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!

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.

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.

US Mortgage Applications Decline -1.71% WoW, Lowest Level Since 1997 As Fed Continues Its Counterattack (Refi Apps DOWN 86% YoY, Purchase Apps DOWN 42% YoY)

As The Federal Reserve continues to withdraw its massive Covid-related monetary stimulus, US mortgage applications continue to fall to the lowest level since 1997.

Mortgage applications decreased 1.7 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending October 21, 2022.

The Refinance Index increased 0.1 percent from the previous week and was 86 percent lower than the same week one year ago. The seasonally adjusted Purchase Index decreased 2 percent from one week earlier. The unadjusted Purchase Index decreased 3 percent compared with the previous week and was 42 percent lower than the same week one year ago.

Under Biden, we have seen (orange line) a significant decline in mortgage purchase applications (peak 2021 to this week). Mortgage rates are the highest since 2001 (wait for it!)

Here is Jerome Powell of The Federal Reserve Board of Governors trying to figure out what to do after so many policy errors with increasing likelihood of recession while trying to withdraw monetary stimulus.

Biden’s Thanksgiving Feast! Candy UP 13.1% For Halloween, Turkey UP 73% As Diesel Prices (The Cost Of Shipping Goods) Is Up 102% Under Biden

Biden’s policies are making Halloween and Thanksgiving MUCH more expensive.

The latest inflation figures released by the federal government show that the price of candy and chewing gum rose by 13.1% last month — the biggest jump ever recorded. And turkey prices are up a whopping 73%!

One reason is diesel fuel prices are up 102% under Biden’s Reign of Error. While inventory of diesel fuel down -37%. Meanwhile core inflation is up from a measly 1.3% to a whopping 6.6% at the latest inflation report.

Introducing Biden’s Thanksgiving dinner … in a can to cope with rising prices.

Just kidding. This is too clever for the clueless Biden Administration. But Karine Jean-Pierre might get as confused as Joe Biden and repeat it as one of the ways that The Biden Administration is helping consumers.

Damn it, Janet (Yellen)! Get your story on inflation correct for once.

Biden’s Famous Chili!

Fed Is Losing Billions, Wiping Out Profits That Funded Spending (Agency MBS Prices Falling While Duration And Convexity Soar)

As I told my Chicago, Ohio State and George Mason University finance and real estate students, repeatedly, “Watch out when The Fed begins to tighten monetary policy. It will be a bloodbath for taxpayers.”

Well, here we are. I argue that Biden’ green energy knucklehead policies are driving inflation, or it could be the insane level of Federal spending that Obama economist Larry Summers warned us about, or rising wages (in part due to Federal spending) is to thank for inflation. Or all of the above.

Regardless of the cause, the bond market is enduring its worst selloff in a generation, triggered by high inflation and the aggressive interest-rate hikes that central banks are implementing. Falling bond prices, in turn, mean paper losses on the massive holdings that the Fed and others accumulated during their rescue efforts in recent years.

Rate hikes also involve central banks paying out more interest on the reserves that commercial banks park with them. That’s tipped the Fed into operating losses, creating a hole that may ultimately require the Treasury Department to fill via debt sales. The UK Treasury is already preparing to make up a loss at the Bank of England.

The Reserve balance has crashed into negative territory.

And Fed losses are skyrocketing.

Agency MBS prices are up today, but are down since August 2022. But risk measures duration and convexity are zooming upwards.

Deceleration Nation! US Home Price Growth Slows Most On Record In August As Fed Hits Brakes, But Still Growing At 12.99% YoY (US Treasury 10-yr Yield DOWN -17 BPS Today)

Alarm! US home prices are decelerating as inflation rages and The Fed tightens.

Home price growth in the US slowed the most on record as a doubling of borrowing costs (thanks to the US Federal Reserve) has sapped demand.

A national measure of prices increased 13% in August from a year earlier, but is down from 20.79% in March, the S&P CoreLogic Case-Shiller index showed Tuesday. That’s the biggest deceleration in the index’s history.

The housing market has started to slump as the Federal Reserve hikes interest rates to curb the hottest inflation in decades. Even with the deceleration, prices remain high compared to last year. Coupled with mortgage rates that are edging closer to 7%, many would-be buyers have been shut out, while some sellers have retreated. 

While 13% growth sounds good, it is not good for renters looking to buy a home.

According to S&P/CoreLogic/Case-Shiller, Southern (red) cities Atlanta, Charlotte, Dallas, Miami and Tampa all still grew at over 20% YoY. Other cities like blue cities Detroit, Minneapolis, Portland, San Francisco, Seattle and Washington DC are grew at UNDER 10% YoY.

It looks like some people have taken three steps and left blue states for red states.

On related news, I always said in my classes that +/- 10 basis point in the US Treasury yield is a big deal. This morning, the US Treasury 10-year yield is DOWN -16.1 bps. In fact, the 10-year yields are down across the board globally.

Its that smell of impending recession.

Well, they certainly aren’t calling Biden “The Breeze.” Except for the recession that is going to clobber the US.