If the markets and assets crash, it removes a few decades of fake value created by the Fed's own silliness in trying to control the economy. El Trumpo says he can inflate away the deficit...all $40 trillion of it. That means a whole lot of money printing, inflation and rising rates for the next decade.
As usual, government lives in the alternative universe of stupidity and that is why we are where we are. It'll be painful for just about everyone but the super rich but what else you gonna do?
At some point within the next 5-10 years, it's all gonna come crashing down anyway no matter what they try to do. The cuts to the budget that would be needed to erase the deficits would spark a national riot within our borders. The world has too much debt.
I agree with all of what you said, but predicting when things will go south is impossible. Remember, they were saying this in the 1970s and 1980s. Japan hasn't collapsed yet and they don't even have a reserve currency, although their debt load is much higher than ours.
The good part is, all the pearl clutching and hand wringing over the debt and deficits brings attention to what modern currency is. An illusion.
The better part is, when the debt implodes and currencies go to zero, all the physical things that were actually built and manufactured will still be there. Just very cheap relative to the capital available that has no counterparty or infrastructure operational risk, yet are durable and divisible as well as portable. There is only one substance that serves this purpose and that is metals of a scarcity nature. Bitcoin is nice, but only works when the electricity is working and not so nice when the grid is down from a storm, flood, earthquake, volcano or we are hit with a big solar flare.
The problem is we make virtually nothing here, so if our currency drops like a rock, it doesn't mean imports will become any cheaper. Any sign of debt failures will cause the Fed to do the Helicopter Money thing. They will print money with abandon, just like during COVID-19. You know the Fed will backstop every bank.
Who in their right mind would buy government debt for 5.3% for 10 years? Between taxes and inflation, your real return will be peanuts. If anyone thinks everyone is going to rush from the stock market into bonds, think again. To me, the 10 and 30 year yields are still unrealistically low. The yields haven't even exceeded yields seen in this century. Remember what the lending rates were when the banks were required to pay depositors 5.25% and this was the regular savings rate, not a CD rate.
Who would sell gold to buy "paper" bonds? As they say, a fool and his money are soon departed. In 10 years, I would bet on better than a 5.% out of gold rather than buy a bunch of IOUs which Uncle SAP will legally counterfeit by printing more. Gold is a store of value which has no other counterparty on which to rely. Certainly, one should be diversified in their portfolio, but when the US is moving toward "permanent" inflation, it would make more sense to stick to gold and stocks rather than bonds.
As for AI, if the high rates don't rock it's world, free Chinese AI which can be run on companies' own servers probably will. The AI companies seem to have this, "build it and they will come" business model which is haphazard at best. Let's not talk about the companies who have never had a profit and rely and debt to keep going. Why are those financial/business analysts who cover AI so complacent? Are they afraid to say the Emperor has no clothes?
Yes but TIPS breaks and Interest Rate Swap Rates tell a different story. These smart markets say that what we have is NOT "inflation" but an energy supply shock, which will result in demand destruction not "inflation". At least, not yet.
Milton Friedman's definition of inflation, widely accepted as the standard "Inflation is always and everywhere a MONETARY phenomenon".
That's not what we have until the Fed starts printing money for YCC/QE to defend Treasury funding at the expense of the USD and to inflate away the Debt. As trump himself just last week suggested. History shows that is always the strategy. Yet right now, the indications are that the markets will take care of this if left alone.
Actually, we do have inflation of the money supply, which is the best measure of inflation. Dr. Steve Hanke estimates a 6% increase in the money supply would be neutral for inflation. Unfortunately, it is higher than that and has been so for quite a while. The problem is changes in the money supply take time to filter throughout the country, so higher money supply creates inflation well into the future.
The Bond markets are the biggest and most sophisticated global markets. Do you believe they have not already factored in ALL of this information? If so, why are they NOT reflecting inflation?
The fact is the economy is by FAR weaker than the propaganda would have us believe and demand destruction is clearly evident in the hard data.
If the markets and assets crash, it removes a few decades of fake value created by the Fed's own silliness in trying to control the economy. El Trumpo says he can inflate away the deficit...all $40 trillion of it. That means a whole lot of money printing, inflation and rising rates for the next decade.
As usual, government lives in the alternative universe of stupidity and that is why we are where we are. It'll be painful for just about everyone but the super rich but what else you gonna do?
At some point within the next 5-10 years, it's all gonna come crashing down anyway no matter what they try to do. The cuts to the budget that would be needed to erase the deficits would spark a national riot within our borders. The world has too much debt.
I agree with all of what you said, but predicting when things will go south is impossible. Remember, they were saying this in the 1970s and 1980s. Japan hasn't collapsed yet and they don't even have a reserve currency, although their debt load is much higher than ours.
The good part is, all the pearl clutching and hand wringing over the debt and deficits brings attention to what modern currency is. An illusion.
The better part is, when the debt implodes and currencies go to zero, all the physical things that were actually built and manufactured will still be there. Just very cheap relative to the capital available that has no counterparty or infrastructure operational risk, yet are durable and divisible as well as portable. There is only one substance that serves this purpose and that is metals of a scarcity nature. Bitcoin is nice, but only works when the electricity is working and not so nice when the grid is down from a storm, flood, earthquake, volcano or we are hit with a big solar flare.
The problem is we make virtually nothing here, so if our currency drops like a rock, it doesn't mean imports will become any cheaper. Any sign of debt failures will cause the Fed to do the Helicopter Money thing. They will print money with abandon, just like during COVID-19. You know the Fed will backstop every bank.
Who in their right mind would buy government debt for 5.3% for 10 years? Between taxes and inflation, your real return will be peanuts. If anyone thinks everyone is going to rush from the stock market into bonds, think again. To me, the 10 and 30 year yields are still unrealistically low. The yields haven't even exceeded yields seen in this century. Remember what the lending rates were when the banks were required to pay depositors 5.25% and this was the regular savings rate, not a CD rate.
Who would sell gold to buy "paper" bonds? As they say, a fool and his money are soon departed. In 10 years, I would bet on better than a 5.% out of gold rather than buy a bunch of IOUs which Uncle SAP will legally counterfeit by printing more. Gold is a store of value which has no other counterparty on which to rely. Certainly, one should be diversified in their portfolio, but when the US is moving toward "permanent" inflation, it would make more sense to stick to gold and stocks rather than bonds.
As for AI, if the high rates don't rock it's world, free Chinese AI which can be run on companies' own servers probably will. The AI companies seem to have this, "build it and they will come" business model which is haphazard at best. Let's not talk about the companies who have never had a profit and rely and debt to keep going. Why are those financial/business analysts who cover AI so complacent? Are they afraid to say the Emperor has no clothes?
Yes but TIPS breaks and Interest Rate Swap Rates tell a different story. These smart markets say that what we have is NOT "inflation" but an energy supply shock, which will result in demand destruction not "inflation". At least, not yet.
Milton Friedman's definition of inflation, widely accepted as the standard "Inflation is always and everywhere a MONETARY phenomenon".
That's not what we have until the Fed starts printing money for YCC/QE to defend Treasury funding at the expense of the USD and to inflate away the Debt. As trump himself just last week suggested. History shows that is always the strategy. Yet right now, the indications are that the markets will take care of this if left alone.
Actually, we do have inflation of the money supply, which is the best measure of inflation. Dr. Steve Hanke estimates a 6% increase in the money supply would be neutral for inflation. Unfortunately, it is higher than that and has been so for quite a while. The problem is changes in the money supply take time to filter throughout the country, so higher money supply creates inflation well into the future.
The Bond markets are the biggest and most sophisticated global markets. Do you believe they have not already factored in ALL of this information? If so, why are they NOT reflecting inflation?
The fact is the economy is by FAR weaker than the propaganda would have us believe and demand destruction is clearly evident in the hard data.