Tag Archives: interest rates

Treasury Yields & Mortgage Rates Spike: Markets Begin to Grapple with Quantitative Tightening, by Wolf Richter

Unless we get massive deflation in a hurry (unlikely) bonds may be the single worst investment out there. From Wolf Richter at wolfstreet.com:

The two-year Treasury yield started rising in late September, from about 0.23%, and ended the year at 0.73%. In the five trading days since then, it jumped to 0.87%, the highest since February 28, 2020. Most of the jump occurred on Wednesday and Thursday, triggered by the hawkish Fed minutes on Wednesday.

Markets are finally and in baby steps starting to take the Fed seriously. And the most reckless Fed ever – it’s still printing money hand-over-fist and repressing short-term interest rates to near 0%, despite the worst inflation in 40 years – is finally and in baby steps, after some kind of come-to-Jesus moment late last year, starting to take inflation seriously. Treasury yields are now responding:

Jawboning about Quantitative Tightening.

Even though the Fed hasn’t actually done any hawkish thing, and is still printing money and repressing interest rates to near 0%, it is laying the groundwork with innumerable warnings all over the place, from the FOMC post-meeting presser on December 15, when Powell said everything would move faster, to hawkish speeches by Fed governors, to the very hawkish minutes of the FOMC meeting, which put Quantitative Tightening in black-and-white.

Continue reading→

Money supply and rising interest rates, by Alasdair Macleod

Inflate the money supply enough and sooner or later you’ll have rising interest rates keeping up with rising prices. From Alasdair Macleod at goldmoney.com:

The establishment, including the state, central banks and most investors are thoroughly Keynesian, the latter category having profited greatly in recent decades from their slavish following of the common meme.

That is about to change. The world of continual Keynesian stimulus is coming to its inevitable end with prices rising beyond the authorities’ control. Being blinded by neo-Keynesian beliefs, no one is prepared for it.

This article explains why interest rates are set to rise substantially in this new year. It draws on evidence from the inflation crisis of the 1970s, points out the similarities and the fact that currency debasement today is far greater and more global than fifty years ago. In the UK, half the current rate of monetary inflation for half the time — just for one year — led to gilt coupons of over 15%. And today we have Fed watchers who can only envisage a Fed funds rate climbing to 2% at most…

A key factor will be the discrediting of this Keynesian hopium, likely to be replaced by a belated conversion to the monetarism that propelled Milton Friedman into the public eye when the same thing happened in the mid-seventies. The realisation that inflation is always and everywhere a monetary phenomenon will come too late for policy makers to stop it.

The situation is closely examined for America, its debt, and its dollar. But the problems do not stop there: the risks to the global system of fiat currencies and credit from rising interest rates and the debt traps that will be sprung are acute everywhere.

Introduction

Clearly, the outlook is for higher dollar interest rates. The Fed is trying to persuade markets that it is a temporary phenomenon requiring only modest action and that while inflation, by which the authorities mean rising prices, is unexpectedly high, when things return to normal it will be back down to a little over two per cent. There’s no need to panic, and this view is widely supported by the entire investment industry.

Continue reading→

2022: More Stupidity, More Arrogance, More Evil, More Rebellion, by Robert Gore

florence_heceta_lighthouse_3-1

Chaos will reign as the future upends the past. Chaos doesn’t lend itself to prediction.

Stupidity, arrogance, and evil ultimately destroy themselves, but their rampage was unabated in 2021. A group of stupid, arrogant, and evil people are using a virus and its variants to shepherd the world into a scheme of totalitarian global governance. This was conspiracy theory when the virus first surfaced; now it’s nakedly obvious reality. The one redeeming feature of the year was that more people saw the light.

The self-impressed and self-anointed rule not by claim of divine right, but by claim of superior intelligence and virtue. Real intelligence and virtue hope to find the same in other people; our commissars prey on human weakness. Fear and panic are their allies, truth and rationality their enemies.

As word leaks out of Covid outbreaks on 100 percent vaccinated college campuses, sports teams, naval vessels, and cruise ships, and as fully vaccinated athletes drop incapacitated or dead in front of stadiums full of people and millions of TV viewers, the truth that can’t be hidden is grasped by anyone with a shred of intellectual integrity. The vaccines have failed their ostensible purpose, to protect against the virus and its variants. They have, however, admirably fulfilled their real purpose: a totalitarian grab for power and control.

The coming year will see attempts to institute the rest of the agenda: mandatory vaccination, implanted vaccine passport microchips, fully digitized money, a social credit system, and segregation or elimination for those who refuse to play along. The coming year will also see the inexorable progress of the Doom Loop described in “The Means Are The End.”

Amazon Paperback Link

Kindle Ebook Link

The vaccines and their perpetual boosters are an intentional attack on the human immune system. They will continue to produce their adverse effects, including impaired natural immune system functionality, which increases susceptibility not just to Covid and variants, but to many other maladies as well. Early indications are that the omicron variant is more likely to strike the vaccinated than the unvaccinated.

Continue reading

Will Fed Crash Global Financial Markets for Their Great Reset? By F. William Engdahl

With or without the Fed global financial markets are headed for a crash. From F. William Engdahl at williamengdahl.com:

t’s looking increasingly likely that the US Federal Reserve and the globalist powers that be will use the dramatic rising of inflation as their excuse to bring down the US financial markets and with it, crash the greatest financial bubble in history. The enormous inflation rise since the malicious political lockdowns and the trillions of dollars in emergency spending by both Trump and Biden, coupled with the continuation of the Fed’s unprecedented near-zero interest rate policies and asset purchases of billions in bonds to keep the bubble inflated a bit longer– have set the stage for an imminent market collapse. Unlike what we are told, it is deliberate and managed .

Supply chain disruptions from Asia to normal truck transport across North America are feeding the worst inflation in four decades in the USA. The stage is set for the central banks to bring down the debt-bloated system and prepare their Great Reset of the world financial system. However this is not an issue of inflation as some mysterious or “temporary” process.

The context is key. The decision to crash the financial system is being prepared amid the far-reaching global pandemic measures that have devastated the world economy since early 2020. It is coming as the NATO powers, led by the Biden Administration, are tipping the world into a potential World War by miscalculation. They are pouring arms and advisers into Ukraine provoking a response by Russia. They are escalating pressures on China over Taiwan, and waging proxy wars against China in Ethiopia and Horn of Africa and countless other locations.

The looming collapse of the dollar system, which will bring down most of the world with it owing to debt ties, will come as the major industrial nations go fully into economic self-destruction via their so-called Green New Deal in the EU, and USA and beyond. The ludicrous Zero Carbon policies to phase out coal, oil, gas and even nuclear have already brought the EU electric grid to the brink of major power blackouts this winter as dependency on unreliable wind and solar make up a major part of the grid. On December 31, the “green” new German government oversees the forced closing of three nuclear power plants that generate the electricity equivalent of the entire country of Denmark. Wind and solar can in no way fill the gaps. In the USA Biden’s misnamed Build Back Better policies have driven fuel coats to record highs. To raise interest rates in this conjuncture will devastate the entire world, which seems to be precisely the plan.

Continue reading→

Interest rates, money supply, and GDP, Alasdair Macleod

Alasdair Macleod is one of the few economists out there who actually touts honest economics and is not just a political whore. From Macleod at goldmoney.com:

That the world is on the edge of a monetary and economic cliff is becoming increasingly obvious. And becoming more obviously permanent than transient, price inflation will almost certainly lead to rising interest rates. Rising bond yields, falling equity markets and debt-triggered insolvencies will naturally follow.

According to the economists prevalent in official circles, a prospective mix of so-called deflation and rising prices are contradictory, should not happen at the same time, and therefore cannot be explained. Yet that is the prospect they now face. The errors in their lack of economic judgement have evolved from the time when central banks began to manipulate their currencies to achieve economic objectives and then to subsequently dismiss the evidence of policy failure. It has been a cumulative process for the Federal Reserve and the Bank of England since the 1920s, which can only now end in a final catastrophic failure.

The denial of reasoned economic theory, embodied in a preference by state actors for state-driven outcomes over free markets, has led to this cliff-edge. This article explains some of the key errors in economic and monetary theory that have taken the world to this point — principally the relationships between interest rates, money supply, and GDP.

Introduction

Following the First World War, central banks have not only acted as lender of last resort, which was the role the Bank of England and its imitators took on for themselves in the preceding decades, but they have increasingly tried to manage economic outcomes. The trail-blazer was pre-war Germany which grasped Georg Knapp’s state theory of money as justification for Prussia’s socialism by currency, eventually ending with the collapse of the paper mark in the post-war years. But the genesis of today’s monetary policies has its foundation in the then newly constituted Federal Reserve Bank, chaired by Benjamin Strong, who in the 1920s collaborated with Norman Montague at the Bank of England who was struggling to contain Britain’s post-WW1 decline.

Continue reading→

The Long Cycles Have All Turned: Look Out Below, by Charles Hugh Smith

What would happen if all the long cycles were to turn simultaneously? From Charles Hugh Smith at oftwominds.com:

But alas, humans do not possess god-like powers, they only possess hubris, and so all bubbles pop: the more extreme the bubble, the more devastating the pop.

Long cycles operate at such a glacial pace they’re easily dismissed as either figments of fevered imagination or this time it’s different.

But since Nature and human nature remain stubbornly grounded by the same old dynamics, cycles eventually turn and the world changes dramatically. Nobody thinks the cyclical turn is possible until it’s already well underway.

Multiple long cycles are turning in unison:

1. The cycle of interest rates: down for 40+ years (last turn, 1981), now up for an unknown but consequential period of time.

2. The cycle of inflation / deflation: the 40-year period of low real-world inflation and rip-roaring speculative debt-asset inflation has ended and now an era of scarcity, real-world inflation and speculative debt-asset deflation begins.

Continue reading→

All-knowing, all-powerful central bank throws in the towel, by Simon Black

The only powers modern central banks have are to create debt instruments and exchange them for other debt instruments. Could someone please explain how that can create economic growth? From Simon Black at sovereignman.com:

It’s been nearly 11 years now that Ben Bernanke, who was then Chairman of the Federal Reserve, sat down for a rare TV interview with 60 Minutes back in late 2010.

As he sat across from journalist Scott Pelley, Bernanke appeared shaken, but not stirred; he was visibly nervous, but displayed the emotional detachment of a trauma surgeon.

He was especially detached– even dismissive– when addressing concerns about inflation; the Fed had nearly tripled the size of its balance sheet in late 2008, practically overnight, and slashed interest rates to zero.

And there were legitimate concerns that these actions would lead to significant inflation.

Bernanke rejected these concerns, telling Scott Pelley he has “100%” confidence in his ability to control inflation, and that “we can raise interest rates in 15 minutes if we have to. . .

Ironically inflation actually did start to rise, literally weeks after that interview; by late summer 2011, in fact, inflation peaked at nearly 4%, though food and fuel prices raced much higher.

But the Fed did not raise interest rates. Instead they dismissed any inflation concern as “transitory”.

Now, this idea of the central bank’s almighty power has long been a cliché in financial markets; they’ve convinced investors, politicians, and citizens alike of their infinite resources to bend the economy to their will.

Well then… let’s see it.

Continue reading→

A Reckoning of Economic Excess, by Bill Bonner

An inflationary rescue by the world’s central banks will not prevent the financial asset and economic meltdown that’s coming. From Bill Bonner at rogueeconomics.com:

He who takes what isn’t his’n
Pays it back or goes to prison

– 19th century American businessman Daniel Drew

BALTIMORE, MARYLAND – What we were looking for in the Evergrande story was a hint… a clue… an advance warning of things to come.

What happens when you can’t pay your debts? How does it end?

With a bang of inflation? Or a whimper of deflation?

Our prediction: Both.

Every bubble blows up. Every excess has to be resolved. And every debt gets settled – one way or another.

Typically, a bubble brings on a case of “irrational exuberance.”

The irrationally exuberant investor pays too much for his assets. The irrationally exuberant businessman stretches too far… borrows too much… and over-extends himself. The irrationally exuberant empire invades Afghanistan.

But no one and nothing is ever evergrande, of course. It is only occasionally grand.

And when the occasion passes… so does the grandeur.

Too Much Excess

“And then what?” is our question today.

We have the answer, too: the end of the world as we have known it.

An excess of private investment usually produces an excess of capacity… and excess output. Too much, in other words.

Then, when the Bubble Epoch passes… the excess is usually reckoned with in a DEFLATION. Prices fall… until demand picks up enough to clear the market.

The investors and producers, who misjudged the situation, and their suppliers and employees, suffer the losses.

That’s what happened in America after the crash of 1929.

Private industry had expanded in the Roaring Twenties… By the 1930s, it produced far more autos and electrical appliances than the market could absorb.

Prices – for stocks, as well as consumer items – collapsed. The price of milk, for example, fell so low that dairy farmers dumped it on the ground rather than sell it.

Stock prices dropped for nearly three years, from 377 Dow points in October, 1929, to only 44 in July of 1932.

Then, it took 25 more years, a Great Depression, and World War II for prices to recover.

Continue reading→

The Eurozone Is Going Down The Japan Way, by Daniel Lacalle

The Japan Way is for the central bank suppresses interest rates and monetizes debt through its buying of the government’s debt, until interest rates are so low that the bank is the only buyer. From Daniel Lacalle at dlacalle.com:

The European Central Bank announced a tapering of the repurchase program on September the 9th. One would imagine that this is a sensible idea given the recent rise in inflation in the eurozone to the highest level in a decade and the allegedly strong recovery of the economy. However, there is a big problem. The announcement is not really tapering, but simply adjusting to a lower net supply of bonds from sovereign issuers. In fact, considering the pace announced by the central bank, the ECB will continue to purchase 100% of all net issuance from sovereigns.

There are several problems in this strategy. The first one is that the ECB is unwillingly acknowledging that there is no real secondary market demand for eurozone countries’ sovereign debt at these yields. One would have to think of twice or three times the current yield for investors to accept many eurozone bonds if the ECB does not repurchase them. This is obviously a dangerous bubble.

The second problem is that the ECB acknowledges that monetary policy has gone from being a tool to help implement structural reforms to a tool to avoid them. Even with the strong GDP bounce that the ECB predicts, few governments are willing to reduce spending and curb deficits in a meaningful way. The ECB estimates show that after the massive deficit spending of 2020, eurozone government spending will rise again by 3.4% in 2021 only to fall modestly by 1.2% in 2022. This means that eurozone government spending will consolidate the covid pandemic increase with little improvement in the fiscal position of most countries. Indeed, countries like Spain and Italy have increased the structural deficit.

Continue reading→

The Fed Is Helping Facilitate Trailer Park Evictions, by Michael Maharrey

Maybe there’s some sort of fleabag apartment or hotel level between trailer park eviction and homelessness, and maybe not. From Michael Maharrey at schiffgold.com:

The Federal Reserve is helping corporate real estate investors evict poor people from mobile home parks.

NPR highlighted the growing number of mobile home part evictions. According to the report, real estate investors continue to buy up mobile home parks across the US. They then raise lot rents and fees, and evict residents who can’t pay.

As the report explains, the government makes this scheme possible with easy financing through agencies such as Fannie Mae and Freddie Mac. Here’s how it works in a nutshell.

A company raises rates and fees in a park. That makes the park more valuable. So they can now borrow more money against it, kind of like when you refi your house and get cash out of the deal. They pull out, say, $3 million, and they use that to go buy another mobile home park. And then they do that again and again. It’s a cascade of borrowed money. And often, these loans are backed by the US government. They provide very, very low-cost debt for these investors to get enough cash out to go buy additional parks. The loans have super cheap interest rates because they’re guaranteed by Fannie Mae and Freddie Mac, the government-backed entities at the heart of the US mortgage market.”

NPR gets part of the story right. In fact, it’s pretty impressive that they didn’t just pin the blame on “greedy capitalists.”

Nevertheless, the story completely misses the biggest player in this game – the Federal Reserve.

NPR asserts that the interest rates are low because the government backs the loans. That’s certainly part of the equation. But it’s the central bank that pushes interest rates to artificially low levels. And the Fed also makes it possible for these quasi-governmental agencies to continue to buy loans through its quantitative easing program.

Continue reading→