Can The Fed Fix Biden/Congress Spending Addiction? Volcker, Greenspan, Yellen, Powell All Pushed Rates Lower … Until Biden (Fed Still Ignoring Taylor Rule) Mortgage Rates Continue To Climb

Confounded Interest ^ | 10/21/2023 | Anthony B. Sanders

[Kaiser8408a]

I had a wonderful time speaking at the Passive Investors Conference last night. One question I was asked was “Why doesn’t Powell (the current Fed Chair) pull “a Volcker” to cool inflation. She was referring to former Fed Chair Paul Volcker’s sudden raising of The Fed’s target rate which resulted in a cooling of inflation, but also an increase in the 30-year fixed mortgage rate to 16.63% in 1981.

Notice the trend in the Fed’s target rate and 30-year mortgage rate after Volcker’s rate shock. The trend in both has been downward as inflation was cooled.

But, each Fed Chair ranged from hyperactive to hypoactive (meaning doing little). Volcker and Greenspan saw wild swings in The Fed’s target rate. Bernanke pretty much only lowered rates AND expanded the Quantitative Easing (QE) or asset purchases by The Fed. And nothing has been the same since.

Yellen, now Treasury Secretary, continued Bernanke’s practice of zero interest rate policies (ZIRP) and QE (asset purchases) … until Donald Trump was elected President. In fact, Yellen raise rates only once prior to Trump’s election as President. Then raises rates 8 consecutive times. This is why I call Yellen “TLTL Janet”. Too low for too long Janet.

The she was replaced with DC insider Jerome Powell. Trump’s economy was strong (one explanation for Yellen trying to cool the economy with 8 consecutive rate hikes). But the Covid struck and Powell/Fed Open Market Committee overreacted, lowered the target rate back to 25 basis points and massively expanded the balance sheet. Powell also oversaw a rapid increase in the target rate, very Volckerish! But Powell stopped short of the rate suggested by The Taylor Rule of around 6.5% to 8.17%. The current target rate is 5.50%. So, Powell stopped far short of rates need to cool inflation

[Aevery_Freeman]

“TLTL Janet” is a good moniker but I call her “Dammit Janet” because I used that phrase so often for her actions.

[1of10]

My question ....

Will we see a market crash before the melt up ?

It looks like we are getting a bit of a correction now ..
But will we see NDX at 10 or 11000 ?
Or will the melt up via hyper inflation of the fiat slide in ?

We are not in a normal market.

[Brian Griffin]

Many people buy stock to get future income.

If one pays $25/share and the stock pays a .$25 quarterly dividend, it will take 25 years to get back your investment via dividends.

If there is inflation, the company’s prices will tend to rise with it.

All of that is independent of 21st Century interest rates.

It takes bank CD interest rates that have a positive return in the face of inflation for retired folks with modest incomes and low income tax rates to cause those folks to switch to CDs from stocks.

[Brian Griffin]

It is not always absolutely essential to pay the whole purchase price of a house on closing day.

Buyers could pay $200,000 via a 7% mortgage for a $350,000 house on closing day, with additional money to be paid if their incomes rise or interest rates fall.

[Sequoyah101]

Aren't we just screwed? I saw the FED put out some BS this last week about how household net worth has increased. Really? I had not even plowed back to where I was in December of '21 when the latest funk appeared. Market is down let alone the hammering we got holding "safe" bonds which are a fools investment for liquidation.

Never mind the markets. We have taken at least a 20% whack from inflation. To counter that the markets have to go up by 25%. Isn't happening. Won't happen. The idea was that investing in equities would be a hedge against inflation. That isn't working either. We aren't in a normal market and I don't see one coming. For a different reason we are hitting the 60s doldrums with near 70s inflation. The worst of all worlds.

Where is all this money going? I sure don't see it manifest in profits. Is it just being hoarded and put in yachts and excessive houses or is it just driving up the price of everything and ratcheting the scale up.

Speaking of ratcheting up, I saw an investor guide showing just the top of the money supply curve. The change in scale has changed so much that they are only showing the tip of the iceberg. Looks like manipulation of perception to me to attempt to show the money supply is somehow decreasing. How do you decrease such a massive growth in money supply anyway?

The 500% increase in money supply born of printing it is the root cause of inflation. On top of that this bunch of administration idiots just make it worse by wasteful spending on social and green projects. Unless money is invested in something useful the nation too is in the liquidation and going out of business model with buckets of cash transferred to favorite friends and family.

Yeah, we are hosed.

[nevermorelenore]

BiteMe’s appointees are mostly Joo-ish - Khazarians, they are out to Fleece US

wake up, people !

anything the propaganda media tells you is a lie

[1of10]

“switch to CDs from stocks.”

So to my question....
Do you think we will see ... as we have in the past .. a pull back on the market before the melt up due to the current world wide revaluation of the fiat ?

Let me expound a bit ...
In the past we have had markets that have gotten over heated and a bit bubbly .... then a correction ... but over the past couple of years we have seen the NDX run up due to the flood of dollars ... then pull back as bond yields rose.
Then once again take off due to the imbalance in the raise of rates vs the influx of dollars due to continued gov spending.

WE are seeing a pull back now that we have a little war action but mostly because people finally believe .. higher for longer.

The spending , however will ramp up. Bringing the dollar value vs commodities down. Inflation up. As fewer countries see the need to hold as many dollars some of that will return to the US ...

The price of the market has a direct relationship to the value of the $ vs commodities . If you watch the yields on the 10 vs the dxy vs the ndx ... it is very direct.

When the dxy (which is a value compared to the other world fiat) goes down .. the NDX goes up.
We are in a battle to have the $ remain valuable compared to the other fiat, but the whole world is inflating their fiat against commodities.

I have no doubt we will see a melt up. As the value of the underlying real assets represented by the market reflect the real weakening of the $ ... but will we see a flight to the side before it hits?

Markets generally go down faster then they go up .... and I see the possibility of a flash crash but ... it's always hard to read.
Just looking for insights from other view points here..
so many variables in the equation.

[cymbeline]

“Quantitative Easing (QE) or asset purchases by The Fed”

I’ve looked up the meaning of these terms but always forget their meaning. One reason for forgetting is their explanation. For example, wikipedia:

“Quantitative easing (QE) is a monetary policy action where a central bank purchases predetermined amounts of government bonds or other financial assets in order to stimulate economic activity.”

How does that stimulate the economy? What does it mean to financially stimulate the economy? I’m already tired.

It appears to me that the money people, by explaining with gobbldygook, don’t want us to know what’s really going on.

[Hoosier-Daddy]

The White House and Congressional spending are the primary reasons for inflation at this point.

[Sgt_Schultze]

Zero interest was the rage during the Kenyan’s reign. It was imperative to manufacture growth in the face of the stupid policies of that numbskull. So nearly all the growth during that period was attributable to forcibly non-existent interest rates.

[1of10]

” central bank purchases predetermined amounts of government bonds or other financial assets”

When the fed buys bonds the yield falls ... reducing demand for $s ... dropping the dxy(value of the $ vs other fiat) pushing the price of the markets up.
Buying the market directly pushes the market up.

When the market goes up people spend more $ (generally), velocity of $ increases ... unfortunately this is very inflationary
Raising interest rates or selling bonds raise the yield on the 10 year bond... increasing the demand for $ thus pushing the dxy up pushing the markets down. Slowing the economy.

[SaveFerris]

(Yeah, we are hosed.)

Yes we are.

Unfortunately.

The politician whores are robbing the Treasury.

[pierrem15]

How does that stimulate the economy? What does it mean to financially stimulate the economy? I’m already tired.

T-Bill purchases by the Fed allow the government to borrow more money because otherwise demand for Treasuries would fall, interest rates on T-Bills would rise and Fedzilla wouldn't be able to borrow more money.

"Quantitative easing" is why Congress can spend like drunken sailors, enriching themselves and their supporters at the rest of society's expense.

It also promotes tyranny, as once interlocking interest groups are funded by the politicians the resulting network of political support is very hard to defeat in any election. Basically, the pols buy votes with the extra spending. This also makes it very hard to stop the expensive spending since seats in Congress depend on it.

Most of the original group opposing Jordan sit on appropriations committees and on defense and voted themselves "free money" via earmarks, which should explain why they are so vehemently opposed to Jordan.

[griswold3]

Seems major purchasers China and the Fed are purchasing bonds lately.

[C210N]

Can The Fed Fix Biden/Congress Spending Addiction?

Absolutely not.

A huge reason to have fiat is that it enables huge wars. There is no barrier to spending, thus it is an addiction. Inflation is just another means of taxation, if there wasn't enough taxation already. The only remedy is to end fiat.

The US may not be joining BRICS, but it surely must join the spirit of BRICS with a PM-based financial system. Endless checks to the likes of Afghanistan and Ukraine cease in that scenario.

The good news is that we are moving in this direction... for example, just check the evolution of US Debt Clock, to what it is today. Look at the M2 money supply, and note it is now decreasing. Note the icon nearby - the DSC's pyramid on every dollar bill. Then, note the adjacent 'US Treasury Dollars', increasing. The rates of both are accelerating.

Some recent snapshots:

[C210N]

Can The Fed Fix Biden/Congress Spending Addiction?

The FED is working hand-in-hand with bidEn and CONgress. All part and parcel of the DSC.

[fatboy]

I don’t like inflation any more than you do and I’m no fan of the children running our country but in the 2 years since Dec 21 to today our household net worth has increased by approx 20% Again this is not due to anything the government has done rather in spite of it. We live debt free below our means and save until it hurts.

[fatboy]

The market rises then it goes down, overall it goes up more than it goes down so yes there is most likely a correction in the future but forget about it put your money into a good low cost index fund, contribute at least something every paycheck and don’t think about it just invest. Remember when the market is down that is the best time to buy. So be prepared to buy low sell high in other words get rid of debt and save some money.

[1of10]

“get rid of debt and save some money”

That's great advise for a good stable ride.

But once you have your bases covered it's not a bad thing to get out on the edge. Never use money you wouldn't throw out the window at 60 miles an hour down the highway ... don't aim at bulls eyes and don't hunt unicorns...

The q train logs hundreds of points a day and is more fun than bass fishing or sports cars.
Sqqq 3x inverse ndx.. Tqqq 3x ndx Etf .. weekly options and fast action.

On a day that the market closes flat , the q train may have logged a 1000 pts, jump on the t when ndx is moving up and hop the s when it is moving down ... but not if you have weak heart.
Pop some options if your brave.. calls/puts ..to get some leverage.... NEVER go on margin.

Sell that bass boat and hop on the Q train. Education can be expensive. Go slow till you really see what's going on.