Both the US Federal government and California’s government are facing a fiscal inferno. Thanks to a softening economy and inane fiscal policies.
At the macro level, we see that The Federal government has gone wild spending money and borrowing it. Much more than businesses and households. Biden’s wild spending reduces the degrees of freedom that Treasury has if the US slips into another recession or depression.
First, let’s begin with banks to illustrate the worsening condition of the economy. Emergency loans from The Fed’s Bank Term Funding Program (BTFP) is on the rise, signaling perceived trouble in the economy.
Small banks are suffering more than big banks.
Consumer sentiment is below 70 (100 baseline) under Biden and Bidenomics.
And then we have Gavin “Gruesome” Newsom and California. California is now facing a $68 billion deficit. It has also defaulted on a $20 billion loan from the federal government. The situation is so dire the state is telling agencies not to replace broken printers or re-stock office supplies. Workers are being stripped of benefits and could face furloughs. This is all happening as the state has spent billions funding High-Speed Rail and expanding Medi-Cal to all undocumented immigrants, while losing billions in tax revenue from people leaving the state.
$68 billion is over twice this forecast deficit of $24 billion.
But never fear. “Billions Biden” will make sure California is okay, ar least until the 2024 Presidential election.
The drop takes the measure from ‘expansion’ at 7-month-highs to ‘contraction’ at 4-month-lows…
Source: Bloomberg
The new orders fell six points to -11.3, pointing to a decline in orders for a third consecutive month, and the shipments index fell sixteen points to -6.4, indicating that shipments fell.
The unfilled orders index held steady at -24.0, a sign that unfilled orders continued to fall significantly.
After rising into positive territory last month, the inventories index retreated fourteen points to -5.2, suggesting that inventories moved lower.
The delivery times index dropped ten points to -15.6, its lowest reading in several years, a sign that delivery times shortened.
The index for number of employees fell four points to -8.4, its lowest level in several months, pointing to a modest decline in employment levels.
On the bright side, the prices paid index moved down six points to 16.7, suggesting an ongoing moderation in input price increases, while the prices received index held steady at 11.5, a sign that selling price increases remained modest.
Is this the start of ‘soft’ data’s reversion to ‘hard’ reality?
The Fed – with its six rate-cuts – better hope so.
Unrealized losses on securities held by US banks exploded by 22% in the third quarter.
Of course, unrealized losses don’t really matter — until they do.
This is yet more evidence that the financial crisis that kicked off last March continues to bubble under the surface.
Unrealized losses, primarily on US Treasuries and mortgage-backed securities rose by $126 billion in Q3 and now total $684 billion, according to the FDIC’s quarterly bank data release.
Current unrealized losses are only slightly below the record set in the third quarter of 2022. This reflects the fact that the FDIC took over three failed banks earlier his year and ate their unrealized losses when it sold the banks’ assets, thus wiping them from the books.
Unrealized looses on securities are divided between two accounting methods.
Unrealized losses on held-to-maturity (HTM) securities jumped by $81 billion to $391 billion.
Unrealized losses on available-for-sale (AFS) securities jumped by $45 billion to $293 billion.
It’s important to understand these are only paper losses. Ostensibly, the banks will hold these bonds until maturity and then will be paid their face value. If it plays out this way, there won’t be any real losses.
The problem is that these unrealized losses drastically decrease a bank’s liquidity. If it has to sell bonds in order to raise capital, the bank will experience significant losses. This is exactly what took down Silicon Valley Bank last March.
Here’s what happened.
SVB sold a large portion of its bond portfolio at a $1.8 billion loss. At the time, SVB CEO Greg Becke said the bank made the sale “because we expect continued higher interest rates, pressured public and private markets, and elevated cash burn levels from our clients.”
The bank bought the bonds when interest rates were low. As a result, the $21 billion available for sale (AVS) bond portfolio was not yielding above cash burn. Meanwhile, rising interest rates caused the value of the portfolio to fall significantly. The plan was to sell the longer-term, lower-interest-rate bonds and reinvest the money into shorter-duration bonds with a higher yield. Instead, the sale dented the bank’s balance sheet and caused worried depositors to pull funds out of the bank.
WolfStreet explained more generally how these “irrelevant” unrealized losses can suddenly become relevant.
Banks, via a quirk in bank regulations, don’t have to mark these securities to market value, but can carry them at purchase price. The difference between market value and purchase price is the ‘unrealized gain or loss’ that the bank must disclose in its quarterly financial filings, so that we the depositors can see them and get spooked by them and yank our money out, us billionaires and centimillionaires first, on the two fundamental principles of investing: 1, he who panics first, panics best; and 2, after us the deluge.”
The Federal Reserve set up a bailout program to allow banks to deal with this problem. Instead of selling bonds at a loss, cash-strapped banks can go to the Fed’s Bank Term Funding Program (BTFP) and borrow against them “at par” (face value). This allows banks to use these undervalued assets to raise cash (at least temporarily) without realizing big losses on their balance sheets.
As unrealized losses rise, banks continue to tap into this bailout program more than nine months after the crisis kicked off.
In effect, the Fed managed to paper over the financial crisis with this bailout program.
It basically slapped a bandaid on it. But it has not addressed the underlying issue – the impact of rising interest rates on an economy and financial system addicted to easy money.
Remember, the US is on the cusp of a REAL recession, thank to Bidenomics.
The spread between real GDP and real Gross Domestic Income (GDI) just hit an all-time high. Even higher than The Great Recession of 2009.
Might as well have AC/DC’s Angus Young as US Treasury Secretary instead of tone-deaf Janet Yellen.
The benchmark small cap index, the Russell 2000, has hit the lowest levels since November 2020, when the world was still without a vaccine and shut down from Covid. And before Biden’s/Congress wild spending spree and debt volume explosion creating massive inflation causing The Fed to hike rates.
Speaking of over, under, sideways, down under Bidenomics, mortgage rates are up 181% and home prices are up 32.3% under Biden.
Bidenomics is a windfall for the donor class (high rate of return on campaign contributions) while the middle class gets beaten to a pulp. Waiting for Biden to lean over and creepily whisper “It’s working!” Even though it is clearly not working, at least for the middle class.
Evidence that Bidenomics is not working and destructive? Try the surging income needed to buy a house under Biden. Home prices are rising faster than median household income. As in $111,000 income needed to buy a house, while median household income is only $78,000. So, housing is simply unaffordable under Bidenomics. The Biden era is outlined in pink.
Mortgage purchase applications have collapsed to 1994 levels.
Meanwhile, stressed households are seeing credit card delinquencies at the highest level since 1991.
And thanks to Uncle Spam (given how Uncle Sam is destroying the middle class it is now Uncle Spam), 2023 interest payments are the same as the total debt from 1980! Spam, which the Federal government has devolved into, is very high in fat, calories and sodium and low in important nutrients, such as protein, vitamins and minerals.
2022 was a bad year for investments under Bidenomics. 2023 year to date is showing huge gains for Bitcoin, the NASDAQ and gold. Bringing up the rear are long duration Treasuries and REITs (real estate investment trusts), both earning negative returns thus far of less than -10%.
As Bidenomics fails to do anything other than make big donors wealthier (green energy companies, big tech and union bosses, etc), we are seeing the impacts of Fed monetary tightening to combat inflation caused by Biden/Pelosi/Schumer’s spending spree.
First, the 10-year REAL Treasury yield is close to breaching 2%.
Second, 30-year mortgage rates are now 7.62%, up over 150% under Bidenomics.
Third, mortgage purchase applications crashed to the lowest level since 1995.
Fourth, the 2-year Treasury yield just breached 5%.
Fifth, the 10Y-2Y yield curve remains deeply inverted.
Speaking of Bidenomics, US mortgage purchase demand just declined to the lowest level in 28 years.
Mortgage applications decreased 2.9 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending September 1, 2023.
The Market Composite Index, a measure of mortgage loan application volume, decreased 2.9 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 5 percent compared with the previous week. The Refinance Index decreased 5 percent from the previous week and was 30 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 5 percent compared with the previous week and was 28 percent lower than the same week one year ago.
This is not good.
Bank deposits, a source of bank lending, are down -4% YoY as The Fed tightens rates.
Here is Lefty Frizzell’s original version of the Bidenomic’s themesong “If you’ve got the money, honey,I’ve got the time.” Like big donors receiving green energy subsidies. But not middle class mortgage borrowers.
Thanks to Bidenomics, code for massive Federal spending on green energy initiatives and payoffs fo large donors, we have agonizing inflation and consumers are borrowing more and more to cope with inflation. And with the increased use of debt comes …. drumroll … delinquenices!
The US conforming mortgage rate is UP 158% under Bidenomics.
Let’s move on to some forms of consumer loans, where the story is a little more daunting.
Auto loans are definitely the epicenter of the credit cycle. While the overall average is a still somewhat tame 2.41%, younger borrowers are not keeping up. Younger borrowers have delinquency rates that are 1-2% higher than the average while the inverse is true for older borrowers. Eighteen-to-thirty-nine year-old borrowers have the highest delinquency rate in 13 years.
Somehow, I sense that used car lots are going to start filling up again as these vehicles get repossessed. This should put downward pressure on used car prices, bringing that element of inflation down. This is one of the channels through which monetary policy works.
Lastly, I’ll take a look at credit card delinquencies.
Here is where we can really see the stresses building.
First, the overall delinquency rate has about doubled from 2.5% to 5% over the last couple years.
Second, older borrowers have seen a tick up in delinquency rates, a feature we don’t really see in other credit products.
Third, one in 12 younger 18-29 year-old borrowers are 90+ days late making their credit card payments.
Credit Card Delinquency Rate across all commercial banks hit 2.77% in the 2nd quarter, the highest level in more than a decade.
In conclusion, we are in the early days of a consumer credit cycle. Younger borrowers are the weakest link in this analysis, and this makes me wonder where rates go when student debt payments turn back on at the end of the month.
The cost of living has been soaring, and our standard of living has been steadily going down.
Coping with inflation is tough for American households where consumer debt is up 19.$ under Biden while the free-spending Federal government’s public debt is up only 16.5%.
“In July 2023, 61% of U.S. consumers live paycheck to paycheck, unchanged from June 2023, but 2 percentage points higher than July 2022. Generally, more consumers of all income brackets reported living paycheck to paycheck in July 2023 than last year,” Alia Dudum, a money expert at LendingClub told FOX Business.
Now, 78% of consumers earning less than $50,000 a year and 65% of those earning between $50,000 and $100,000 were living paycheck to paycheck in July, both up from a year ago, LendingClub found. Of those earning $100,000 or more, only 44% reported living paycheck to paycheck.
Because consumers have so little disposable income these days, retailers all over the nation are experiencing difficulty.
In fact, UBS is projecting that 50,000 stores could close in the United States by the end of 2027…
Analysts at investment bank UBS are forecasting that some 50,000 U.S. stores are likely to close by the end of 2027, because of expected cutbacks in consumer spending, tighter credit and the continued shift to ecommerce.
Store closings could accelerate to 70,000 to 90,000 if retail sales turn out to be weaker than expected, according to UBS.
Actually, I think that losing 50,000 stores is a wildly optimistic scenario.
Hopefully I am wrong about that.
The housing market has also been going haywire.
According to Fortune, the month of August “will become the worst month for housing affordability this century”…
On Monday, the average 30-year fixed mortgage rate reached 7.48%, marking the highest level since the year 2000. Even prior to this recent surge in mortgage rates, housing affordability, as monitored by the Atlanta Fed, had already deteriorated beyond the levels seen at the housing bubble’s peak in 2006. Once this latest mortgage rate surge is factored in, August 2023 will become the worst month for housing affordability this century.
Wow.
Thanks Delaware Joe Biden (as opposed to Country Joe Stalin).
Home prices are going to have to come down, and in some areas they have already fallen quite a bit…
Homeowners are sitting on a negative equity timebomb after losing $108.4 billion on their property values this year, experts say.
The average borrower saw their home equity plummet by $5,400 in the first quarter of 2023 compared to last year – with households in Washington, California and Utah worst affected.
Do you remember the housing crash of 2008 and 2009?
Well, now the next housing crash is here, and it isn’t going to be fun.
For a while there, Joe Biden and his minions could at least boast about the employment market.
But now large companies all over America are laying off workers, and it is being reported that a staggering 1.223 million native-born Americans lost their jobs during the months of July and August…
Staggering figures have revealed that over 1.2 million US-born workers lost their jobs last month while the foreign-born workforce increased by nearly 700,000 – as migrants continue to flood across the border under the Biden administration.
Data from US Bureau of Labor Statistics show that between July and August, there was a staggering decrease of 1.223 million native-born people in the workforce – which is a low not beaten since the jobs crash when Covid hit in April 2020.
The numbers that I have shared with you are nothing to brag about.
But Joe Biden is going to keep trying to pull the wool over the eyes of the American people anyway.
Unfortunately for Biden, it has become quite clear that most Americans have lost faith in him. According to the same Wall Street Journal poll that I mentioned above, 73 percent of U.S. voters now believe that Biden “is too old to run for president”…
For Biden, one of his biggest challenges is age. The Wall Street Journal poll found that about 73% of voters think Biden is too old to run for president while only 47% think Trump is too old. Thirty-six percent of voters think that Biden is mentally up for the job while 46% of voters think Trump is mentally capable of being president.
We have never seen numbers like this for any other president.
Sadly, Biden fully intends to run again. (Especially since half-wit Jill Biden is allegedly running The White House).
And the Democrats will get behind him, because at this point no other candidate is posing a serious threat to Biden. Wait, not Gavin Newsom who almost single handedly destroyed California or Michelle Obama who has absolutely no qualifiications?? Other than being Barry Soetoro’s wife?
Under Bidenomics, there is still too much Fed monetary stimulus in the form of >$8 trillion on its balance sheet. While the biggest surge in Fed activity occurred with Covid, The Fed has added 10% to its balance sheet under Billions Biden.
Despite not backing off the assets purchases by The Fed, conforming 30Y mortgage rate is still up 155% under Bidenomics.
Yes, The Fed is raising its target rate to cool inflation, but doing little with its balance sheet.
The Case-Shiller national home price index is up 32% under Vacation Joe!
It seems prices are out of control and The Fed refuses to trim its balance sheet. But don’t worry, Vacation Joe is probably on yet another vacation while Maui and Flordia suffer and The Ukraine war is seeing bodies pile up. Meanwhile, he still hasn’t visited East Palestine Ohio like promised.
Confounded Interest - Anthony B. Sanders 
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