Several times recently I’ve referred to the dilemma facing the Fed: inflation or recession. And, of course, it’s likely that the inflation horn of that dilemma won’t be just a little bit—as we’re realizing across the country already. I’ve wondered whether Jay Powell’s Fed will have the gumption to make a tough choice to try to get America back on track. Lately, however, I’ve noticed more commentators suggesting the the Fed may actually be serious—this time may be different. Maybe.
I would welcome increased interest rates, 0.2% interest on deposits is criminal, in comparison to what is being charged to borrowers. I believe the US government will default on bond obligations. This has been done in the past, the holders of WWI liberty bonds got screwed in 1934. Liberty bonds were supposed to be paid with dollars that were worth $20.67 per ounce of gold, instead of $34.00, around 70% lower real buying power.
The bond market seems to indicate that raising rates will, in fact, result in a recession. What has happened is that rates between 1 month and 7 years duration have come up under the jawboning of the Fed, but the 10Y+ rates haven't moved nearly as much- in short the entire duration curve has gotten flatter, not steeper, and a flatter curve indicates no growth expected 7 years and out.
Will the Fed start raising short term rates? I don't know. I do know the math shows interest costs to the US government will get much worse if they do anything more than they did during the last raising rates cycle from late 2015 to 2019. The difference now, though, is the effect of the COVID policies are added on top of the load.
Like I wrote last week- I have made my bets- my bet is basically that Denninger is correct- the Fed will raise rates to choke inflation in its crib, and this will cause a recession.
I don't think the Feds has the stomach for higher interest rates. It would blow up the US deficit, as well as pop a bunch of bubbles in the stock market and real estate. I think they will stay with "Stern Words", but no real action. So I see lots more inflation. And with the mid terms in 9 months, too risky.
Biden basically did what Obama did on pipe lines, so no real change there from a risk standpoint. What has changed is the impact of huge investment funds, black rock, that are DEMANDING that the oil companies try to be greener. This is translating as reducing oil exploration and reserves. Same is being done with the banking industry, using the excuse of "Climate Change". The result of this for 3 more years is going to be higher oil prices. My guess $7 dollar gas in California is coming. We are already just under $5.
I would welcome increased interest rates, 0.2% interest on deposits is criminal, in comparison to what is being charged to borrowers. I believe the US government will default on bond obligations. This has been done in the past, the holders of WWI liberty bonds got screwed in 1934. Liberty bonds were supposed to be paid with dollars that were worth $20.67 per ounce of gold, instead of $34.00, around 70% lower real buying power.
The bond market seems to indicate that raising rates will, in fact, result in a recession. What has happened is that rates between 1 month and 7 years duration have come up under the jawboning of the Fed, but the 10Y+ rates haven't moved nearly as much- in short the entire duration curve has gotten flatter, not steeper, and a flatter curve indicates no growth expected 7 years and out.
Will the Fed start raising short term rates? I don't know. I do know the math shows interest costs to the US government will get much worse if they do anything more than they did during the last raising rates cycle from late 2015 to 2019. The difference now, though, is the effect of the COVID policies are added on top of the load.
Like I wrote last week- I have made my bets- my bet is basically that Denninger is correct- the Fed will raise rates to choke inflation in its crib, and this will cause a recession.
I don't think the Feds has the stomach for higher interest rates. It would blow up the US deficit, as well as pop a bunch of bubbles in the stock market and real estate. I think they will stay with "Stern Words", but no real action. So I see lots more inflation. And with the mid terms in 9 months, too risky.
Biden basically did what Obama did on pipe lines, so no real change there from a risk standpoint. What has changed is the impact of huge investment funds, black rock, that are DEMANDING that the oil companies try to be greener. This is translating as reducing oil exploration and reserves. Same is being done with the banking industry, using the excuse of "Climate Change". The result of this for 3 more years is going to be higher oil prices. My guess $7 dollar gas in California is coming. We are already just under $5.
https://gasprices.aaa.com/?state=CA
What is being threatened is the US Dollar as the world's reserve currency. Step by step this is being slowly eroded.