MMT Alert! US Debt At $10.7 Trillion In Q4 2008, Now At $30.6 Trillion, +186% In 14 Years (M2 Money UP +162.5%) US Unfunded Liabilities At $172.4 TRILLION!

Ever since the financial crisis of 2008 and the election of President Obama and a Democrat Congressional sweep, the US has embraced Modern Monetary Theory (MMT or borrow, print and spend without consequence). And between the financial crisis and the Covid crisis of 2008, we have seen an increase in US public debt from $10.7 trillion in Q4 2008 to a staggering $30.6 trillion as of Q2 2022. That is a staggering increase of 186% in only 14 years.

How about US Money stock? M2 Money stock has grown by 162.5% since the beginning of 2009 and the “Blue Wave” of 2008. And nothing has been the same.

The Covid outbreak in early 2020, we saw Fed money printing that has never seen before … or since. But one thing is for sure, M2 Money Velocity (GDP/M2) is near all-time lows.

Then we have headline US inflation as a function of M2 Money growth YoY.

To paraphrase Alexander Dayne from Galaxy Quest, “They broke the financial system, they broke the bloody financial system!”

And it is the midterm election “silly season” where no politician will discuss the complete and utter mess they have made. According to US Debt Clock, US national debt is already up to $31.26 trillion (OMG!), but the REALLY scary number that not a single politician will address is UNFUNDED LIABILITIES OF $172.4 TRILLION.

Can we go back to the gold standard? Or silver standard? Or ANY standard for that matter??

Instead, we have porous borders and patently UNSOUND money, thanks to MMT.

How Biden And The Fed Defanged The FANG Index And Clobbered Growth And Real Estate ETFs (Cousin Eddie And Clark Griswold Strike Again!)

There is no doubt that Biden is the Cousin Eddie of politics with his gifts that keep on giving. Like rampant inflation, soaring food, gasoline and diesel prices, and Pelosi/Schumer’s helping hand in creating price controls that will kill potential cures for illnesses.

In addition to rampant 40-year highs in inflation, we have the Clark Griswold of the economy, Fed Chair Jerome Powell, slamming his foot on the economic breaks to combat inflation created by Biden’s energy mandates and reckless Federal spending (like the aforementioned, laughable “Inflation Reduction Act.”

So, Biden helps creates massive inflation and Powell and the Gang counterattacked by raising their target rate with more to come (at least until May 2023). And with the implied Fed Funds rate soaring (red line), we are seeing the FANG stocks (Facebook or Meta, Amazon, Netflix and Google) falling more rapidly (white line) than the S&P 500 index. Which is also falling like a rock (yellow line). All this is happening as M2 Money YoY crashes and burns.

How about growth versus value under Cousin Eddie and Clark Griswold? The Vanguard Growth ETF and Vanguard Real Estate ETF are plunging with Fed tightening (red line). Vanguard’s Value ETV (yellow line) is down too, but not by as much.

Yes, Washington DC elites. The gift that keeps on giving … bad things.

Thanks to my former GMU student Andrew Edwards for the Cousin Eddie suggestion!

Alarm! US Productivity Declines For 3rd Straight Quarter While Unit Labor Costs Rose 7.60% YoY, Fastest Since 1982

Alarm!

Even Joe Biden’s hate speech towards Republicans can’t mask the horrid inflation on his watch. As if Biden watches anything other than ice cream cones.

On a YoY basis, US Productivity is down for the 3rd straight quarter (and 4th quarter of the last 5).

On the mirror image of productivity, unit labor costs rose 3.5% QoQ (a notable slowing from the 8.9% QoQ growth in Q2). This was the 6th quarter in a row of rising unit labor costs (but was less than the +4.0% QoQ expected)…

However, on a YoY basis, that is the fastest growth since Q3 1982.

Yikes! The 2s10s Yield Curve Inversion Is the worst since the 1980s.

Powell’d! S&P 500 Index Drops -2.35% On Failure Of Fed Pivot (“Very Premature To Be Thinking About Pausing)

Markets are getting stranger than the Paul Pelosi hammer attack.

The S&P 500 index tanked -2.35% after Powell and The Fed failed to pivot.

Federal Reserve Chair Jerome Powell opened a new phase in his campaign to regain control of inflation, saying US interest rates will go higher than previously projected, but the path may soon involve smaller hikes.

Addressing reporters Wednesday after the Fed raised rates by 75 basis points for the fourth time in a row, Powell said “incoming data since our last meeting suggests that ultimate level of interest rates will be higher than previously expected.”

Powell said is it would be appropriate to slow the pace of increases “as soon as the next meeting or the one after that. No decision has been made,” he said, while stressing that “we still have some ways” before rates were tight enough.

“It is very premature to be thinking about pausing,” he said.

Fed Funds Futures data point now to a June peak in the target rate of 5.055%, then a decline.

MBA Mortgage Applications Drop 0.5% WoW, Refi Apps DOWN 85% YoY, Purchase Apps DOWN 41% YoY (75 Basis Point Increase In Fed Rate Expected Today, Peaking At 5% In May 2023)

US mortgage applications declined for the sixth consecutive week despite a slight drop in rates.

Mortgage applications decreased 0.5 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending October 28, 2022. This week’s results include revised data to reflect an update to last week’s survey results.

The Refinance Index increased 0.2 percent from the previous week and was 85 percent lower than the same week one year ago. The seasonally adjusted Purchase Index decreased 1 percent from one week earlier. The unadjusted Purchase Index decreased 2 percent compared with the previous week and was 41 percent lower than the same week one year ago.

This morning’s WIRP (Fed Funds Futures data) is pointing to a 75 basis point increase from The FED FOMC (open market committee) at 2pm EST, rising to over 5% by the May 2023 meeting before declining again.

I feel like The Fed is fixing to let the economy die.

MBS Returns Extend Negative Streak During Worst Year On Record (MBS Prices Dropping With Fed Tightening And M2 Money Growth Decline)

The housing and mortgage markets are suffering with impending recession and Fed monetary tightening.

MBS returns extended their negative run during their worst year on record as 10-year Treasury yields topped 4% and the trend in MBS spreads widened.

The MBS sector has had only two positive months in both total and excess returns this year — May and July.

Take a look at the 4.5% coupon agency MBS price and risk (duration) with Fed tightening (orange line) and crashing M2 Money growth (green line).

Time for something new in the MBS market?

The Fed’s BIG Green Bag (Of Money)! Goldman Sees Fed Rate Peaking In March At 5%, Core Inflation Rate UP > 400% Under Biden (US Yield Curve Inverted Prior To Nov 2nd FOMC Meeting)

The next Federal Reserve Open Market Committee (FOMC) meeting in on Wednesday, November 2nd. Let’s see what The Fed does with its BIG GREEN BAG … OF MONEY.

As I set here on Sunday morning waiting to see how the Cleveland Browns will lose to cross-state rival Cincinnati Bengals, I see that both the US Treasury 10yr-2yr and 10yr-3mo yield curves are inverted (below zero).

Core inflation (CPI less food and energy) YoY (blue line) was only 1.3% in February 2021 shortly after Biden was sworn-in as President and is now 6.6% in September 2022. That is over a 400% increase in core inflation!

We have this tantalizing headline on Bloomberg:

Goldman Sachs Now Sees Fed Rates Peaking at 5% in March By Simon Kennedy(Bloomberg) —

Goldman Sachs Group Inc. economists said they now expect the US Federal Reserve to raise interest rates to 5%, higher than previously predicted.

The central bank will lift its benchmark rate to a range of 4.75% to 5% in March, 25 basis points more than earlier expected, economists led by Jan Hatzius wrote in an Oct. 29 research report.

The route to the new peak includes increases of 75 basis points this week, 50 basis points in December and 25 basis points in February and March, they said.

The economists cited three reasons for expecting the Fed to hike beyond February: “uncomfortably high” inflation, the need to cool the economy as fiscal tightening ends and price-adjusted incomes climb, and to avoid a premature easing of financial conditions.

Well, not exactly earth-shattering. Fed Funds Futures data point to a peak of near 5% (4.905%) for the May 2023 FOMC meeting, so Goldman Sachs is calling for an earliest peak at the March 2023 FOMC meeting,

Regardless of what Goldman Sachs thinks, Fed officials are expecting a peak in 2023 followed by a decline to 2.5%.

Brainard and Bostic are the only “doves.” Which is silly because Chicago’s Evans is a perma-dove. Let’s see how the Dots Plot changes at the November 2nd meeting.

America’s distressed debt pile is biggest since September 2020.

US Pending Home Sales Collapse -30.4% YoY In September (10th Negative Month In A Row) As Fed Plans MORE Rate Hikes (Personal Saving Rate DOWN -59.3% YoY)

I was in an MRI tube getting a scan of the brain tumor that is causing me problems. So, I missed this morning’s new dump. And what a dump it was!

First, pending home sales have collapsed (down -30.4% YoY) for September. Look at pending home sales against M2 Money growth.

Then we have the employment cost index, up 5%. This will encourage The Fed to tighten further, even if it causes a recession.

How about the US Personal Saving Rate YoY?? It is down -59.3%.

But were living on Washington DC time!

US Mortgage Rates At 7.20% As US Yield Curve 10YR-3MO Inverts (M2 Money YoY Lowest Since 2010)

As the midterm elections get close, the news for Americans gets worse.

On the housing/mortgage front, Bankrate’s 30-year mortgage rate (yellow line) just hit 7.20%, the highest since 2000. Also, the US Treasury 10yr-3mo yield curve (white line) inverted, historically a precursor to recession, before barely climbing back above 0%.

Meanwhile, M2 Money growth has collapsed to the lowest level since 2010.

US GDP numbers are due out at 8:30AM EST for Q3. The numbers are expected to show slow growth (around 2.4%) with rapid inflation (5.3%). While the GDP numbers are better than Q2’s numbers, they are still pretty lousy.