in the bust. These workers are then not just unemployed. They are also often saddled with unmanageable debt incurred during the low interest rate, easy money phase of the business cycle.

Progressives could help workers by joining the movement for market-based money. Free-market money will be safe from government manipulation, and thus its value will remain stable. A step toward restoring a free-market monetary system is letting the people know the truth about the Federal Reserve by passing Audit the Fed. Another step is legalizing alternative currencies by repealing legal tender laws and ending all capital gains taxes on precious metals and cryptocurrencies. Congress must also begin to cut spending, starting by making major cuts in our 750 billion dollars military budget and ending all corporate welfare.

Fiat money benefits financial and political elites at the expense of working people whose standard of living is eroded by Federal Reserve actions. As a Texas labor leader once told me, “Gold has always been the working man’s friend.” I would add that fiat money is the worker’s foe.

Ok, the Fed raised rates a quarter of a point last week. The rates rose across the yield curve, although there was some flattening.

The Fed believes it will raise rates at each meeting this year. That will put short term rates at about 2% the 10 year rate is currently about 2.37%. They are estimating that over the long term rates will be about 3%.

They simply aren't very good at math or know they are simply lying (government lying to the people --- shocking ! ! ! ! !).

The federal debt is about $30 trillion. If rates go from practically zero (yes I know there is bunches of long term debt priced above zero, I'm just keeping the math easy) to about 3%; that would add about $900 billion onto the governments outlays. They spend about $5 trillion a year currently and bring in about $4trillion in taxes. The government ain't gonna cut spending no $900 billion per year. They also ain't gonna raise taxes no $900 billion per year. Which means they are gonna be adding another about $900 billion in debt per year. I have a funny feeling this would force interest rates even higher. Inflation is running about 7.9% currently...imagine the government spending $900 billion more per year than it is currently.

Nope, the Fed is in a bind and will quickly need to go back to QE (just buying the debt the government creates). Inflation be damned.

Misc says

I have a funny feeling this would force interest rates even higher.

They'll just continue Quantitative Easing.

The Fed will just print money, give it to the banks, with the condition that the banks use the money to buy the T-Bills.

Banks don't make money off deposits and loaning money out to lenders any more. They haven't for 15 years.

The system is entirely fraudulent now.

Shaman says

1)We go to a global currency, all national debts are cancelled but nations now have to live within a balanced budget.

That is not how it worked in Greece. They somehow managed to continue to spend with reckless abandon.

Also, if they get the rates to 3% across the yield curve the US will become the most despised nation on earth. You see there are about $13 trillion in outstanding international dollar denominated debt. That would increase the cash flow to the creditors by about $390 billion per year. This would spike the value of the dollar causing even more mayhem.

The bankruptcies would be enormous.

The sheer fire sales will make those with cash or credit very wealthy once the rates go back down.

Booger says

Shaman says

1)We go to a global currency, all national debts are cancelled but nations now have to live within a balanced budget.

That is not how it worked in Greece. They somehow managed to continue to spend with reckless abandon.

This is called the gold standard. You couldn't cheat with that, unless a country just trusted the banks to not steal the gold.

When the US ran out of gold to redeem for the dollar, Charles deGaulle sent a WARSHIP to pick up France's gold.

Lying about it, it a cause to start a war. It balances trade automatically as well. If a country runs low on gold, their currency must devalue to represent that. This only works if accounting is accurate, as it once was.

If Russia and China decide to move to a semi-gold standard, and they have the gold to do this, it's game over real quick.

Booger says

That is not how it worked in Greece. They somehow managed to continue to spend with reckless abandon.

And then ended up being economically raped by Germany for the second time in a century.

The wealthy Greeks didn't want to go back to the Drachma, they wanted their overseas bank Euro denominated accounts nice and safe, and damn the ordinary Greek.

HunterTits says

They don't even need gold at all. They just have to peg their currency to a set price in gold.

They can only do that if they have enough gold to allow complete redemption of all their rubles outstanding. If they don't do that, people would just drain their gold enough they were out of it, and then - poof - bankrupt.

That's what happened in 1971, and 1933 as well.

richwicks says

This is called the gold standard. You couldn't cheat with that, unless a country just trusted the banks to not steal the gold.

At any given time, even under a gold standard, most money is debt.

You don't have money in the bank, the bank just has a debt to you. And the bank literally doesn't have most of your money because it lent it out (at least traditionally) and so other people owe the bank your money plus interest.

You think you have money in the bank, and the bank thinks it has money which are other people's debts, and the people who borrowed have the original money. Money gets multiplied via debt.

It's kind of like putting money on your coffee card at a cafe. You think you have $20 on your card, and the cafe has the real $20, so for a while $40 is in existence.

The gold standard doesn't limit how much money can be created with debt, but it does give people a way to hang on to value if they don't mind giving up the interest.

So, the Fed minutes point to a .50% increase to the Fed funds rate and have about $95 billion roll off their balance sheet per month starting in May. Sounds like the roll-off would ramp up over a 3 month period ($60 billion in treasuries, $35 billion in mortgages per month).

I doubt the Fed holds all that much in short term mortgages, so they would probably be selling some longer term paper. Nice for the people in the know that were able to front run the news.

Mortgage rates have gone from about 2.75% to about 5% for a 30 year mortgage. For people living in most of the country, that raises the monthly payment by about $500 a month on a $420k house. Most people just ain't gonna be able to swing that increase. I'm betting new construction contracts have simply stopped being made for the most part except for cash buyers.

This is gonna put the Fed in a heckuva predicament. Nationwide rents have gone up about 10%

https://ktar.com/story/4866600/rates-of-rising-rent-in-phoenix-could-suggest-consumer-changes/?source=patrick.net

However, the BLS only has rents going up about 4% for its measure of the CPI. Since rents & OER make up the largest portion of the CPI more inflation is going to get reported as the BLS catches up to reality. This will put even more pressure on the Fed to raise rates.

With new supply going down and millions more illegals flowing into the country, what do you think rents will do? I just figure they will keep going up.

Democrats will predictably try to put in place rent controls, which will predicably reduce construction even more.

Ahhhhhhh, the joys of a centrally planned economy.

https://www.cnbc.com/2022/04/06/fed-minutes-march-2022-meetings-.html

charlie303 says

No more rampant consumer spending (69% of US GDP). No more easy funding of welfare programs or Big Govn or war. Some would say this is a positive but how to manage the ensuing chaos?

I don't know what moves the powers that be have left to keep this shit show going.

The USA imports a lot of crap like from China. So what does that do with trade with China ? Do they just artificially lower the Chinese yuan relative to the US dollar ?

So we have weak currency like a country like Argentina, Greece or Brazil ?

Won't that mean then foreign investors will want to open factories, etc. in the USA since their currency has more value relative to the dollar?

I am saying if we get that bad here as being closer to a developing country, won't that mean we may have more cheap manufacturing here ?

Misc says

Mortgage rates have gone from about 2.75% to about 5% for a 30 year mortgage. For people living in most of the country, that raises the monthly payment by about $500 a month on a $420k house. Most people just ain't gonna be able to swing that increase. I'm betting new construction contracts have simply stopped being made for the most part except for cash buyers.

Yeah, that is why I think housing will have to drop about 20% to wipe out the COVID gains. I look at it this way. My wife and I bought a new townhome in the Florida panhandle in 2016 for $187,500. There are identical townhomes in our HOA complex that sold for $300,000 this past December.

I see the normalized price being based on 4% annual appreciation from 2016, which would be

1.04^6 x $187,500 = 1.27 x $187,500 = $238,125

Now the prices may drop below $238,125 as part of the volatility and over correction such as bottom to $210,000 and then they'll stabilize around $238,000.

The only thing is the demand is very high for housing in the Florida panhandle. The governor here is very popular in the state.

It is very pro growth here and there are many northerners wanting to move here to escape their liberal shithole states.

What is attractive is that the panhandle is only about a day drive from Chicago and it has at least 8 months of beach weather.

The other four months it is nice but too cold to swim in the Gulf of Mexico.