Adjusting for the appreciation in its assets the Fed had seen through the end of last year, the unrealized losses were an even larger $458 billion.
This makes the Ukrainian relief bill of $30 billion look like chump change. Although it is about the same amount as Biden’s student loan forgiveness plan which would about to $321 billion.
Nobody spends other peoples’ money like politicians and now The Federal Reserve. Who are also DC-based politicians.
And yes, the purchasing power of the US Dollar and M2 Money Velocity (GDP/M2) appear to be collapsing like a dying star.
The Federal Reserve has been signaling a tightening of its loose monetary policy (essentially loose since the housing bubble burst of 2008 and the ensuing financial crisis). It is still loose as The Fed hasn’t really trimmed its massive balance sheet yet and has just raised it target rate to 1%.
So, potential home owners have to pay 5.10% for a 30-year fixed-rate mortgage while the effective Fed Funds rate, the rate at which banks lend to each other, is a measly 0.83%. This puts consumers at a relative disadvantage to large Wall Street firms that are gobbling up houses at an accelerated rate.
With the US housing market slowing (thanks to The Fed’s signaling of monetary tightening), the question now is how far will The Fed go in its “War on Inflation!”?
You can see a major cause of inflation in the US since 2000: Federal spending and Federal (public) debt. During The Great Recession of 2008-2009, we saw inflation (CPI YoY) collapse into negative territory as Federal spending and debt soared. But the mini-recession of 2020 caused by the Covid governments shutdowns led to TWO surges in Federal spending and debt: Covid relief followed by the infrastructure spending bill. Combined with Biden’s anti-fossil fuel executive orders and massive splash of Federal spending in to the economy, we have inflation soaring.
If surges in Federal spending (requiring surges in Federal debt) have gone away (except for $40 billion in Ukrainian relief and Biden’s possible student loan cancellation of $10,000 that will cost an estimated $321 billion … and help drive up college tuitions even further), we may be over the “twin gorgings” of the Covid spending spree. This alone may result is a decline in the inflation rate.
Where do we sit today with the REAL neutral rate? The REAL Fed Funds Target Rate (upper bound) is -4.41%. It was in positive territory during the Trump years. But then Covid struck.
No wonder Wall Streeters like to go “Down To The Nightclub!” The Fed still has not taken the monetary stimulypto away, but have taken it away for consumers buying housing.
Americans’ Savings Rate Drops to Lowest Since 2008 as Inflation Bites.
Yes, inflation really bites. In fact, as US inflation is near the 40-year high, US personal savings declined -65% YoY as consumers try to cope with rising prices.
Its not only that personal savings is crashing in the face of inflation, revolving debt has soared as consumers try to cope with rising prices. I call this chart “The Biden Bowl.” Soaring consumer credit card debt with crashing personal savings.
The University of Michigan Consumer Survey showed a decline in May to 58.4 (100 is baseline). Soaring inflation is a likely culprit.
But the truly horrible survey result is the UMich Buying Conditions for Houses, plunging to 45. The reason? Crazy, expensive house prices courtesy of The Federal Reserve and rising mortgages (also, courtesy of The Federal Reserve).
The buying conditions for houses is now the lowest in the history of the University of Michigan consumer survey. In fact, consumer sentiment for housing is far lower than during the awful housing bubble burst of 2008 and the subsequent financial crisis.
And the US economic surprise index has turned negative.
Here is Fed Chair Jerome Powell wielding his monetary bat called “Lucille.”
US mortgage rates are up slightly this morning. Bankrate’s 30-year mortgage rate survey is up to 5.29%.
The Biden Scorecard is still a bleak one (for non-elitists). Regular gasoline is UP 92% under Biden, Diesel fuel is UP 110%, foodstuffs are up 60% under Biden, Zillow all-house rents are UP 16.4% YoY.
US pending homes sales in April tanked -11.5% YoY and down -3.9% MoM which was greater than expected.
Not really surprising when you see that REAL home prices are growing at an 11.55% YoY clip while REAL hourly earnings are declining at a -2.8% YoY pace.
Do you feel like I do with Bidenflation crushing my check book and The Fed crushing my hopes for an affordable home.
US Real GDP Annualized QoQ printed at -1.5%. And GDP prices QoQ printed at 8.1%, also higher than expected.
At least Personal Consumption printed higher than expected at 3.1%.
Import prices (goods) led the way at 20.9%. Part of Biden’s brilliant strategy of reducing domestic oil production and import expensive energy from overseas?
Consumers are spending more, but the personal savings rate is down to the lowest level since 2013 at 6.2% as consumers try to cope with inflation.
If we look at 90+ days late for mortgages (yellow line), we see that the surge in unemployment with the Covid outbreak and subsequent government shutdowns (red line) did not lead to a surge in mortgage foreclosures.
This situation is quite unlike 2008 when collapsing home prices and the subsequent surge in the unemployment rate led to a 90+ days late surge on mortgages (yellow line).
Difference between today and 2008? The Federal Reserve’s asset purchase (green line) surge happened twice AFTER the 2008 housing crash. Once in late 2008 through 2014, then a second, bigger surge in March 2020 after the Covid outbreak. One big difference is the surge in home prices, home price growth was 3.69% YoY in December 2019 and skyrocketed to 19.80% as of February 2022. This translates to a massive increase in homeowner equity, leading to a lower probability of default.
So, there you go. Powell and The Federal Reserve made housing unaffordable for millions of Americans, but The Fed did help thwart another mortgage default crisis. BUT we will see what happens with future rate hikes from The Fed.
Here is Attom’s US Foreclosure Starts chart. Yes, that is hardly a surge, although foreclosure starts did rise in Q1 2022.
So, The Fed has helped make housing simply unaffordable. Look at the growth of REAL home prices relative to REAL average hourly earnings.
The US Q1 GDP report is due out tomorrow morning. The forecast is for -1.3% decline in GDP.
The Atlanta Fed GDPNow real-time GDP tracker is for 1.806% for Q2. If this holds, then recession fears will diminish.
Even though the US may avoid consecutive negative GDP quarters, M2 Money Velocity (GDP/M2 Money) got crushed by The Fed’s reaction to Covid back in 2020.
The reason why home prices are still raging at 17.3% YoY? The Fed’s monetary stimulypto is STILL in place! The Fed’s balance sheet (green line) is still staggering, and The Fed Funds target rate (white line) is a measly 1%.
Atlanta Fed President Raphael Bostic is talking about a pause in Fed tightening. Which they haven’t paused yet.
Fed Chair Jerome Powell is really “slowhand,” not Eric Clapton. Bostic is now a member of The Fed’s “Slowhand” strategy.
Confounded Interest - Anthony B. Sanders 