Fear The Talking Fed! How The Fed And Federal Government Destroyed The US Dollar (Purchasing Power DOWN -32% Since The Subprime Crisis While M2 Money Has Grown By 177%)

We are living in the USA where corruption, favoritism, open borders and an out-of-control Federal budget and debt are destroying this once great nation.

Former Kansas City Fed President Thomas M. Hoenig was absolutely right when he said recently that The Federal Reserve panders to Wall Street, Congress and special interest groups, prioritizing immediate relief over financial stability. Bernanke’s zero-interest rate policies (ZIRP) and Quantitative Easing (QE) were short-term fixes that never went away. Indeed, since the subprime mortgage crisis of 2008-2009, US Dollar purchasing power is DOWN -32% and M2 Money is up a staggering 177%. While Yellen stuck with zero-interest policies until Trump was elected, then raised The Fed Funds Target Rate 8 times. Yellen only raised the target rate once under Obama. Clearly playing political favoritism.

The Federal Reserve’s lack of transparency comes amidst reports that countries are removing their gold and other assets from the U.S. in the wake of the unprecedented Western sanctions imposed on Russia over its invasion of Ukraine. According to a 2023 Invesco survey, a “substantial percentage” of central banks expressed concern about how the U.S. and its allies froze nearly half of Russia’s $650 billion gold and forex reserves. Headline USA filed a FOIA request with the Fed for records reflecting how much gold the Federal Reserve Bank of New York currently holds in its vault, as well as records reflecting the ownership stake that each of FRBNY’s central bank/government clients have in that gold. The FOIA request also sought records about the Fed’s gold holdings prior to Russia’s February 2022 invasion of Ukraine. However, the Federal Reserve denied the FOIA request on Wednesday.

The Federal Reserve is one of, if not the most, significant institutions in the world given the global impact of its policy decisions.

It influences the price of nearly everything, as well as the availability of jobs, the stability of our banking system, and the purchasing power of our money.

When the Fed Chair speaks, the entire world stops to listen.

But the average person has a poor understanding of how this colossally important entity operates. Or even why it exists.

And after a series of asset price bubbles — which some argue we’re in another one now — a chorus skeptical of the Fed’s actions has emerged.

So today we’re doing our best to shine as bright a light as possible on the Fed: how & why it operates, the good & as well as the shortcomings of its actions to date, what direction its policies are likely to take from here, and how all of this impacts the households of regular people like you and me.

Here are my top takeaways from from a speech by former KC Fed President Thomas Hoenig:

Dr Hoenig admits the Federal Reserve has experienced substantial “mission creep” since its creation as a lender of last resort. Its track record is very much “mixed” in terms of delivering on the intent of its policies. In Dr. Hoenig’s opinion, its efforts to add stability sometimes instead only create more instability.
While very critical of the Fed’s QE and ZIRP policies in the wake of the GFC, and more recently in the $trillions in monetary & fiscal stimulus unleashed post-COVID, Dr Hoenig thinks current Fed policy is “about right”. Though he expects the Fed to come under serious pressure soon as ebbing liquidity allows recessionary forces to build. He thinks the Fed will need to make an important decision within the coming year: return to QE and re-flame inflation, or allow a recession to occur.
Dr Hoenig criticizes the Federal Reserve for pandering to various interests, noting that short-term thinking and pressures from Wall Street, Congress, and interest groups often lead to decisions that prioritize immediate relief over long-term stability — a sort of “We’ll act now for optics sake and hopefully figure things out later”
In Dr Hoenig’s opinion, our fiscal policy is a runaway disaster. He criticizes both political parties of Congress for their roles in the cycle of ever-increasing deficits. Democrats advocate increased spending and tax hikes, while Republicans aim to keep taxes low but fail to curb spending. He warns of dire long-term consequences for future generations due to this impasse.
Dr Hoenig is very worried about the current stability of the banking system (and this from a former Direct of the FDIC!). He advocates for essential reforms to address government spending, prioritize essential areas without relying on future borrowed funds or inflationary measures, and communicate transparently with the public. He stresses the importance of reducing debt growth substantially below national income growth to avoid a full-blown crisis scenario in the future.
Dr Hoenig predicts the purchasing power of the US dollar (and other world fiat currencies) will continue to decline due to current policies and the lack of a “discipline” to money creation. Until such a discipline is restored (perhaps a return to some sort of hard backing of the currency), the dollar’s fall in purchasing power won’t abate.
Dr Hoenig suggests investing time in reading history and biographies as a valuable way to learn about leadership and gain insights into what strategies works and which don’t.

Here is the “Sound Money Parade” in 1896. By the aftermath of the subprime crisis, Janet Yellen (1993-2020) adopted the UNSOUND Money Fest, an orgy of printing and charging near zero interest rates. Powell in 2021 is ever-so-slowly unwinding The Fed’s balance sheet, but Powell has raised The Target Rate to its highest level since 1998 to fight inflation caused by Biden’s policies.

Combine The Fed not telling us how much gold they hold and their overprinting problems since 2008, and you can see why investors are turning to gold and silver and crypto currencies. The adoption of Central Bank Digital Currency (CBDC) is a step towards financial collapse.

Here is a parade you will NEVER see in Washington DC. A Sound Money Parade!

Powell is beginning to act like a sound money fan, but he still is taking his sweet time shriking the balance sheet.

I am thinking of fleeing to Lilliehammer Normay like Frank Tagliano.

BeelzBiden? Automobile ‘Bidenvilles’ Are The New Shantytowns Amid US Housing Affordability Crisis (House Prices UP 32.5% And Purchasing Power Of The Dollar DOWN -16.1%)

Joe Biden (aka, BeelzeBiden) is really a piece of … work. His policies are helping drive prices through the roof, he seeks to protect deepstate employees against removal by Trump, had a disastrous withdrawal from Afghanistan and is getting the US engaged in possible hot wars in Ukraine (against Russia), open borders allowing US crime to spike, seems to be suppoporting Hamas over our long-time ally Israel, the list goes on. Biden’s big push for electric cars is a Socialist fantasty and simply unrealistick, drives up energy costs and is EXPENSIVE. It is like Biden is the demon Beelzebub from the TV show “Supernatural.” I once referred to Washington DC as “Mordor on The Potomac.”

Throw in the Federal Reserve operating outside their mandate (excessive interference in the financial crisis of 2008, the excessive interfernce after the Covid outbreak in 2020) and the two together are destroying the US.

Look at housing prices (up 32.5% under Biden) against the purcchasing power of the US dollar (down -16.1% under Biden).

And with mortgage rates up 156% under Biden and housing prices up 32.5% (not to mention the last two jobs reports showed US firms are only hiring part-time workers (and illegal immigrants), the US is experiencing a serious housing affordability crisis.

When people couldn’t afford housing during the Great Depression, they built shantytowns from scrap construction supplies and named them “Hoovervilles,” after President Herbert Hoover. Today, Americans increasingly live out of their cars because they can’t afford housing. If history is any guide, will parking lots full of Americans soon be known as “Bidenvilles”?

The problem has gotten so bad that Sedona, Arizona, recently set aside a parking lot exclusively for these homeless workers. The city is even installing toilets and showers for the new occupants.

Apparently, the City Council thought installing temporary utilities was cheaper than solving the area’s cost-of-living crisis.

And what a crisis it is.

The average home in the city sells for $930,000, while most of the housing available for rent is not apartments, but luxury homes targeted at wealthy people on vacation.

With such a shortage of middle-class housing and with starter homes essentially nonexistent, low- and even middle-income blue-collar workers have nowhere to go at night but their back seat.

Much like America’s Great Depression in the 1930s, this marks a serious regression in our national standard of living. But shantytowns were not prevalent in the 1920s (a decade that began with a depression) or the 1910s. Nor were they ubiquitous following the Panic of 1907, which set off one of the worst recessions in American history.

Indeed, Americans in the Great Depression faced such a cost-of-living crisis that many were forced to accept a standard of living below what their parents and even their grandparents had.

Fast-forward about 90 years, and countless families are in the same boat. Many young people today don’t think they’ll ever be able to achieve the American dream of homeownership that their parents and grandparents achieved. The worst inflation in 40 years, rising interest rates, and a collapse of real (inflation-adjusted) earnings mean a huge step backward financially.

That inflation has pushed up rents so much that young Americans are moving back in with their parents at rates not seen since the Great Depression because they can’t make it on their own. Sometimes, they can’t even make it with multiple roommates.

But many people cannot move back in with family, so the car it is.

The housing problem is not limited to wealthy towns in Arizona, however. It is systemic. The monthly mortgage payment on a median-price home has doubled since January 2021, and rents are at record highs. Like the Great Depression, this disaster stems from impolitic public policy.

For the past several years, the government has spent, borrowed, and created trillions of dollars it didn’t have. The predictable result of this profligacy was runaway inflation, followed by equally foreseeable interest rate increases.

The deadly combination of high prices and high interest rates has frozen the housing market and reduced homeownership affordability metrics to near-record lows. In several major metropolitan areas, it takes more than 100 percent of the median household after-tax income to afford a median-price home.

Since rents and virtually all other prices have risen so much faster than incomes over the past three years, even renting is unaffordable today, so many people have to go into debt to keep a roof over their heads. And for some, that’s a car roof.

This is the kind of story you might expect from a Third World country or somewhere behind the Iron Curtain during the Cold War, not the largest economy in the world—at least not outside of a depression like the one in the 1930s.

Hoover certainly deserved some blame for the Great Depression, but so did the progressives in Congress, who came from both parties and repeatedly voted to meddle in the economy instead of allowing it to recover from the initial downturn.

Similarly, President Joe Biden deserves blame for constantly advocating runaway government spending. (Runaway Joe??)

But today’s multitrillion-dollar deficits are also made possible by the big spenders in Congress, who come from both parties.

If this bipartisan prodigality of Washington continues, Bidenvilles will only become more widespread as the housing affordability crisis worsens.

Biden’s official White House portrait.

Washington DC under Biden and Schumer, Pelosi, etc.

About That Fantastic Jobs Report … Full-time, Native Jobs Shrink, Part-time, Foreign-born Jobs Rise On Year-over-Year Basis, Virtually No Manufacturing Jobs Added But 71k Government Jobs Added (Black Unemployment Increases)

To quote the song “Sloop John B”, “Let me go home, I wanna go home. This is the worst trip I’ve ever been on.” The lyrics should change to “This is the worst ADMINISTRATION I’ve ever experienced.”

Like last month, today’s jobs report for March is better than Februrary’s miracle report, but has some glaring bad news that the Administration and slobbering media will ignore. Now you know why I no longer appear on CNBC, CNN or Fox Business anymore.

Let’s start with the good news! The BLS reported that in March, the US added a whopping 303K jobs, tied for the highest since Jan 2023!

Turning our attention to the unemployment rate, it unexpectedly dipped again, dropping to 3.8%, from 3.9%, in line with estimates, as the number of unemployed workers dipped modestly from 6.458 million to 6.429 million while the number of employed workers rose by almost half a million workers; the unemployment rate for Blacks (6.4 percent) increased in March to the highest level in almost two years, while the rates for Asians (2.5 percent) and Hispanics (4.5 percent) decreased. The jobless rates for adult men (3.3 percent), adult women (3.6 percent), teenagers (12.6 percent), and Whites (3.4 percent) showed little or no change over the month.

In contrast, the participation rate rose from 62.5% to 62.7%, above the 62.6% expected, as the overall civilian labor force increased slightly less than the number of employed people.

Now for the not-so-good news. The average hourly earnings came in as expected, rising 0.3% MoM, up from last month’s upward revised 0.2% sequential increase (revised from 0.1%), On an annual basis, the hourly earnings rose 4.1%, as expected, and down from 4.3%. This was the lowest print in almost three years: the last time wages rose by this much was the summer of 2021.

Now for the bad news.

For those wondering if the jobs were all part-time, the answer is a resounding yes: in March, full-time jobs dropped by 6,000 as Part-time jobs soared by 691,000.

On a year-over-year (YoY) basis, full-time jobs were down -1.0% while part-time jobs were up 7.1%

Native-born versus foreign born? On a YoY basis, native-born employment was down -0.5% while foreign-born employment increased by 4.2%.

Not only is Biden importing Democrat voters (since 70% of Americans HATE Biden’s policies), they are also displacing native-born Americans in the labor force.

Manufacturing jobs added were ZERO. So, much for all of Biden’s claims. But NON-PRODUCTIVE government jobs were up 71,000. So our manufacturing jobs are dead while non-productive government jobs are growing like crazy.

Under Biden, the Administrative state is growing faster than manufacturing since Feb 2023. The Biden Administration implements new rules to prevent Trump’s ability to purge deep state employees if re-elected in 2024.

How will The Fed respond? Likely will lead to limited rate cuts.

On related news, horse-faced John Kerry’s daughter says BILLIONS of Humans Must Die for the ‘New World Order’. This reminds me of China and Mao’s “Great Leap Forward” and the starvation of 45 million people.

Pushin’ Too Hard? Strategic Petroleum Reserve Draining To Combat Biden’s Energy Policies (Crude Oil UP 73% Under Biden, Food UP 21%, Rent UP 19.4%, Cocoa UP 136%, Mortgage Rates UP 156%)

Bidenomics is really about insane money printing after Covid and the installation of Biden as President. Biden and The Federal Reserve are both pushin’ too hard. Biden to fundamentally change the US and The Fed trying to cope with the inflation reaction. With Covid and then Biden’s selection as President, Federal outlays exploded (blue line) and remain elevated under Biden. To help finance the (outrageous) spending The Federal Reserve massively increased the M2 Money supply (green line). Now, The Fed has withdrawn some of the excessive monetary stimulus, but there is a staggering amount monetary stimulus still swimming around the economy like a Great White Shark.

The problem with Federal policies (energy, government spending, government debt) is that there are unpredictable factors that undo the best laid plans of mice and men. And rats such as crop blights and changes in consumer habits.

A good example is the Strategic Petroleum Reserve, which can be drained if craven politicians want to manage oil and gasoline prices for political purposes. Unfortunately, the promise of replenishment is made difficult by rising crude oil prices. The Biden admin cancels plan to refill emergency oil reserve amid high prices (some caused by factors such as war, often caused by government).

In fact, spot crude is up 73% under Biden. Partly, because of Biden’s promised war on fossil fuels and international disasters like war, blights, etc. This is why I cringe when I hear politicians and “economists” discuss why inflation will fall.

On the food side, we have cocoa prices rising 136% under Biden. Again, not predictable when policies were being made. Combine crop blights were rising transportation costs and DC, we have a problem! But this is one reason why The Fed, etc, focus on core inflation (excluding energy and food prices).

There are many examples of rising prices and how they hurt consumers, particularly middle-class and low wage workers.

How did The Federal Reserve react to the inflation Biden helped create? They raised The Fed Funds Target Rate (Upper Bound) by 2,100% to combat Bidenflation. Freddie Mac’s 30-year mortgage rate is up 156% helping to crush homeownership aspiration for younger households.

And then we have Congress/Biden shoveling more than $10 billion in subsidies to Intel, even though Intel has an incentive to develop chips using borrowed funds and Intel retained earnings. But why put your shareholders at risk in case the chip gamble doesn’t payoff. Just shift the risk to US taxpayers!

Highway To Hell Part Deux: Office Tower Vacancy Rate Hits Record High As Zombie Buildings Litter Skylines of Cities (Office Mortgages Living On Borrowed Time)

Bidenomics is also a Highway To Hell for commercial real estate. Let’s say real estate is thunderstruck under Bidenomics.

There are more dormant office towers in the United States than at any point since 1979, according to a new report from Moody’s Analytics, which began tracking office leasing vacancies that year.

The rising supply of office space is due to a combination of surging remote and hybrid work that forces companies to reduce corporate footprints. Also, companies are exiting imploding progressive cities and high-taxed blue states for red ones while downsizing space. In the report, office tower vacancies rose to a record 19.8%, up from 19.6% in the fourth quarter of 2023.

Even with the increase, there is an eerily calm across the commercial real estate sector. This comes as the Federal Reserve’s interest rate hiking cycle is higher for longer, indicating that the pain train is nearing (perhaps after the presidential election).

“The office stress isn’t quite done yet,” Thomas LaSalvia, Moody’s head of commercial real estate economics and one of the authors of the report, told Bloomberg in an interview. He noted recent positive economic indicators stave off a “perfect storm in the office sector.”

“There are spots of light and there are spots of extreme darkness,” LaSalvia said, adding, “This is part of a longer-term evolution where we are seeing obsolete buildings in obsolete neighborhoods.”

The high office vacancy rate continues to be terrible news for landlords and developers eager to fill their buildings, and the Fed’s hiking cycle has made refinancing very challenging.

Last month, Goldman’s Vinay Viswanathan penned a note explaining how “office mortgages are living on borrowed time.”

Viswanathan said there have been no major fireworks in CRE tower debt because the debt is being “extended and modified rather than refinanced,” which “mitigates a default wave and a sharp pick-up in losses on CRE loan portfolios.”

Yes, both residential and commercial real estate are thunderstruck under Bidenomics.

Bidenomics Is On The Highway To Hell For Housing Affordability! Mortgage Demand (Applications) Down 13% From Last Year While Home Prices Are Up 39.2% Under Biden And Powell (Mortgage Rates UP 148% Under Biden)

Housing in the US under Bidenomics is simply unaffordable. With the massive expansion of M2 Money supply under Biden thanks to Covid and Bidenomics, home prices are up 39.2% and mortgage demand keeps falling like a paralyzed falcon. We are truly on the highway to hell under Bidenomics in terms of housing affordability.

Mortgage applications decreased 0.6 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending March 29, 2024.

The Market Composite Index, a measure of mortgage loan application volume, decreased 0.6 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 0.1 percent compared with the previous week. The seasonally adjusted Purchase Index decreased 0.1 percent from one week earlier. The unadjusted Purchase Index increased 1 percent compared with the previous week and was 13 percent lower than the same week one year ago.

The Refinance Index decreased 2 percent from the previous week and was 5 percent lower than the same week one year ago.

What a mess! With M2 Money up 8.4% under Biden (green line), home prices are up a staggering 39.2% under Sheriff Joe and his deputy Fed chair Jerome Powell.

And conforming mortgage rates (30Y) are up 148% under Biden’s Reign of Error.

Thanks O’Biden! Although Biden is the figurehead, Obama and his team are still running The White House. Regardess of whether it is Biden or Obama (or Soros/World Economic Forum) calling the shots, the US housing market is on a highway to hell.

Bidenomics “helping” the middle class and low wage workers.

Gold In Them Thar Hills … For Politicians: California State and Local Liabilities Exceed $1.6 Trillion (Close To $2 Trillion!)

There is gold in them thar hills in California. And politicians like Gavin Newsom (aka, Pond Scum) not only spend all their cash available from (ruinous) taxes, but also spend like drunken miners and run up massive deficits and debts.

Governor Gavin Newsom bragged of a surplus, but California is seriously underwater. The next recession will hit the state extremely hard.

How Much Is California in Debt?

The above link says over a trillion. That’s being very generous to California. Click on it to discover … California State and Local Liabilities exceed $1.6 Trillion.

California’s total state and local government debt now stands at almost $1.6 trillion, or about half the state’s GDP.

That isn’t an alarming ratio when compared to the national debt, which has now soared to 128 percent of U.S. GDP with no end in sight. But Californians carry this $1.6 trillion state and local debt ($40,000 per capita) in addition to their share of the national debt (about $90,000 per capita).

That article was from February of 2022. I suspect the liabilities are now close to $2 trillion.

Cost of Running a McDonalds Jumps $250,000 in CA

On February 4, I noted the Cost of Running a McDonalds Jumps $250,000 in CA Due to Minimum Wage Hikes.

A blowback is underway.

California Restaurants Cut Jobs

On March 26, I commented California Restaurants Cut Jobs as Fast-Food Wages Set to Rise

Proposition 103 Backfires

Citing wildfire risk, State Farm will not renew policies on 30,000 homes and 42,000 business in California.

Also on March 26, I commented Proposition 103 Backfires, State Farm to Cancel 72,000 California Policies

Blame the state, not insurers.

Congratulations to NY, IL, LA, and CA for Losing the Most Population

People in California, increasingly getting sick of the state’s progressive madness, are voting with their feet.

For discussion, please see Congratulations to NY, IL, LA, and CA for Losing the Most Population

Absolute Basis Losers

New York: -631,104
California: -573,019
Illinois: -263,780

California Leads the Nation in Unemployment

The BLS metro shows unemployment rates were up in 218 of 389 metro areas. Nonfarm employment only rose in 59 areas.

On March 15, I noted Unemployment Rates Rose in 218 of the 389 Metropolitan Areas

Unsurprisingly, California has the highest unemployment rate in the nation at 5.7 percent vs. 4.1 percent nationally.

A Booming Economy?

California has massive problems although the stock market is at a record high and the economy is allegedly booming. The next recession will hit California exceptionally hard, and it’s not too far off.

But thanks to Newsom’s Presidential ambitions (God help us!), along with virtually psychopathic state legislators, California has been tax crazy (particularly in 2022). This has helped to drive a demoralized middle class to Arizona, Texas, Nevada and other lower tax states.

And then we have California’s fast food minumum wage disaster, causing closing of small, family-owned restaurants. And causing massive layoffs in the fast food industry and probably leading to an AI takeover of corporate resturants (I remember taking my poor wife to Olive Garden and I refused to use to electronic ordering system and demanded a real waiter to serve us. The waiter told us that nobody liked the electronic ordering system).

While not the only guilty party, Newsom is a leader … in bankrupting California with his budgetary fantasies and Presidential aspirations.

I am surprised that Newsom hasn’t used the themesong from Jim Bowie as his themesong.

Happy Easter! US Interest To Hit $1.6 Trillion By Year End, Making It The Largest US Government Outlay (Endless Wars And Exploding Entitlements Now Over $214 TRILLION)

Happy Easter! I mean Happy TRADITIONAL Easter, not a Biden weird trans celebration.

Biden and Congress (Schumer, Johnson, McConnell, etc) spend and borrow like its cottage cheese.

After hitting $1 trillion in late 2023, interest expense on US debt rose to a record $1.1 trillion in late March, and ii) while US debt is now rising at a pace of $1 trillion every 3 months, US interest expense is rising at a just as torrid $100 billion every 4 months (this interval will also shrink to three months very soon).

he Biggest Picture: $1.1tn in interest payments on US government debt past 12 months, doubled since COVID (Chart 2); trend in govt spending (up 9% YoY) & debt (up $1.0tn every 100 days)…big motivation for Fed to cut rates to constrain surge in interest costs (“ICC” or Interest Cost Control policy)… bear in bonds (if no recession), steeper yield curve, weaker US$, higher commodities/gold/crypto & TINA for stocks.

Of course, since Hartnett is one of those good strategists where one fact opens up a cascade of downstream observations, that’s precisely what happened this time and he fills out the balance of his latest report (available to pro subscribers in the usual place) with his tongue-in-cheek notes on why the US is on a doomsday date with a debt disaster, starting with why being a “dove means never having to say you’re sorry”:

US government spending past 5 months = $2.7tn, up 9% YoY… on course for $6.7tn in FY24; US national debt rising $1tn every 100 days…set to hit $35tn in May’24, $37tn by US election, $40tn in H2’25 (doubling in 8 years); spending up, deficits up (9% of GDP average past 4 years), debt up -> interest payments up = $1.1tn in past 12 months & set to rise by $150bn in next 100 days [ZH: this sounds familiar]
US Treasury has aggressively shifted refunding toward <1-year T-Bills ($21tn issuance past 12 months), lowering maturity of debt to ≈5 years, increasing sensitivity to short rates, incentivizing Fed to cut rates;

And the punchline: Hartnett takes our observations, and expands them to their logical, if absurd, extreme (which ironically takes places in just 9 months) to find that US annual interest costs are set to jump from $1.1 trillion to $1.6 trillion, which is a big deal…

Unchanged rates/yields & debt trend next 12 months & US refinancing rate is 4.4% & annual interest costs jump from $1.1tn to $1.6tn (Chart 5); in contrast 150bps of Fed cuts next 12 months and average refi rate is 3.2%, stabilizing/constraining interest payments to $1.2-1.3tn over next 2 years; call it “ICC”/Interest Cost Control but Fed must placate fiscal excess coming quarters…bear in bonds (if no recession), steeper yield curve, weaker US$, higher commodities/gold/crypto & TINA for stocks.

… because if the Fed does not cut rate by 150bps (as it may in an “ICC” scenario) should inflation prove to be sticky (something which Putin clearly has figured out realizing the fate of Biden’s re-election is in his oily hands), and total interest does rise to $1.6 trillion by year-end, that it will become the single biggest US government outlay by the end of the fiscal year; as a reminder, in fiscal 2023, Social Security spending was $1.354 trillion, Health was $889 billion, Medicare $848 and national defense, a paltry (by comparison) $821 billion.

Stepping briefly away from the looming US debt disaster, Hartnett makes three more observations on the current state of the market:

Tech regulation getting noisier: DoJ vs Apple antitrust lawsuit, FTC vs Amazon antitrust lawsuit, FTC inquiry into AI deals of Amazon, Google, Microsoft; EU investigation into Apple, Meta, Google breach of Digital Markets Act; EU $2bn Apple antitrust fine, Japan FTC Apple & Google antitrust complaint et al…
“Magnificent 7” = 30% of SPX index & 60% of SPX gains past 12 months…investors love big tech “moats”, monopolistic ability to protect margins, market share, pricing power, finance & control AI arms race; but ≈$2tn of Magnificent 7 revenues past 12 months tempting target for regulators/governments struggling to pay bills;

Note tech historically the least regulated of sectors (the chart below uses data from 2017) and in past 12 months average tax rate of “Magnificent 7” was 15% vs 21% for rest of S&P 500… and regulation & rates the historic way sector bulls & bubbles end.

Now for the REALLY bad news. Unfunded liabilities (entitlements) have hit $214+ TRILLION. Given how voters hate paying more in taxes, look for the growing entitlements to add AT LEAST $214 trillion in NEW DEBT which will result in record high interest payments.

Hey big spender! How about NOT spending trilliions while pocketing 10% from foreign enemies?

Congress and The Biden Regime should select the now defunct British beer Watney’s Red Barrell (a truly awful beer) to symbolize their committment (or lack thereof) to fiscal responsibilty.

Fear The Talking Fed! Global Debt Fast Approaching $100 Trillion As Fed Talks Rate Cuts In Election Year

Fear The Talking Fed!

Back in mid-December, after the Fed’s first, and very shocking, dovish pivot when just two weeks after Powell said it had been “premature” to speculate on rate cuts the Fed suddenly changed its mind (despite very strong economic reports in the interim) and unexpectedly revealed it had been “discussing a timeline to start rate cuts”…

… in the process, sparking the biggest market meltup in a decade, we explained that there was no mystery behind the Fed’s sudden change of heart: it had everything to do with Biden’s woeful performance in the polls.

… maybe what that happened in the past two weeks had nothing to do with economic data, the state of the US consumer, or how hot inflation is running and everything to do with… phone calls from the increasingly angry White House, the same White House which after seeing the latest polling data putting Biden at the biggest disadvantage behind Trump despite the miracle of “Bidenomics” decided to pull its last political level, and had a back room conversation with the Fed Chair, making it very clear that it is in everyone’s best interest if the Fed ends its tightening campaign and informs the market that rate cuts are coming. It certainly would explain why despite keeping the 2026 projected fed funds rate unchanged at 2.875%, the Fed just as unexpectedly decided to pull one full rate cut out of the non-election year 2025 and push it into the pre-election 2024.

Three months later, when Powell again shocked the world with yet another exceedingly dovish press conference, this time pushing the S&P to all time highs as it became increasingly clear the Fed has raised its inflation target to 3% or more, as we first discussed in “There Goes The Fed’s Inflation Target: Terminal Rate To Rise 100bps To 3.5% And More” and as Bloomberg confirmed today in “Powell Ready to Support Job Market Even If Inflation Lingers“, there was again some confusion, most notably from the likes of Jeff Epstein BFF Larry Summers who tweeted:

I don’t know why @federalreserve is in such a hurry to be talking about moving towards the accelerator. We’ve got unemployment, if anything, below what they think is full capacity. We’ve got inflation, even in their forecast, for the next two years above target. We’ve got GDP growth rising if anything faster than potential. We have financial conditions, the holistic measure of monetary policy, at a very loose level.

… to which we again replied that there is a very simple reason why the Fed is “moving toward the accelerator” and it again had to do with the fact that Biden approval rating is now imploding, so much so that even Time magazine has stepped in with an intervention.

But while once upon a time such a cynical, hyperbolic, and apocryphal view would have been relegated to the deep, dark corners of the financial blogosphere (duly shadowbanned and deboosted by the likes of such Democratic party stalwarts as Google, of course), that is no longer the case and in his latest note, SocGen’s in-house permaskeptic, Albert Edwards confirmed our view that the biggest driver behind the Fed’s decision making in recent months is neither the economy, nor the market, but rather the November presidential election, to wit:

The widening inequality chasm in this US election year will be a real issue for policy makers. What will the Fed do? Traditionally, the Fed would not pivot rates policy to cushion inequality, which is usually addressed by fiscal policy. But growing inequality has been a key issue ever since the 2008 Global Financial Crisis triggered a backlash against ‘The Establishment’ – most evident in the rise in popularism (although many, including myself, believe that the loose money/tight fiscal policy mix was primarily responsible).

Might the unfolding inequality crisis force the Fed to bow to intense political pressure to cut rates faster and deeper? I think that is entirely plausible. Indeed we on these pages have previously observed, somewhat cynically, that Powell’s recent ‘surprise’ December 2023 dovish pivot came exactly at a time when Donald Trump was pulling ahead in the polls – link. But it would be a diehard cynic who could contemplate that the Fed, as part of ‘The Establishment’, would balk at the thought of Trump winning in November and juice up the economy to try and lower the odds of such an outcome. (I am that cynic.)

To be fair, we find it remarkable that Edwards – a long-tenured and respected veteran of the SocGen macro commentariat – would confirm our own observations. We doubt he is the only one, of course, but the others are far more afraid of losing their jobs, at least for now.

What we find less remarkable is that Edwards – whose job is to track down gruesome and painful ways for the market to die a miserable death – has done just that again and this time, in the aftermath of the BOJ’s long overdue exit from NIRP, ETF buying and Yield Curve Control, predicts that it is now only a matter of time before the YCC that was spawned in Japan will soon shift to the west.

Edwards starts off by observing what has long been a “foolproof” signal of imminent recession: BOJ tightenging:

Market sentiment is now especially vulnerable to weak economic data because, as we pointed out last week, it seems everyone (and their dog) has left their recessionary worries far behind. But as my favorite bear, David Rosenberg, pointed out this week, recent weak retail sales, housing starts, and industrial production data might be setting us up for a negative US Q1 GDP print. Let’s see how the Fed reacts to that. And if you want one reliable predictor of a global recession, @PeterBerezinBCA notes that “In the history of modern finance, no single indicator has done a better job of predicting when the next global recession will start than when the Bank of Japan starts raising rates. Foolproof!”

He then recaps last week’s main event, namely that after almost a decade, Japan finally exited negative interest rates and Yield Curve Control (YYC), primarily on the back of soaring (nominal, not real) wage gains: “Rengo, Japan’s largest trade union confederation, announced last Friday that its members have so far secured pay deals averaging 5.28%, far outpacing the 3.8% squeezed out a year ago — itself the highest gain in 30 years (see Bloomberg here and SG Economist Jin Kenzaki’s analysis of this data and the BoJ’s move here).“

Of course, the problem in Japan is not that nominal wages are surging: it is that in real terms they are crashing, as the next chart clearly shows, and is why the BOJ will have to dramatically tighten – certainly much, much more than the laughable “dovish hike” it delivered last week which sent the yen plunging to a multi-decade low and inviting even more imported inflation – to avoid total collapse in Japan’s economy as it gradually accelerates toward hyperinflation:

Of course, Japan can not actually tighten as that would instantly vaporize the economy and the bond market of a country whose central bank owns Japanese JGBs accounting for well more than 100% of GDP. But at least Japan has something goign for it: as Edwards notes, “the OCED estimates that interest on US debt amounts to 4½% of GDP, compared to only 0.1% of GDP for Japan (link). Hence the cyclically adjusted primary (ex-interest) deficit data show Japan as the most profligate borrower (see right hand chart). But the US still has to pay that interest somehow.” In other words, when adding interest payment, “it is the US that has been running the largest deficits since the 2008 GFC – bigger than even Japan (see left hand chart).”

Which brings us to Edwards’ punchline: “decades of excessively loose monetary policy has allowed governments to ruin their fiscal situations to the point that public debt to GDP ratios are on wholly unsustainable trajectories. Just look at the CBO’s projections for the US here. Yet with an ever-intensifying populist backlash against high levels of inequality, I can only see one way out of this mess for western economies. Nothing less than Financial Repression including Yield Curve Control – yes, the very same YCC that Japan has just abandoned.”

For those who may not have been around back in the 1940s when the US – and the Federal Reserve – was the first developed nation to utilize YCC to kickstart the US economy at a time of record debt to GDP, here is a quick primer from the SocGen strategist: “Financial Repression essentially entails holding interest rates below the rate of inflation for a lengthy period to allow debt to be ‘burned off’. This is a tried and trusted way for governments to wriggle free from excessive debt (eg the US after WW2). The leading economic historian Russell Napier explained how this works in an informative 2021 interview with The Market NZZ – link.”

And indeed, it was only a few years ago, just before the pandemic sparked a stimulus flood of epic proportions, that western policy makers were switching to average inflation targeting and stating that they would run economies hot to create that higher inflation (they got it but not because of AIT). That was the first notable attempt to shift toward Financial Repression, but as Edwards notes, “unfortunately they were too successful and let the rampant inflation cat out of the bag.”

Which brings up the $64 trillion question: “Do the Fed and ECB really want inflation to return to pre-pandemic inflation lows?” Well, with global debt now about 7x higher in just the 21st century, and fast approaching $100 trillion, meaning it will all have to be inflated away somehow…

… Edwards’ answer is: “Not in my view.” And so while western economists deride Japan for its YCC policies, Albert says “that is where I think the US and Europe are heading as intractable government deficits drive up bond yields. During the next crisis, don’t be surprised to see yet more Japanification of western central bank policy. Plus ça change.” And don’t be surprised if the dollar – while appreciating against the rest of the world’s doomed currencies in the closed fiat-system loop – hyperdevalues against such finite concepts which mercifully remain out of the fiat system, such as gold and crypto.

And wage inflation remains around 5%.

Too Much Debt (Coping With Bidenflation) And The Downside Of Federal Housing Policies (No Title Searches On Federally-insured Mortgages)

Households have too much debt, thanks to trying to cope with Bidenomics and Bidenflation.

And much of the debt burden falls on the middle class.

Serious auto delinquencies are on the rise.

And lowest earners saw the biggest increase in credit card delinquenices.

And who voters prefer as of today? Trump on interest rates and personal debt.

In addition to the absurd idea of removing title searches for government-guaranteed mortgages (now rely on attorney opinions), the Biden Administration is considering a homebuyer tax credit … that likely won’t help much.

And if you want to see which lenders have the largest concentrations of commercial real estate (CRE) loans, BankOZK takes the cake as the most concentrated lender.