Goin’ Down! US GDP Nosedives To 0.5% On Bubbles And Bottlenecks

Goin’ down! GDP, that is.

The Atlanta Fed’s GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2021 is 0.5 percent on October 19, down from 1.2 percent on October 15. After recent releases from the US Census Bureau and the Federal Reserve Board of Governors, the nowcasts of third-quarter real personal consumption expenditures growth and third-quarter real gross private domestic investment growth decreased from 0.9 percent and 10.6 percent, respectively, to 0.4 percent and 8.4 percent, respectively.

US real GDP nosedived to 0.5% according to the Atlanta Fed GDPNow real-time tracker.

Again, The Fed and Federal government pumped trillions of stimulus into an unprepared economy resulting in massive bottlenecks. So, we are getting declining GDP and rising inflation.

Yesterday’s industrial production dove leading to the 0.5% GDP figure. Today’s housing starts didn’t impact GDP in a meaningful way.

And she was.

Stimulypto! US GDP Q3 Tracker Slumps To 2.3% Despite Massive Monetary Stimulus (Down From 13.7% On May 5th, 2021 Despite MORE Stimulus)

Can you say “All the king’s horses and all the king’s men ..” Or “All The Fed’s stimulus and all of Biden’s jobs bills ..”

Yes, the Atlanta Fed’s GDPNow Q3 tracker slumped to 2.3% despite the massive stimulus coming from The Federal Reserve and the Biden Administration. Down from 13.7% GDP growth as of 5/5/2021.

The Fed Helped Create Housing Bubble I And Then Helped Create Housing Bubble II: The Sequel (Case Study Of Phoenix AZ Home Price Bubble)

Phil Hall of Benzinga wrote a series of excellent articles in four parts for MortgageOrb (although “The Orb” has removed his name). Here are the links to his stories.

https://mortgageorb.com/the-fall-and-rise-of-the-housing-market-part-one

https://mortgageorb.com/the-fall-and-rise-of-the-housing-market-part-two

https://mortgageorb.com/the-fall-and-rise-of-the-housing-market-part-three

https://mortgageorb.com/the-fall-and-rise-of-the-housing-market-part-four

After re-reading these excellent articles on the housing bubble and crash, I thought I would take the opportunity to present a few charts to highlight the housing bubble, pre-crash and post-crash.

Here is a graph of Phoenix AZ home prices. Note the bubble that peaked in mid 2006. The Phoenix bubble correlates with the large volume of sub-620 FICO lending and Adjustable-rate mortgage (ARM) lending. Bear in mind, many of the ARMs prior to 2010 were NINJA (no income, no job) ARM loans.

What happened? Serious delinquenices at the national levels spiked as The Great Recession set in and unemployment spiked.

Since the housing bubble burst and surge in serious mortgage delinquencies, The Federal Reserve entered the economy with a vengeance. And have never left, and increased their drowning of markets with liquidity.

The Fed whip-sawing of interest rates in response to the 2001 recession was certainly a problem. They dropped The Fed Funds Target rate like a rock, then homebuilding went wild nationally and home prices soared thanks to Alt-A (NINJA) and ARM lending. But now The Fed is dominating markets like a gigantic T-Rex.

Oddly, then Fed Chair Ben Bernanke never saw the bubble coming. Or the burst.

Speaking of pizza, Donato’s from Columbus Ohio is my favorite. Founder’s Favorite is my favorite, but they do offer the dreaded Hawaiian pizza (ham, pineapple, almonds and … cinnamon?)

Bleech!

The Powellenburg Omen Is Flashing … Again (ECB Balance Sheet Is 79.62% Of European Union GDP)

Well, the US stock market is raging along with Federal Reserve monetary stimulus, Federal government fiscal stimulus and a roaring economy.

A note of caution: the Hindenburg Omen chart is flashing … again. It forecast the stock market crash of 2008, but growing monetary stimulus from The Federal Reserve (green line) has helped prevent another correction.

The Shiller CAPE ratio is signalling a correction just like the Hindenburg Omen.

But Fed Chair Powell and Treasury Secretary Yellen along with our free-spending Congress and Administration have nothing on Europe where the ECB’s balance sheet is a whopping 79.51% of European Union GDP! The Fed’s balance sheet is “only” 36.66% of US GDP.

Here is the SS Powellenburg cruising over Wall Street.

Fed’s Ability to Set Rates Floor Is Weakening on Cash Deluge (“Charming” Powell Had At Least 350 Meetings, Dinners Or Phone Calls With Members Of Congress)

Powell and The Fed’s policies have veered from their mandate requiring Chairman Powell to meet 350 times with Congress to sell The Fed’s policies.

Bloomberg) — The Federal Reserve’s floor for overnight funding markets is proving to be no match for the deluge of cash. 

Money-market securities ranging from Treasury bills to repurchase agreements continue to trade below 0.05% — the offering rate on the overnight reverse repo facility, which is supposed to act like a floor for the front end. The Fed at its June meeting had raised the rate by five basis points to help support the smooth functioning of short-term funding markets.

Still, usage of the tool climbed to a record $1.136 trillion on Monday, eclipsing the previous high of $1.116 trillion on Aug. 18. 

Demand for the so-called RRP facility has surged as a flood of dollars threatens to overwhelm funding markets. That’s in part a result of the central bank’s long-standing asset purchases and drawdowns of the Treasury’s cash account, which is pushing reserves into the system. As a result, liquidity has been swelling, especially as the Treasury cuts supply to create more borrowing room under the debt ceiling.

The pressure pushing down overnight rates toward zero is proving a major headache for money-market funds. It hampers their ability to invest profitably, and can lead to further disruptions as they begin to waive fees to avoid passing on negative rates to shareholders. A number of firms including Vanguard Group shut down prime money-market funds last year after struggling to cover operating costs in the low-interest-rate environment.

Yes, overnight rates such as the US SOFR rate, are near zero.

Powell’s Charm Offensive in Congress Positions Him to Keep Job

Perhaps that is why Federal Reserve Chair Jerome Powell is acting as a lobbyist with Congress for The Fed’s nontraditional approach to monetary policy.

(Bloomberg) Since he took the helm of the Fed in February 2018, through June of this year, he’s held at least 350 meetings, dinners or phone calls with members of Congress, according to his monthly calendars. That’s almost nine per month, and many of those included more than one lawmaker. The tally doesn’t count at least 16 appearances as chair before numerous congressional committees.

Well, the stock market has zoomed-up since Bernanke and The Fed adopted zero-interest rate (ZIRP) policies and the now famous quantitative easing (QE) policies in late 2008.

Congress member Alexandria Ocasio-Cortez asked Fed Chair Powell about the Fed helping with US unemployment. We are already at zero rates (on the short-end), and Congress should look at their policies on why labor force participation is slow to recover from the Covid epidemic.

Powell is sounding more and more like Parks and Recreation’s Tom Haverford in terms of schmoozing Congress for support.

Update: The Mises Stationarity Index is flashing “BUBBLE.”

The Mises Stationarity Index is different than the Shiller CAPE index, which is showing equities as being overpriced, but not yet in dot.com bubble zone.

Eraserhead! The Fed Has Been Erasing US Dollar Purchasing Power (And Money Velocity) Since 1913 (Home Price Inflation Highest In Modern US History!)

The purchasing power of the US Dollar has been virtually erased since the creation of The Federal Reserve in 1913 when $1,000 in 1913 is now worth $36.36. And M2 Money Velocity (GDP/M2 Money) has crashed and burned to the lowest level in history.

Inflation? Home price growth YoY is the highest in modern US history. And CPI growth YoY is the highest since the Financial Crisis and July 2008.

Bear in mind that before the creation of The Federal Reserve System in 1913, there were numerous incidents of inflation and bank failures leading banks to want protection of a national banking system that controlled the currency. Well, the banks got what they wanted.

The Fed is predicted to ease its foot off the printing press in the latter half of 2022.

Consumer Sentiment in U.S. Plunges to Lowest Since 2011 (Good Time To Buy A Home Falls To 30% Share Due To Raging Home Price Growth)

U.S. consumer sentiment fell in early August to the lowest level in nearly a decade as Americans grew more concerned about the economy’s prospects, inflation and the recent surge in coronavirus cases.

The University of Michigan’s preliminary sentiment index fell by 11 points to 70.2, the lowest since December 2011, data released Friday showed. The figure fell well short of all estimates in a Bloomberg survey of economists.

Consumer sentiment in U.S. plunges on concerns about virus, economic prospects
  

The slump in confidence risks a more pronounced slowing in economic growth in coming months should consumers rein in spending. The recent deterioration in sentiment highlights how rising prices and concerns about the delta variant’s potential impact on the economy are weighing on Americans.

“Consumers have correctly reasoned that the economy’s performance will be diminished over the next several months, but the extraordinary surge in negative economic assessments also reflects an emotional response, mainly from dashed hopes that the pandemic would soon end,” Richard Curtin, director of the survey, said in the report.

The expectations gauge plummeted almost 14 points to 65.2, the lowest since October 2013. A measure of consumers’ outlook for the economy over the coming year soured, falling the most since the onset of the pandemic in March 2020. 

Only 36% of respondents expect a decline in the jobless rate, down from 52% the prior month, despite record job openings. Consumers also became decidedly downbeat about their income prospects. The gauge of expected personal finances fell to a seven-year low.

Rising prices are having a clear impact on Americans’ budgets, particularly among those with lower or fixed incomes. Nearly a third of those aged 65 or older complained that inflation had lowered their living standards, as did about a fourth of those with incomes in the bottom third or with a high school education or less. 

The Michigan report showed buying conditions deteriorated to the lowest since April of last year.

Buying conditions deteriorate sharply for American consumers as prices soar
  

Yes, only 30% of respondents felt that it was a good time to buy a home. Particularly since home prices are rising at a 16.6% YoY pace, faster even than the peak of the infamous home price bubble of 2005. But this time, The Fed is blowing the bubble, not easy mortgage credit like in 2005.

Apparently, Treasury Secretary Janet Yellen does not inspire confidence in consumers.