AuthorTopic: Hyperinflation or Deflation?  (Read 132305 times)

Offline Surly1

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Re: 💸 Why Did All this Money-Printing Not Trigger Massive Inflation?
« Reply #630 on: October 11, 2018, 06:29:42 AM »
If they can cover their nut, working stiffs will spend the rest, at least here in the US. Savings is not that ingrained in our culture. I think there has to be a surplus for price inflation to take off. If food and rent and gas are manageable, then there is surplus cash that chases non-essentials and status-reinforcing higher end goods.

In the recent past, all the surplus flows to the rich, who don't spend any more than usual when their "pay" goes up. The hoard money or buy assets.

I think you have this right, or at least, I agree with you, to the extent that I understand it.

Your point about savings is true for the last two generations. I remember the people of my parent's generation who had lived through the Great Depression. and were frugal to the extreme. Saved everything from coffee cans to string. "You never know when you're going to need this."

I also remember the Carter years of hyperinflation and 13 per cent mortgages, when it made good sense to get into debt because you'd pay it back with cheaper dollars. That's the "reality" that greeted my young adulthood. (Now I wonder of that too wasn't a bankster manipulation.)

In terms of the opportunity get poorer, see Barbara Ehrenreich, "Nickled and Dimed." Payday loans are just a part of a serve landscape designed to extract FRNs from the poorest in our culture. Being poor is hard, and as we've discussed here in other threads, TPTB wrks overtime to make damned sure you can't live independent of the grid. And as you see in the article RE posted about homelessness, as soon as an employer learns you're homeless, you lose your job. We've covered all the exits.

As for Yuan/SDRs and gold, I can't even spell those. I will leave that to you and GO, and much enjoy the discussion.
« Last Edit: October 11, 2018, 08:15:17 AM by Surly1 »
"It is difficult to write a paradiso when all the superficial indications are that you ought to write an apocalypse." -Ezra Pound

Offline Eddie

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Re: Hyperinflation or Deflation?
« Reply #631 on: October 11, 2018, 06:31:51 AM »
The REAL advantage of US dollar hegemony is that dollar inflation means that foreigners pay off our national debt through inflation.

Because austerity is not politically popular, the government/bankster collusion to cause inflation is the primary way we deal with deficits over the long haul. We (the banksters) devalue the dollar to pay off the national debt with cheaper dollars. This is at the heart of the unholy alliance between the US federal government and the banking cabal.

With the foreigners not needing to get dollars to pay their debts, that means dollar inflation effects will be felt primarily here, and not world wide.
« Last Edit: October 11, 2018, 06:34:52 AM by Eddie »
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Offline Eddie

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Re: Hyperinflation or Deflation?
« Reply #632 on: October 11, 2018, 06:42:08 AM »
GO is correct that the balance of world financial power has undergone a shift from West to East.

This will have major effects over time. Figuring out how this will affect regular people here in America is something I'd like to know about before it gets to be widely understood. Forewarned is forearmed, as they say.

RE has a good mind for this stuff. I wish he were more interested in parsing it out. I understand that it doesn't make much difference to him personally. I've read two of Rickard's books. The new one comes out at the end of the month. He seems to have gotten much of the puzzle figured out.

However, he is a China bear, like RE. China is due for a major deflationary event. How this affects their currency machinations is not something I have figured out yet.
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Offline RE

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Re: Hyperinflation or Deflation?
« Reply #633 on: October 11, 2018, 07:55:42 AM »
RE has a good mind for this stuff. I wish he were more interested in parsing it out. I understand that it doesn't make much difference to him personally. I've read two of Rickard's books. The new one comes out at the end of the month. He seems to have gotten much of the puzzle figured out.

However, he is a China bear, like RE. China is due for a major deflationary event. How this affects their currency machinations is not something I have figured out yet.
I'm kind of overwhelmed with projects right now, I've got 2 of my own articles I'm working on plus editing articles of 2 other people.  Then I am travelling down to the lower 48 next week to finish the Tombstone and I need to get my  Capsules ready to place in the Secret Chambers, which entails getting together my seeds, spores and Tardigrades into their own capsules that fit inside the larger capsule, as well as my DNA, wrtings and photographs.  I'm also stuck cleaning the digs on my own because the manager here who promised she would help turned out as unreliable as the taxi driver's wife and made appointments and didn't show up.  In addition I had to make arrangements to get my crippled ass down to Anchorage for the flight and then again right after that for my latest roto-rooter job.  So doing econ analysis is not high on my priority list at this time.  Thanks for the props though.

RE
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Offline Surly1

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Re: Hyperinflation or Deflation?
« Reply #634 on: October 11, 2018, 08:18:39 AM »
GO is correct that the balance of world financial power has undergone a shift from West to East.

This will have major effects over time. Figuring out how this will affect regular people here in America is something I'd like to know about before it gets to be widely understood. Forewarned is forearmed, as they say.


I'd like to see you or. GO try to unwind that. You both have some real beans at stake, compared to us peasants. Nevertheless, I'd like to avoid having the 401K that became a 201K in 2008 become a K.
"It is difficult to write a paradiso when all the superficial indications are that you ought to write an apocalypse." -Ezra Pound

Offline RE

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💸 Most Americans live paycheck to paycheck
« Reply #635 on: December 17, 2018, 12:57:21 AM »
https://www.cnbc.com/2017/08/24/most-americans-live-paycheck-to-paycheck.html

Most Americans live paycheck to paycheck


    Nearly 10 percent of those making $100,000 or more say they can't make ends meet.
    Overall, most workers said they are in debt and many believe they always will be.

Jessica Dickler   | @jdickler
Published 10:15 AM ET Thu, 24 Aug 2017 Updated 8:17 AM ET Wed, 30 Aug 2017 CNBC.com
      
   
      
   
      
   
      
   
      
Stressed couple reviewing documents
Why a six-figure income is not enough for many in the U.S. 
11:45 AM ET Tue, 18 July 2017 | 01:18

No matter how much you earn, getting by is still a struggle for most people these days.

Seventy-eight percent of full-time workers said they live paycheck to paycheck, up from 75 percent last year, according to a recent report from CareerBuilder.

Overall, 71 percent of all U.S. workers said they're now in debt, up from 68 percent a year ago, CareerBuilder said.

While 46 percent said their debt is manageable, 56 percent said they were in over their heads. About 56 percent also save $100 or less each month, according to CareerBuilder. The job-hunting site polled over 2,000 hiring and human resource managers and more than 3,000 full-time employees between May and June.

Most financial experts recommend stashing at least a six-month cushion in an emergency fund to cover anything from a dental bill to a car repair — and more if you are the sole breadwinner in your family or in business for yourself.

While household income has grown over the past decade, it has failed to keep up with the increased cost-of-living over the same period.

Even those making over six figures said they struggle to make ends meet, the report said. Nearly 1 in 10 of those making $100,000 or more said they usually or always live paycheck to paycheck, and 59 percent of those in that salary range said they were in the red.
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Offline RE

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💸 The Next Recession Is Going to Be Brutal
« Reply #636 on: August 15, 2019, 08:50:06 AM »
If it's just a "recession", it won't be "brutal".  If it's a complete collapse of the monetary system, THEN it will be brutal.

RE

https://www.rollingstone.com/politics/politics-news/recession-yield-curve-poverty-tax-cuts-trump-871198/

August 14, 2019 3:21PM ET
The Next Recession Is Going to Be Brutal

The economy is showing signs of turning, and the people who saw the least benefit from the latest boom are now the most vulnerable ahead of the next bust
By Tessa Stuart
Tessa Stuart   


WASHINGTON, DC - AUGUST 9 : President Donald J. Trump stops to talk to reporters and members of the media as he walks to Marine One to depart from the South Lawn at the White House on Friday, Aug 09, 2019 in Washington, DC. (Photo by Jabin Botsford/The Washington Post via Getty Images)   

President Donald J. Trump stops to talk to reporters and members of the media as he walks to Marine One to depart from the South Lawn at the White House on Friday, Aug 09, 2019 in Washington, DC.

Jabin Botsford/The Washington Post/Getty Images

Market-watchers enjoying their first sip of coffee around 6 a.m. might have done a spit-take. For a brief period Wednesday morning, yields on two-year Treasury bonds were higher than those on ten-year ones — a short-term investment was seen as riskier than a long term one, and the return therefore higher — a signal that can portend major trouble for the economy. The last time the yields “inverted” was in 2007, before the “great” recession; the two times before that also directly preceded recessions. The dynamic flipped back before markets opened Wednesday, but stocks nevertheless dropped amid new fears of serious economic trouble ahead.

Related
NEW YORK, NY - JULY 2: Acting Director of the U.S. Citizenship and Immigration Services (USCIS) Ken Cuccinelli attends a naturalization ceremony inside the National September 11 Memorial Museum on July 2, 2019 in New York City. 52 new U.S. citizens attended the Tuesday morning ceremony. USCIS is marking the Independence Day holiday by welcoming over 7,000 new citizens in 170 naturalization ceremonies across the country from July 1 through July 5. (Photo by Drew Angerer/Getty Images)   
Using Lady Liberty as a Trojan Horse
Curt Schilling Threatens To Run For Congress: 'Someone in Charge Needs Their Ass Kicked'

According to research from Credit Suisse (via the Washington Post) recessions historically have followed 18 to 24 months after the yield curve inversions like the one Wednesday morning.

Before we get too carried away, it’s worth mentioning that there are some who argue the yield curve invert isn’t as reliable a recession indicator as it’s generally made out to be. Former Federal Reserve chair Janet Yellen struck a note of caution during a Wednesday morning appearance on Fox Business. “Historically, it has been a pretty good signal of recession, and it think that’s when markets pay attention to it, but I would really urge that on this occasion it may be a less good signal,” Yellen said. “The reason for that is there are a number of factors other than market expectations about the future path of interest rates that are pushing down long-term yields.”

But sooner or later, the current economic expansion — by many measures the longest in U.S. history — is going to end. And that’s particularly troubling when you consider how many Americans continue to fare poorly even in the current “strong economy.”

Some 40 percent of American families struggled to cover the cost of food, health care, housing or utilities last year, according to a report from the Urban Institute. A Fed found four in 10 adults couldn’t cover a $400 emergency expense. Even at the current low unemployment rate, about 6 million workers are actively looking for jobs right now — and that doesn’t include part-time workers looking for more hours or those who want work but have stopped looking. Men in the prime of their lives are employed at lower rates than they were before the last recession. Suicide rates are spiking, driving down U.S. life expectancy.

A Gallup poll released in January found 48 percent of Americans felt economic conditions were worsening — a trend that had steadily progressed in preceding months — despite the fundamentals remaining strong. At issue was the fact that the benefits of a strong economy were not being broadly shared by all Americans.

Fed Chairman Jerome H. Powell called the dynamic out in two speeches he delivered at the end of last year. “The benefits of this strong economy and sound financial system have not reached all Americans,” he explained. “The aggregate statistics tend to mask important disparities by income, race and geography.”

A recession could take many of those families struggling on the margins and push them squarely into poverty. A family that can’t cover a $400 expense definitely isn’t ready to weather an unexpected layoff. And workers already struggling to find jobs will fare worse if and when the number of openings plummet and the number of unemployed job seekers climbs.

The fact that there are so many Americans still struggling highlights the opportunity President Trump and Republicans missed when they slashed taxes for corporations, businesses and the wealthy, rather than, say, shoring up social safety net accounts, investing in economic development in marginalized communities, funding worker training programs to help them transition to more stable jobs — or even just paying off some of the nation’s debt.

Instead, of course, Republicans promised the working-class and poor would get their share as benefits trickled down in the form of a tax cut-fueled economic explosion. Whether that was a lie or a delusion doesn’t matter now. The economy is showing signs of turning, and the people who saw the least benefit from the latest boom are now the most vulnerable ahead of the next bust.
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Offline RE

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An "inflationary recession".  That should be fun.  More Gold Bug predictions that Gold will "go ballistic".

RE


The trade war is already lost, Trump is doomed and this investment is about to go ‘ballistic,’ strategist says



Published: Aug 17, 2019 11:01 a.m. ET
Peter Schiff of Euro Pacific Capital
By Shawn Langlois
Social-media editor

    ‘This is going to be the inflationary recession, there’s no way out and it’s a political disaster for Trump because the recession is going to start before he finishes this term, which means he won’t have a second term.’

That’s Euro Pacific Capital’s Peter Schiff explaining to Fox Business following the Dow Jones Industrial Average’s DJIA, +1.20% nasty plunge on Wednesday how he sees this turbulent market ultimately playing out.

“The dollar DXY, +0.06% is going to go through the floor and it’s going to take the bond market with it and the next crisis, it’s not subprime mortgages, it’s going to be in the Treasury market,” he added.

Read: Stocks rise as bullish earnings, retail sales offset trade issues

In his latest podcast, Schiff detailed his outlook as to why he sees gold GC.1, -0.72%  , which has already risen about 20%, rallying hard from here.

“This trade war is lost,” he said. “The only question is when do we surrender and how do we admit defeat. Again, I don’t think we’re going to get any kind of deal.”

With the mainstream buzzing with recession fears, Schiff points out that investors are calling for the Fed to cut rates and go back to quantitative easing. But, he warned, this won’t have the impact of prior QEs, where everybody makes money.

“Everybody is weakening their currency to create more inflation,” Schiff, a longtime gold bug, said. “Well, what’s going to happen? The world is going to drown in an ocean of inflation and gold is going ballistic.”
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Offline RE

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📉 Does this line predict America’s next recession?
« Reply #638 on: August 17, 2019, 12:08:15 AM »
<a href="http://www.youtube.com/v/oW4hfaiXKG8" target="_blank" class="new_win">http://www.youtube.com/v/oW4hfaiXKG8</a>
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Offline Surly1

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The trade war is already lost, Trump is doomed and this investment is about to go ‘ballistic,’ strategist says


That’s Euro Pacific Capital’s Peter Schiff explaining to Fox Business following the Dow Jones Industrial Average’s DJIA, +1.20% nasty plunge on Wednesday how he sees this turbulent market ultimately playing out.

//
“Everybody is weakening their currency to create more inflation,” Schiff, a longtime gold bug, said. “Well, what’s going to happen? The world is going to drown in an ocean of inflation and gold is going ballistic.”

I'm having a deja vu.
"It is difficult to write a paradiso when all the superficial indications are that you ought to write an apocalypse." -Ezra Pound

Offline RE

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https://www.theguardian.com/commentisfree/2019/aug/16/2008-lehman-brothers-crash-normal-recession-finance

Forget a 2008 Lehman Bros-style crash – this is how a ‘normal’ recession could start
Dan Davies
Current political uncertainty or trade restrictions could shock business confidence, but policymakers are fixated on finance

Fri 16 Aug 2019 08.28 EDT
Last modified on Fri 16 Aug 2019 12.56 EDT


‘It’s going to be worryingly easy for our policymakers to keep repeating slogans about small government and fiscal prudence, and ignoring the world around them.’ Photograph: Tolga Akmen/AFP/Getty Images

There’s a hoary old proverb in the financial markets that a crisis happens precisely when the institutional memory of the last crisis has faded: when all the key chairs are occupied by people who aren’t scared any more, the same mistakes get repeated.

On that basis, in the face of grim economic news around the world, we ought to be reasonably safe from another Lehman Brothers-type meltdown, or even a repeat of the eurozone crisis. But what might be a little bit more worrying is that there are surprisingly few people left who remember how the normal kind of recession happens.

    In order to have felt the fear in the 80s, you’d need to be quite a bit older than most of today’s key policy advisors

If we look back in time, we’re currently in the (surprisingly weak and slow) recovery process from a financial market meltdown in 2008 caused by the global real estate bubble. That bubble was itself basically caused by the interest rate policy response to the early 2000s recession associated with the dotcom and telecom bubbles. And it’s certainly possible to argue that a contributor to that telecom debt bubble was the “global savings glut” brought about by the late 1990s Asian and Russian financial crises. There’s a strong sense in which the world never completed the 1994-5 business cycle, having been interrupted in doing so by successive “committees to save the world”.

We’ve been living a sort of Groundhog Day existence ever since, constantly waking up to news of a financial crisis and trying over and over again to lower interest rates in just the right way to fix it.

But financial meltdowns aren’t the usual way in which recessions happen, and emergency credit lines and taxpayer bailouts aren’t the usual way that they’re prevented or managed. What normally happens is that there’s a shock of some sort to business confidence – say, political uncertainty or trade restrictions, as we’re seeing at the moment – and companies react to this by cutting back investment plans. Lower investment means lower overall demand in the economy, which justifies the original lack of confidence and triggers another round of belt-tightening, which also turns into a self-fulfilling prophecy. Things only come to an end either when there’s nothing more to cut and capital expenditure can’t be delayed any more, or (more hopefully) when the government realises that it has to make up the shortfall with deficit spending.
Is a recession coming to the US? Here’s what to watch for
Read more

An orthodox Keynesian recession of this sort, unaccompanied by a financial market crisis, is the normal kind – and one of the best understood problems in economic policy. But the last such “simple” recession in the English-speaking world was back in the 1980s: in order to have been working age and felt the fear, you’d need to be quite a bit older than most of today’s key policy advisors. The tendency to recruit important economic policymakers from either tenured academics or bankers, neither of whom experience the business cycle in the same way as the rest of the economy, means that direct, gut-level appreciation of how this kind of recession works is even more lacking. For people whose entire recession experience has been driven by finance, the idea that trade and tariffs might be drivers of GDP is an academic understanding. As those clickbait stories might say, “only 80s kids will remember” watching the evening news conclude with a roundup of the lost export orders and factory closures announced that day. Followed by Nationwide and Top of the Pops.

It’s going to be worryingly easy for our policymakers to keep looking at financial market stress indicators, repeating slogans about small government and fiscal prudence, and ignoring the world around them. There won’t be any dramatic collapse or moment to shock everyone into action as there was in 2008, and nor will there be any global event to make different governments work together.

After a surprisingly long run, we’re going to have to relearn old lessons, probably the hard way.

• Dan Davies is a former Bank of England economist and investment banking analyst
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Offline RE

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📉 Stocks Swing Wildly as Yield Curve Flips. Is There a Recession Out There?
« Reply #641 on: August 17, 2019, 06:12:21 AM »
https://www.barrons.com/articles/stocks-swing-wildly-as-yield-curve-flips-51566002682

Stocks Swing Wildly as Yield Curve Flips. Is There a Recession Out There?

By Ben Levisohn
Aug. 16, 2019 8:44 pm ET


Photograph by Etienne Girardet

Here there be dragons.
–– ADVERTISEMENT ––

That phrase, apocryphally said to have appeared on old maps to mark the unknown, could just as well describe the situation faced by investors today.

The Dow Jones Industrial Average dropped 401.43 points, or 1.5%, 25,886.01 this past week, while the S&P 500 fell 1% to 2888.68, and the Nasdaq Composite declined 0.8% to 7895.99. All three indexes fell for the third consecutive week.
Dow Jones IndustrialAverageSource: FactSet
Jan. ’19July ’192100022000230002400025000260002700028000
S&P 500 IndexSource: FactSet
Sept. ’18May ’19220024002600280030003200
NASDAQ Composite IndexSource: FactSet
Jan. ’19July ’19600065007000750080008500
Barron's 400 IndexSource: FactSet
Sept. ’18May ’19550600650700750800

At the risk of repeating myself, those moves, as large as they are, don’t begin to reflect how wild the market’s swings were. The S&P 500 has had intraday moves of 1% for 12 consecutive days through Thursday, the longest such streak since the 25 trading days that began on Dec. 5 and ran through Jan. 10. Before that, the S&P 500 had a 14-day streak that ran from Oct. 16 through Nov. 2

These types of streaks are rarely a sign of a happy market. This past week, the worry was all about tumbling bond yields. The 10-year Treasury yield traded as low as 1.47% on Thursday, its lowest since 2016, while the 30-year yield dropped below 2% for the first time ever. What’s more, the yield on the 10-year briefly fell below that of the two-year, a yield-curve inversion that has historically presaged a recession by six to 18 months or so. (The yield on the 10-year Treasury fell below the three-month earlier this year.)

Normally, these signs would be enough to make investors plan for the end of the bull market, even if the market has a habit of rising between the first inversion and the start of a bear. But these aren’t normal times. As soon as the yield curve inverted, the arguments about why it doesn’t work the way it used to started flying fast and furious. The prevalence of negative-yielding bonds, goes one argument, has made U.S. debt more attractive to investors, making the low yields a reflection of demand rather than of economic conditions. Others point to the Federal Reserve’s bond buying, which might have made bond yields artificially low. Even Janet Yellen got into the action by saying a yield-curve inversion may be a false recession indicator this time around.

But if something that was considered as reliable as the yield curve is no longer to be trusted, then the market really may be in uncharted waters. Perhaps that’s one reason equities seem to react to every tick in the bond market. That wasn’t the case at the end of July, when the correlation between the S&P 500 and the iShares 20  Year Treasury Bond ETF (ticker: TLT) was close to nonsexist. Fast forward two weeks, and the correlation between the two is well negative 65% (a correlation of 100% means two assets move in lockstep; a correlation of negative 100% means they move in opposite directions). That suggests that investors are responding to any buying of bonds—and a drop in yields—by selling stocks, and vice versa.

That was never more apparent than this past Thursday, when the 10-year yield suddenly dropped to around 1.47% from 1.52% and then bounced back, all in around 30 minutes—and the Dow Jones Industrial Average followed it almost to the tick.

Reacting to every move of the bond market is no way to invest. Even not fighting the Fed might not be the no-brainer it once seemed. Midcycle rate cuts in the 1990s helped prolong the cycle and send stocks higher. Fed Chairman Jerome Powell’s cut last month, however, caused the market to fall. The rate cut was also cited by consumers as a reason for declining confidence in the University of Michigan Consumer survey, which fell to 92.1 from 98.4 in July.

That fact alone should prod reconsideration from those hoping for a half-point rate cut from the Fed’s September meeting. “The Fed is in a precarious position,” says Lori Heinel, deputy global chief investment officer at State Street Global Advisors. “If they cut too aggressively, they play into the idea that it’s worse out there than it actually is.”

And that’s the problem: It’s hard to tell just how bad it actually is out there. The economy is obviously slowing, but not necessarily heading for recession. That means it is time for caution, not panic. “The economy is slowing down, not falling off a cliff,” says Carmel Wellso, director of research at Janus Henderson Investors. “I don’t see a reason to panic.”

At least not yet.

Write to Ben Levisohn at Ben.Levisohn@barrons.com
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Offline RE

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📉 How the US will import a recession
« Reply #642 on: August 20, 2019, 03:04:31 AM »
https://www.forexlive.com/news/!/how-the-us-imports-a-recession-20190819

How the US will import a recession
Mon 19 Aug 2019 14:11:28 GMT
Author: Adam Button | Category: News

Trump is right to fear the strong dollar, but he can't stop it


USD in recession

The bond market is flashing every kind of warning sign there is. Yet when you look at economic data it's fine. Core US consumer spending in the first seven months of this year is the highest of any 7-month period in 30 years. Unemployment is at record lows.

But the inverted yield curve isn't a sign about today, it's about 18-24 months out. What the market is saying is that the fire is built and the kindling is dry, and it just needs a match.

The match is the FX market - specifically the euro. A drop is going to set of a cascading chain of events that ends just as the market is predicting.

The economic data point that stands out from last week is the German ZEW survey. It's an economic sentiment survey of businesses and it's one of the best leading indicators out there. The expectations component fell to -44.1 from -24.5. That's an astonishing tumble from an already-depressed level.

ZEW surveyEurope is struggling already, Germany is headed for a recession. Italian growth will be flat this year. France is headed for sub-1%. Consensus right now for the entire region is 1.1% but that's coming down, it's nearing stall speed.
The relief valve is euro weakness

We're nearing a paradigm where you can't own the euro unless you pay. You either buy a negative yielding bond or you pay negative deposit rates. It's astonishing that it's as high as it is.

The euro has fallen four days in a row and is poised posted the lowest weekly close since May 2017. There is a bit of a bounce today on talk of fiscal stimulus but Germany can't abandon a balanced budget unless the lower house of parliament declares a crisis. Official forecasts are still for an economic rebound.

The EUR/USD chart itself isn't pretty. It's still above the intraday lows from three weeks ago but support is thin down to 1.04.

EURUSD daily chart

 I can easily see a +10% drop in the euro. That's in large part because European governments are paralyzed. Stimulus rules are far too strict.The euro is a fiscal noose.

It's madness that the German government can borrow at -0.64% and they're not spending. The only thing better than free money is someone paying you to take money. It's insanity not to take it.
How the US imports the recession

What I think happens is that the euro drops and the recession spreads. China is hit first. It's not going into a recession but growth will slow. Remember that the yuan isn't pegged to the dollar, it's pegged to a basket of currencies. The US dollar is 22% and the euro is 16%. So euro weakness alone forces some weakness into the yuan.

At the same time, emerging market currencies come under increasing pressure on global growth worries. That will make the US dollar and yen soar, something that sends Japanese growth back below zero.

All the weakness elsewhere and the strong US dollar kills US corporate profits. 40% of S&P 500 sales are from outside the US. So even without any changes in the US economy, you have stock market weakness. That will lead to lower investment, fear and layoffs. Eventually it hits home.

What US investors struggle with is the idea of importing a recession. It's something that's never happened in the United States. I think the Fed is just waking up to that risk but it's not something in their playbook.

Even in this scenario it's not a bad outcome for the US. Instead of 2% growth next year, it's something like 0.5%-1.0%. That's not bad.

Where it all can go wrong is how the US reacts to these FX moves. More importantly, how the White House reacts.

Ideally there would be some fiscal stimulus and the US battles through. What I think is more likely is that the President overreacts to the strong dollar and hits Europe with tariffs, and hits China with more tariffs.

That's what kicks off the negative feedback loop. Instead of a sluggish year or two; we get the pain that the bond market is forecasting.
Trump dollar

Right now Trump is focused on the Fed but even if Powell cuts to zero it's not going to stop the dollar from strengthening. It's the safe haven currency and that's amplified when it's the only place that's growing.
I break it all down in this video:
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Offline RE

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📉 Are we heading for a global recession?
« Reply #643 on: August 21, 2019, 01:53:07 AM »
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📉 Negative interest rates are coming and they are downright terrifying
« Reply #644 on: August 24, 2019, 12:18:43 AM »
https://finance.yahoo.com/news/negative-interest-rates-japan-germany-france-150324580.html

Negative interest rates are coming and they are downright terrifying
[Yahoo Finance]
Andy Serwer with Max Zahn
Yahoo FinanceAugust 23, 2019


What if I said I wanted to borrow $100 from you and pay you back $99 five years later? Would you do it?

Hell no!

And yet this is exactly what’s happening right now in the banking systems of Japan, Germany, France, and other European countries.

Negative interest rates — where the lender gets paid back less than they’ve loaned — now add up to 30%, (and counting), of the global tradable bond universe, according to JPMorgan (JPM). You may have seen for instance that Germany just sold the first negative yielding 30-year bond issue.

In case you’re wondering, yes, this is crazy.

“It’s really unusual and really distorting the global financial system,” says Torsten Slok, chief economist at Deutsche Bank Securities (DB). “I spend all my time talking about it.”
This is not going to end well

Negative rates are counterintuitive, unprecedented — and to my mind — mind-bendingly insane and downright scary. They are like a parallel universe where everything you’ve ever learned about finance and human behavior is turned upside down.
Multiple red stop signs and warning indicators on the side of a Yarra Trams Melbourne Z-class tram with red traffic light in the background.
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Negative interest rates could spell serious trouble for the financial markets. Image: Getty

Worse, negative rates are being normalized by economists, bankers, and commentators.

Worst, I have a funny feeling this will end badly. Negative interest rates have all the hallmarks of serious trouble for the financial markets; an anomaly growing in scale which seemingly came out of nowhere that is under-recognized, poorly understood and dismissed as not consequential. (Flashing red lights here.)

In the U.S. we aren’t particularly aware of negative rates because they haven’t made their way to our shores ... perhaps yet.

Yes, the U.S. ten year Treasury yields 1.59%, not close to 0%, but negative rates seem to be creeping ever closer. For instance, negative interest rates haven’t come to U.S. corporate debt, but Euro-denominated bonds issued by the likes of blue-chips Apple (AAPL), McDonald’s (MCD), and Pepsi (PEP) carry negative yields.

And in Europe, it was postulated that negative rates would never fly in the consumer sphere in terms of banks paying back depositors less than they put in their savings accounts, but that’s now changing. Banks in Denmark and Switzerland are now charging customers to hold deposits. And on the flip side, and also in Denmark, mortgages with negative rates are available. That’s right, you get a mortgage from the bank, and the bank essentially pays you each month. A three-year adjustable rate mortgage priced at negative .28% there recently.

“Helt vildt,” as the Danes might say. Translation: “Totally nuts.”
FILE - In this July 10, 2019, file photo a woman looks at an electronic stock board showing Japan's Nikkei 225 index at a securities firm in Tokyo. More and more government and even some corporate bonds are trading at negative interest yields. The negative yield phenomenon, 87% of it in Europe and Japan, is above all sign of pessimism about the future, or risk-off behavior in market jargon. (AP Photo/Eugene Hoshiko, File)
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A woman looks at an electronic stock board showing Japan's Nikkei 225 index at a securities firm in Tokyo. More and more government and even some corporate bonds are trading at negative interest yields. (AP Photo/Eugene Hoshiko)
‘I don’t think the U.S. can resist the pull’

None of this gives Timothy Duy, an economics professor at the University of Oregon, a warm and fuzzy feeling. “The issue right now is the rest of the world seems to be going deeper and deeper into negative interest rates, and I don’t think the U.S. can resist that pull,” he says.

By now, if you are like me, your head is swimming with questions:

-How, when, and why did negative rates come about?

-Are negative rates bad?

-How will this end?

Let’s tackle the first couple of questions first. It appears that negative interest rates are a modern phenomenon that was first implemented to spur sluggish economies that couldn’t get traction coming out of the Great Recession. (Yes, brought to you by central bankers.) Denmark’s Nationalbank, (the Danes again) in July 2012 was one of the first, followed by the European Central Bank in 2014, the Bank of Japan, and now much of the rest of Europe.
A cyclist passes the entrance of the Danish central bank, also known as Danish Nationalbank, in Copenhagen, January 22, 2015. The Danish central bank cut its key policy rate on Thursday for the second time this week to defend the crown's peg to the euro after the European Central Bank unveiled a stimulus package that weakened the single currency. REUTERS/Fabian Bimmer (DENMARK - Tags: BUSINESS)
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A cyclist passes the entrance of the Danish central bank, also known as Danish Nationalbank, in Copenhagen, January 22, 2015. REUTERS/Fabian Bimmer (DENMARK - Tags: BUSINESS)

These negative rates were “paid” (or levied really) on banks’ deposits in central banks. The point was to penalize banks from keeping too much money in central banks and thereby encourage them to lend. Negative rates then spread to government bonds — especially in Europe — and to corporate bonds, as well. That’s because prices for these financial instruments (which move in the opposite direction of rates) went higher and higher as investors were willing to pay more and more for safe places to park their money. Rates turned negative on these bonds when investors were so anxious for safety they would even accept less than 100% of their investment back.

Paul Davies of the Wall Street Journal put it succinctly when he wrote: “It is a stark illustration of how ultra loose monetary policies have turned debt investing into a choice about how to lose the least amount of money.”

I know, it’s all whack.
Negative rates could ‘break things’ in the U.S.

Exactly how big is the negative rates universe now? According to Deutsche Bank’s Slok, there’s some $15 trillion of negative yielding bonds in the world (out of a total of some $115 trillion), up from zero five years ago. All German government bonds are negative yielding now. And if you exclude the U.S., some 45% of the worlds’ bonds have negative yields. So not chicken feed.
Mohamed El-Erian, CEO and Co-Chief Investment Officer, Pacific Investment Management Co., speaks during the "Financial Recovery: When and How?" panel at the 2009 Milken Institute Global Conference in Beverly Hills, California April 27, 2009. REUTERS/Phil McCarten/File Photo
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Mohamed El-Erian would sound the alarm if negative interest rates came to the U.S. REUTERS/Phil McCarten/File Photo

The same financial talking heads who say negative rates can’t come to the U.S. remind me of the people who said Boris Johnson would never be Prime Minister of the UK and Donald Trump would never be President. And speaking of President Trump, in case you haven’t noticed, he engendered a trade war and has been relentless in calling for lower rates, both of which have slowed global growth and pushed rates down. Mike Davis, an economics professor at the Cox School of Business at Southern Methodist University, notes that President Trump is “creating massive amounts of uncertainty in markets,” which he thinks has companies questioning whether they should make investments. Again, that puts downward pressure on rates.

Also keeping a lid on rates are aging populations that don’t spend, as in Japan, for instance. Plus a lack of investment by companies. In this post-industrial world, where expensive property is contracted out or in the case of internet giants, not needed at all, there is much less need for capital spending. The result is that many corporate giants have massive cash troves; such as Facebook (FB) with $48 billion, Berkshire Hathaway (BRK-A, BRK-B) with $112 billion and Apple with a staggering $245 billion.

What would happen if rates go negative in the U.S.? Who knows. Allianz Chief Economic Adviser Mohamed El-Erian, for one, says he would sound the alarm if treasury yields dip into negative territory. “If we do I’m going to be really worried because negative yields in the U.S., the world’s biggest financial market, will break things,” he told Yahoo Finance.

Gulp.
President of European Central Bank, Mario Draghi , second left, is on the way to a news conference in Frankfurt, Germany, Thursday, June 5, 2014,. The European Central Bank has cut two key interest rates, one of them into negative territory — a highly unusual step that underlines the urgency of its efforts to keep the eurozone economy from sliding into crippling deflation. It reduced its main interest rate, the refinancing rate, from a record low of 0.25 percent to 0.15 percent. More drastically, it also cut the rate it pays on money deposited by banks from zero to minus 0.1 percent, an unprecedented step for the ECB that aims to push banks to lend money rather than hoard it. (AP Photo/Michael Probst)
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President of European Central Bank, Mario Draghi , second left, is on the way to a news conference in Frankfurt, Germany, Thursday, June 5, 2014. (AP Photo/Michael Probst)
The serious negative effects of negative rates

So if negative rates were a policy tool put in place by bankers, how do we assess their work? Have negative rates been a success or a failure?

The answer is a bit complicated. You sure can’t argue that negative rates have greatly boosted the economies of Japan or Europe. (Maybe you could make the case that they would be in worse shape without negative rates, but that’s sheer speculation.)

On the other hand, I think it’s clear there are some pretty serious negatives, certainly from the standpoint of uncertainty. A recent note by JPMorgan lays out nine unintended consequences; including lower bank profitability, lower credit creation, paradoxically higher rates in some instances (banks need to make up for lower income), reduced liquidity and functionality of credit markets, increased deficits in pension funds, and even exacerbation of wealth and income inequality.

But wait, there’s more.

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Yahoo Finance All Markets Summit

Bank of America Merrill Lynch (BAC) postulates that, “...if banks ever start passing negative rates onto retail depositors, the effect would be similar to inflation — cash today would be worth more than cash tomorrow. Consumers might respond by consuming more and saving less, boosting GDP growth in the short run. But this “substitution effect” could be offset by what economists call a negative “income effect”: expected erosion of savings could actually make households more conservative, pulling back on consumption both today and in the future.”

I would add to that an even bigger problem: The unknown and the uncertainty that comes with it.

Here’s Bank of America Merrill Lynch again: “Government yield curves and credit spread curves are losing their information content. In our opinion, the fact that the 3m10y or 2y10y UST spreads have inverted is less of a reflection of U.S. recession risks and more of a reflection of the desperation for yield by foreign investors flocking into USD denominated bonds as bond yields turned more negative in Europe and Japan.”

Translation: Trying to interpret the U.S. Treasury yield curve becomes meaningless.

So regardless if negative rates ever come to the U.S., there’s already an impact. Expect more to come.

What about that last question: How will this end? As you can tell, my take is, badly. But I’m not sure what form the ugliness will take or, more vexing, what we should do about it.

One thing is I think governments will have to turn away from monetary policy and rely more on fiscal policy, not just tax cuts, but government spending on much needed infrastructure to stimulate the economy and drive rates back up. Those cash rich companies may need to unlock their coffers, too.

But that may be after governments are forced into action in the wake of some sort of meltdown or crises. I hope not not. But I wouldn’t bet against it.

“At what point are interest rates so low, a financial system predicated on positive returns doesn’t work anymore?” asks Duy of the University of Oregon.

Good question. I sure hope we don’t find out.

Andy Serwer is editor-in-chief of Yahoo Finance. Follow him on Twitter: @serwer.
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