How To Stop Inflation Without A Recession? Slow Federal Spending And Shrink The Fed Balance Sheet (Return To Demand Economy From Obama/Biden’s Command Economy)

Inflation is a killer to the middle class and low-wage worker. Yet there are always apologists for terrible Federal spending and Federal Reserve monetary policies. Like Alex Bereson with his “How we stopped inflation without a recession (hint: by not stopping inflation).”

Before I look at Berenson’s plea for more inflation, let’s see where Federal spending and Fed Monetary policies have left us. As of this morning, the REAL US Treasury 10-year yield (nominal yield less inflation), is now the highest since two crises ago, meaning The Great Recesssion and the first major overreaction of The Federal Reserve in late 2008.

Here is Berenson’s chart showing changes in inflation (CPI YoY) from 1966-1982 compared with recent inflation (orange) from 9/30/2013 – 06/30/2023. A charist might get confused and assume that inflation is will start rising again. But it is far more complicated than a simple projection.

One of the complications to the narrative is the change in the US economy after the Carter recession of 1980 and the inherited recession inherited by Reagan from Carter from 1981-2.

Since 1982 and the Carter recessions, we have seen incredible growth in Federal spending and when the proved insufficient, a massive increase in Fed monetary stimulus in late 2008 and then again in 2020 due to Covid. Remember Winston Churchill’s quote regarding water, “Never let a good crisis go to waste.” That has morphed into a battle cry for more government spending and regulation, not to mention Federal Reserve monetary policies.

Notice that core inflation under Carter (green line) was gut wrenching (yet Berenson just shrugs it off). Core inflation is still at a horrible 4.7% YoY. But you can see the spikes in Federal spending (blue line) and Fed Monetary stimulus (red line) associated with the financial crisis of 2008-2009 and Covid 2020-2021.

Then we have the Federal budget deficit, still over $1 trillion (despite perpetually confused President Biden claiming he got rid of the deficit). Meanwhile, The Federal Reserve still has over $8 TRILLION in monetary stimulus sloshing around the financial system.

Inflation is a horrifying by-product of Federal spending and Fed monetary policy (especially under Fed Chair Janet Yellen). Unfortunately, Yellen is now the US Treasury Secretary. For example, REAL average hourly earnings are declining thanks to inflation.

Berenson closes his piece with this sobering statement: “Ultimately, this pattern is why inflation is so problematic. It is addictive, and breaking the addiction means damaging the economy.”

Its Federal spending that addictive, and eventually Congress has to cut its insane spending levels. Even if it lowers GDP and increases unemployment. Take a look at China, a command economy, that is really suffering despite massive government spending.

Berenson is saying “all the Biden defenders are saying we’ve won the battle with inflation. But how can that be so with how much we’ve spent?” I agree, but will Washington DC ever learn? I doubt it.

Under Obama/Biden, the US economy is transitioning from a demand economy to a Soviet/Chinese-style command economy where central government directs economic traffic. We need to bite the bullet and return to a deamnd economy.

Another Brick In The Mall! Downtown San Fran Office Tower Sells At 66% Off As CRE Crisis Claims Another Victim

Bidenomics represents another brick in the mall. Or office space!

Understanding the backdrop of the crime-ridden progressive metro area of San Francisco, alongside the mass exodus of businesses and residents, and the record-high vacancy rate of office towers, we asked a very important question earlier this summer: What are office buildings worth?

We quickly found out in June that one downtown San Francisco office building sold for roughly 70% less than its previously estimated value, an ominous sign of what would come as the commercial real estate market dominos appear to be falling.

Now Sixty Spear St., an 11-story building that is 30% occupied and is expected to be entirely vacant by summer 2025, has been sold to Presidio Bay Ventures for $40.9 million, about a 66% discount versus the most recent assessed property value of $121 million, according to local media SFGATE.

“We acknowledge the formidable challenges that confront San Francisco,” Cyrus Sanandaji, founder and managing principal of Presidio Bay, who is now the office tower’s proud new owner. He remains a bull on the San Francisco office market and wants to expand the building’s square footage from 157,436 to 170,000 square feet and transform it into a “Class-A trophy office building with exceptional design and hospitality-driven amenities.”

All we have to say to Sanandaji’s CRE bet is good luck. The crime-ridden metro area covered in poop must come to terms with City Hall’s horrendous progressive policies that have entirely backfired and led to an exodus of businesses and people. Until Mayor London Breed can instill law and order once more — the ability for the downtown area to thrive once more will remain challenging.

Marc Benioff, the chief executive officer of Salesforce, the city’s largest employer and anchor tenant in its tallest skyscraper, warned last month that the metro area is in danger. He offered a grim outlook: The downtown area is “never going back to the way it was” in pre-Covid times when workers commuted to offices daily.

“We need to rebalance downtown,” Benioff said, adding Breed needs to initiate a program to convert dormant office space into housing and hire additional law enforcement to restore law and order.

… and documenting how the downtown area has rapidly transformed into a ghost town is Youtuber METAL LEO, who walks around with a video camera, revealing empty stores, malls, and towers.

Besides Sixty Spear, SFGATE provided data on other recent tower transactions:

The 13-story 180 Howard St. building, known for being the headquarters of the State Bar of California, sold for about $62 million after being expected to sell for about $85 million.

The offices at 350 California St. reportedly sold for roughly 75% less than its previously estimated value in May, and the 22-story Financial District edifice mostly sits empty. Just a few weeks later, nearby 550 California changed hands for less than half of what owner Wells Fargo paid for the building in 2005.

Things are so bad that some building owners are just walking away from properties:

CRE Doom Loop Accelerates As Westfield Abandons Largest San Fran Mall, Stops Paying $558 Million Loan

And defaulting…

San Fran’s CRE Apocalypse: The City’s Two Biggest Hotels Have Defaulted

As the CRE crisis spreads, remember last week: Baltimore Sun Editorial Board Tells Everyone ‘Keep Calm’ Amid CRE Panic … this will only mean bad news for commercial real estate-small banks that could threaten financial stability and either cause a recession or make a recession more severe.

If you’re curious where we could be in the CRE crisis cycle, a recent analysis by CoStar Group shows 55% of office leases signed before the pandemic that were active during Covid haven’t expired, meaning vacancies will continue to rise.

Here’s what could be next: The collapse of WeWork will only cause more pain for CRE markets nationwide. The coworking company occupies 16.8 million square feet across the US.

KJP: “Bidenomics Is Indeed Working!” … If The Goal Is NEGATIVE Real Weekly Earnings Growth Of -3.57% YoY, Then Bidenomics Is Working! (Even Worse For Blacks At -6.23% YoY)

“Bidenomics is indeed working!” claims Karine Jean-Pierre. “Cost is going down … wages going up, that is Bidenomics.”

Excuse me Karine. REAL weekly earnings growth remains negative as inflation outpaces weekly earnings growth. As of Q2 2023, REAL median weekly earnings growth is a dismal -3.57% YoY.

And if you are black, Bidenomics has failed you even worse! Q2 Real weekly earnings growth for black households was -6.23% YoY.

I wonder if the harpies on The View will discuss this?

Bidenomics! Ford Will Lose $4.5 Billion On EVs This Year, Up From $2.1 Billion Last Year (Ford DOWN -48% Since January 2022, GM DOWN -40% As Fed Withdraws Stimulus)

Bidenomics, the term for “Government Gone Wild! in terms of spending and EPA regulations, is a disaster for the US middle class and low wage workers. Even the 1% are now hurting if bought into Biden’s green lunacy. Ford is now down -48% since January 14, 2022 as The Fed started raising rates to fight inflation. GM is down “only” -40%.

Ford is slated to lose $4.5 billion from its EV segment this year, a $1.5 billion larger loss than the company had expected.

So far this year, the division has lost $1.8 billion and this year’s $4.5 billion loss figure blows away last year’s $2.1 billion loss. Ford also announced that its electric F-150 pickup trucks will undergo a price cut, according to Fox.

Ford beat earnings on Thursday and reported adjusted EPS of $0.72, beating expectations of $0.54. It posted revenue of $45 billion and adjusted EBITDA of $3.8 billion, above estimates of $3.15 billion.

The company also raised its guidance, forecasting adjusted EBIT of $11 billion to $12 billion from $9 billion to $11 billion. The company is now guiding for free cash flow of $6.5 billion to $7 billion, from $6 billion.

But reality has sunk in about the company’s comments regarding its EV production schedule and spending plans. Price cuts in the industry, led by Elon Musk and Tesla, have thrown Ford’s production targets into a tailspin and Morgan Stanley noted on Friday morning that “major changes to the EV strategy” could be necessary, according to a wrap up by Bloomberg.

Ford now says it is “throttling back” on plans to ramp up EV production, the wrap up said. It blamed the price war for EVs as part of the cause and told shareholders it would need another year to meet its target of 600,000 EVs produced annually.

Ford CEO Jim Farley said late last week: “The shift to powerful digital experiences and breakthrough EVs is underway and going to be volatile, so being able to guide customers through and adapt to the pace of adoption are big advantages for us. Ford+ is making us more resilient, efficient and profitable, which you can see in Ford Pro’s breakout second-quarter revenue improvement (22%) and EBIT margin (15%).”

CFO John Lawler said yesterday that the company “has ample resources to simultaneously fund disciplined investment in growth and return capital to shareholders – for the latter, targeting 40% to 50% of adjusted free cash flow,” Bloomberg added. He now says Ford is “not providing a date” for producing 2 million EVs per year, which was previously the company’s target for 2026.

Ford’s inability to compete with Tesla was noted earlier this year in a piece titled Tesla ‘Weaponizes’ Price-Cuts To Crush EV Competition.

Is the company pulling an Intel and “kitchen sinking” its guide for the year, or has Elon Musk’s price cuts over at Tesla really put the legacy automaker on the ropes? Ford reports again on October 26, where we’ll get our next glimpse into its continuing operations this year.

Tesla is down -26% since January 14, 2022. And showing a nice turnaround!

Today, the 10-year Treasury yield is up 11 basis points.

Government Gone Wild!

The Core! US PCE Core Deflator Remains High At 4.6%, Spending Slows (Taylor Rule Suggests Fed Funds Target Rate Of 10%, Halfway To Target!!)

The film “The Core” was a silly film, but core inflation in the US is a serious problem for the middle class and low-wage workers. It remains elevated despite Treasury Secretary Janet “The Marxist Gnome” Yellen saying it was “transitory.” Looks pretty permanent to me!

The Federal Reserve’s preferred measures of US inflation cooled (slightly) in May and consumer spending stagnated, suggesting the economy’s main engine is starting to lose some momentum.

The personal consumption expenditures price index rose 0.1% in May, Commerce Department figures showed Friday. From a year ago, the measure eased to the slowest pace in more than two years.

Consumer spending, adjusted for prices, was little changed after a downwardly revised 0.2% gain in April. From February through May, household spending has essentially stalled after an early-year surge. Spending on merchandise dropped, while outlays for services increased.

Excluding food and energy, the so-called core PCE price index increased 4.6% from May 2022. That’s in line with annual readings back to late 2022 and shows minimal relief from elevated price pressures. Economists consider this to be a better gauge of underlying inflation.

Indicator	Actual	Estimate
PCE price index (MoM)	+0.1%	+0.1%
Core PCE price index (MoM)	+0.3%	+0.3%
PCE price index (YoY)	+3.8%	+3.8%
Core PCE price index (YoY)	+4.6%	+4.7%
Real consumer spending (MoM)	0.0%	+0.1%

Under the hood of the government report, a key metric flagged by Fed Chair Jerome Powell showed a welcome slowdown. Services inflation excluding housing and energy services increased 0.2% in May from a month earlier, the smallest advance since July of last year, according to Bloomberg calculations. The figure was up 4.5% from a year ago.

The Taylor Rule now suggests a target rate of 10%. We are just halfway to target!

Meanwhile, Yellen Plans July China Trip, While US Preps Investment Curbs. Trying to convince China that the US won’t default on its $32 TRILLION and growing debt?

Bidenomics?? US Gross Domestic Income Drops -1.8% QoQ For Q1 2023, REAL GDI At -0.8% QoQ (US Added 12.53M Jobs After April 2020 (Trump) While Bidenomics Took 2 1/2 years To Add 12.56M Jobs)

Bidenomics is a great marketing ploy where you have out of control Federal spending and magically decide to reopen the economy and school after Covid and focus only on jobs added after Biden was selected President and ignore the jobs added during Trump.

Real gross domestic income (GDI) is a measure of the incomes earned and the costs incurred in the production of gross domestic product. It’s another way of measuring U.S. economic activity. BEA also publishes the average of real GDP and real GDI.

REAL GDI dropped to -0.8% QoQ for Q1 2023. Kind of looks like Bidenomics is running out of gas.

On Biden’s claims that he created twice as many jobs as any other President, the US economy add 12.53 million jobs after April 2020 (Trump) while Bidenomics created took 2 1/2 years to add 12.56 million jobs.

The US Treasury yield curve (10Y-2Y) is now inverted at -103 basis points.

As Fed stimulus wears out, so is the Treasury 10Y-2Y yield curve.

The official themesong of Bidenomics!!!

Silverado! US Treasury 10Y-2Y Yield Curve Remains Inverted At -102.7 (244th Straight Days Of Inversion) As Liquidity Evaporates (Silver UP >1%) Bitcoin CASH UP 12% This AM

Silverado! No, not the Chevy full-size pickup truck, but the precious metal Silver is up over 1% this morning!

The US Treasury 10Y-2Y yield curve remains inverted at -102.7 basis points for the 244th straight day as M2 Money YoY (aka, liquidity) evaporates.

Silver is up over 1% this morning.

Bitcoin Cash is up12.39% this morning.

Speaking of Silverado, a fully loaded new 2023 Chevy Silverado 1500 ZR2 costs around $100,000. Thanks Biden and Powell (BiPow?). Try financing that purchase with auto loan rates soaring!

The Fed And The Death Of Market Volatility, Bank Deposits Continue To Dwindle (VIX Down To 13.50)

The Federal Reserve doesn’t care if market volatility has collapsed, even though volaltility is necessary for a well-functioning capital market.

The VIX, volatility of the CBOE S&P 500 index, has declined to 13.5 as The Fed continues to slow M2 Money growth.

And with M2 money withrawal, so goes bank deposits.

Is Jerome Powell actually Uncle Limelight?

The Amazing COVID Wealth Theft! The Top 1% Fared Far Better Than The Bottom 50% With Fed COVID Money Printing (Since COVID, Top 1% Share Of Net Worth Rose 7.4%, Bottom 50% Share Fell -5%)

It is not a surprise that the ill-advised COVID economic shutdowns would harm small businesses that large corporations.

Yes, The Fed’s M2 Money printing press went wild with COVID emergency refief. And so did the discrepancy between the top 1% and the bottom 50% in terms of “Share of Total Net Worth Held.” The top 1% is in blue and the bottom 50% is in red. M2 Money is in green.

Compared to pre-COVID, the top 1% increased their share of total net worth from 29.7% to 31.9%, an increase of 7.4% since January 2020. The bottom 50% fell from 30% to 28.5%, a -5% decline. An elitist wonderland!

And The Biden family keeps raking in the money far about Joe’s salary.

And I assume Fed Chair Jerome Powell and Treasury Secretary Janet Yellen also made fortunes from COVID relief.

Foul owls on the prowl!

US Credit Rating at Risk of Fitch Cut on Debt-Limit Impasse (Even Japanese Yen Is Whipsawwing)

What happened to Biden? He used to be a “reasonable” Senator (reasonable for a racist Democrat, that is), willing to negotiate with the opposition on budgetary issues and the debt ceiling. Now we have “Progressive Joe” who is acting like crazy Progressive Congresswoman Pramila Jayapal from Seattle. {Aka, Seattle’s Worst!} But his newly found Progressive identiy is leading down a terrible path. Rating agencies are putting the US of credit watch because of Biden’s newly found Progressive back bone. (Progressive means progressing towards full blown Communism).

Ratings company warns on worsening political partisanship
US AAA ratings on review with negative implications at DBRS

The tension around the US debt-limit negotiations ratcheted up after Fitch Ratings warned the nation’s AAA rating was under threat from a political standoff that’s preventing a deal.

Fitch may downgrade its assessment to reflect the increased partisanship that is hindering a resolution despite the fast-approaching so-called X date, it said, referring to the point at which Washington runs out of cash. It moved the US to “rating watch negative” under its classification. Meantime, DBRS Morningstar placed the US ratings of AAA under review “with negative implications.”

Markets have been showing increasing nervousness over the standoff, with Treasury-bill yields slated to mature early next month surging past 7%, while the S&P 500 Index has declined for two days. Economists project a US default could trigger a recession, with widespread job losses and a surge in borrowing costs.

Fitch’s warning “underscores the need for swift bipartisan action by Congress to raise or suspend the debt limit and avoid a manufactured crisis for our economy,” said Lily Adams, a spokesperson from Treasury.

Biden’s childish refusal to reduce his insanely huge budget (crammed with pork for large donors and Progressives) is causing ripples to be felt overseas. Look look at the Japanese Yen.

Pramila Jayapal, Joe Biden’s intellectual soulmate.