Mish, can you provide a reference for that Kashkari quote? Thanks
tbergerson
2 years ago
The Total Credit Market Debt Owed looks quite a bit different if you use Log Scale as you should. Not saying it changes the problem, but the Debt is only 1 of several problems, some of which you also covered here, like Demographics.
FooFooFed
2 years ago
If your not a fan of Socialism then better start voicing your concerns to the powers that be and making your voice heard. The younger generation can’t afford anything, all assets and standard of living is moving away from them quickly. QE doesn’t work, if it did why do we still think it works. Growth over last ten years is flat. Fed solutions are a direct result of their inability to understand the plumbing of the system. If we don’t replace them with competent minds then Kashari and the likes will burn us down because we let them. Just look at the eurodollar market, how many at the fed understand the plumbing of it? Zero. It will be our fault in the end, that we didn’t do anything but dance around the Feds policies to protect our investments.
Tony Bennett
2 years ago
Empire State Manufacturing Index
Prior … 31.9
Expected … 26.0
Actual … (0.7)
Doug78
2 years ago
““Something has happened in the last 30 years, which is different from the past,” says Minneapolis Fed president Neel Kashkari.
Yes, it has and the Fed is clueless as to what it is.”
What
happened was an expansive monetary policy coupled with a restrictive fiscal
policy but the Fed members know all about that. The big difference is one that
they are blind too because they come within financial institutions and don’t
have a view from outside. What really changed was when Greenspan started
bailing out financial institutions. He started in 1987 with the stock market
crash. He then bailed out Long Term Capital Management in 1998 using the same logic,
that is it was a systemic risk and had to be managed. The Greenspan Put by then
was well established. The subsequent crises always followed the same rule. The
too big to fail would always be bailed out no matter what. That is what was new
thirty years ago. The Fed members come from these institutions and just can’t
imagine a world without Goldman, JPMorgan or the other top banks. The Greenspan
Put is central to their thinking and it is inconceivable to them not to use it.
True, but I lean more towards monetary debasement. Happened with all empires going back to the romans clipping the edges of coins. The reason it’s not as noticeable as in the past is everyone is debasing at the same time. We think things are more valuable when in reality the value of currencies has gone down.
How would you measure this debasement? If it is by inflation then we haven’t had too much abasement since 1981 compared to before. You could measure it by home prices like here.
Needless to say our population has doubled since 1955 and the amont of land has remained the same.
We could
measure it by the price of a university education and the cost of healthcare
but both of those costs are highly tied to price-gouging oligarchic behavior
rather than the debasement of the currency. I am not sure that tying our currency
to gold, bitcoin or any other currency proxy would solve these problems.
Webej
2 years ago
A Thought Experiment
Imagine a society whose demography represents a pig in a python. As the pig moves along
schools are expanded when they are childen
consumption reaches a boiling point as they hit 30
assets are bid up furiously as they (& their pension funds) age into their 70’s while consumption trails
house prices are out of reach to the young as the old invest in real estate
assets crash as they need to liquidate to finance old age or upon death
Ignoring all other variables (including authorities blind to the pig who cling to a stochastically balanced ensemble), this is largely what we see.
I would never call it a “savings glut”, but the bid for assets was inevitable, regardless of policy or ideology.
“assets are bid up furiously as they (& their pension funds) age into their 70’s while consumption trails”
But consumption didn’t.
Not when “savings”, as in “withholding from consumption” has; due to financialization and implied Fed backstops; been replaced with “handing what I don’t consume to dilettante conmen in New York and in government, so that they can lavishly consume it instead.”
Then, what you are left with is NO savings. Just a Ponzi.
And with no actual savings by necessity having resulted in a complete gutting of once-was productive capacity. Such that nothing is anymore able to be produced.
Then, old age instead turns into preoccupation with ensuring government, as well as what was once a legal system, keep taking from someone else, in order to hand some of what I; ever so self righteously; believe I am due, to me-me-me! Since, me-me-me never actually saved anything, but instead just kept propping up conmen living it up on superyachts and preening around at state dinners and paying off “constituencies.”
Latin America has been like that for decades already: A few gated communities full of rank nothings, solely preoccupied with maintaining “systems” of “law” and government channeling whatever wealth is being produced by others, their way. While their dilettante children gets handed various useless “degrees,” aimed at making them seem edumecated enough to justify them continuing to “lead”, in the exact same fashion. While everyone else should just shut up, work with ever dwindling capital, and pump their fists and cheer, for their “edumecated” dilettante overlords.
The US is no different, in any way whatsoever, from that. Just a bit later to the party; having started the decline from a higher initial starting point.
Six000mileyear
2 years ago
It’s already hitting. The supply chain has delayed our product launch by at least 6 months. My company would treat me like a hero if I swam up to the cargo ships to retrieve our electronic parts.
TechLover1
2 years ago
It is interesting that the fed rates futures market is predicting four rate hikes this year and another one in Feb 23 as of today.
I do take this signal seriously as people are putting money and this is not traded by the retail investors. So this is a decent indicator of where the market participants expect the rates to be.
What I can’t wrap my head around is that how is this sustainable for the zombie companies and debtors in general including the governments (I do believe this is will be even more problematic for city and state governments than Federal).
We will see shortly how this unfolds. We live in interesting times.
vanderlyn
2 years ago
wonderful post mish. keep it up.
whirlaway
2 years ago
“Something has happened in the last 30 years, which is different from the past.”
It is more like 40 years. First, we got the failure of the fiscal trickle-down policy of the Reaganites. Its only success was to make the rich and the corporations even richer. Then, we got the failure of the monetary trickle-down policy of the Wall Street Fed. Its only success was to the make the super-rich and powerful corporations even richer and even more powerful.
1980 was an inflation rate inflection point. The top of the mountain had been reached and it was down hill from there.
Steve Jobs wasn’t rich when he started Apple. A number of other entrepreneurs were not rich when they started, but are now. Just guessing, but i don’t think Steve Kirsch was rich before he invented the optical mouse.
That report was referring to ALL people. Not just Senators, high-ranking officials and billionaire investors! LOL
astroboy
2 years ago
OT, but does anyone have any thoughts on what a Russian invasion of Ukraine (probably just sending troops into the areas which are held by rebels at the moment) would have on the stock market or US economy in general?
I suspect there is minimal impact on the US with Russian troops just occupying. After Afghanistan, the US won’t rush into conflict. Maybe a few economic sanctions so as not to offend Putin.
However,
1) What will NATO do?
2) What will Biden do for his family’s investments?
Alternatively, when the Fed can no longer keep interest rates at fairy-tale levels. Because the Fed has done so in the past, most people think they can, and will do so in perpetuity; when, in fact, all they are doing is postponing the inevitable debt implosion, thereby making it that much worse. About now, I think the Fed is hoping (praying) for a soft slowdown and a fast recovery.
With inflation surging enough to drive risk-free interest rates to (note: based on the Fisher equation) +/- 8% (one year), a piddling 0.25% hike is a drop in the bucket. So what might cause such an ‘exogenous’ increase that the Fed cannot control it? Not necessarily a black swan event; it could be as simple as an economic slowdown, with the realization the pig trough is empty.
The next question is how precipitous will the decline be?
Bam_Man
2 years ago
When the Socialists run out of other peoples’ money?
Also when speculators run out of other peoples money.
Tony Bennett
2 years ago
“The answer is unproductive debt is a huge drag on the economy. And the Fed needs to keep interest rates low to support that debt.
This keeps zombie corporations alive and also spurs financial speculation, also a drag on growth.”
…
Nailed It.
Tony Bennett
2 years ago
“If the Fed does get in three rate hikes in 2022, then 2023 or 2024. And it may not even take three hikes.”
…
I’ll take the under. Taper (supposedly) ending in March. IF they manage this – the incremental Federal Reserve will want to assess (dawdle) to avoid any Market Tantrums.
If the Dow goes below 30,000 and/or the S&P 500 goes below 4000, then all rate hikes are off the table, and we will get started on QE 6 (or is it QE7 or QE8?) right away!
KidHorn
2 years ago
Persistent low rates are because of persistent money printing by central banks. Interest rates are the price of money and printing has resulted in a glut of money. High supply = low prices.
Casual_Observer2020
2 years ago
I’m not sure why the Fed is obsessed with keeping housing prices higher and higher. The only thing I can think is that most of the bonds they supported were all RMBSes.
Increasing housing prices resulted less from increased demand than Fed-driven lower interest rates. If interest rates increase, housing prices will slow/drop. Foreclosures will increase as equity disappears, inducing greater price decline–sounds like 2008? Associated mortgage-backed bond holders will take a bath. That’s what happens when loans are taken out at under 3% when the interest rate should be several times higher.
A simple example for a 30 year mortgage for $400,000 at a Fed-induced 3% (monthly) interest rate. If the market rate increases to 8% (about where it should be nowadays), that bond becomes worth $172, 860.
Scooot
2 years ago
“Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, said in supporting higher rates this year that he is weighing two opposing risks. One is that high inflation becomes embedded in the public’s behavior,…..”
I think this is the case now, people have the perception that there is no choice but to pay up, which will probably drive higher wage demands and fuel the price rise spiral. I do think the economy is going to slow, and maybe there’ll be a recession, but it’s far from certain that will temper inflation much, especially when monetary policy is so loose, and it will still be loose after 3 hikes.
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Yes, it has and the Fed is clueless as to what it is.”
What
happened was an expansive monetary policy coupled with a restrictive fiscal
policy but the Fed members know all about that. The big difference is one that
they are blind too because they come within financial institutions and don’t
have a view from outside. What really changed was when Greenspan started
bailing out financial institutions. He started in 1987 with the stock market
crash. He then bailed out Long Term Capital Management in 1998 using the same logic,
that is it was a systemic risk and had to be managed. The Greenspan Put by then
was well established. The subsequent crises always followed the same rule. The
too big to fail would always be bailed out no matter what. That is what was new
thirty years ago. The Fed members come from these institutions and just can’t
imagine a world without Goldman, JPMorgan or the other top banks. The Greenspan
Put is central to their thinking and it is inconceivable to them not to use it.
We could
measure it by the price of a university education and the cost of healthcare
but both of those costs are highly tied to price-gouging oligarchic behavior
rather than the debasement of the currency. I am not sure that tying our currency
to gold, bitcoin or any other currency proxy would solve these problems.
As the pig moves along
It is more like 40 years. First, we got the failure of the fiscal trickle-down policy of the Reaganites. Its only success was to make the rich and the corporations even richer. Then, we got the failure of the monetary trickle-down policy of the Wall Street Fed. Its only success was to the make the super-rich and powerful corporations even richer and even more powerful.
When no expects it.
“The answer is unproductive debt is a huge drag on the economy. And the Fed needs to keep interest rates low to support that debt.
This keeps zombie corporations alive and also spurs financial speculation, also a drag on growth.”