Shadowy Man
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Between that and your DOGE check you’ll have it made!
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We are on the Verge of Economic Catastrophe
- Thread starter SLD
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No polled US firms in China shifting production back to US, AmCham survey finds
‘Instead, they are localising operations or shifting some production to third countries,’ the American Chamber of Commerce says after poll of 112 member companies in China.
www.scmp.com
We don't even need to tax the rich. Just quit not taxing the rich.
Swammerdami
Squadron Leader
The Federal Reserve Board of Governors will announce interest rates in a few minutes. Will it lower interest rates or, as expected, keep them unchanged?
Personally I feel that many types of inflation should NOT be tackled with interest hikes. In particular, raising interest rates are appropriate when "overheating" is pushing up wages, but the present inflation risks have other sources, I think.
People have been predicting doom for the U.S. economy, but that has not yet materialized. The change in prices between May '24 and May '25 is 3.16% or 2.77% or 2.38%. (The third number includes food and energy and is for urban consumers; but even the first number -- which IIUC is one the FedRes uses -- is close to their 2% target.) There was a slight net increase in employees from April to May. 10-year Treasury yields are 4.46%; Interest rate on excess reserves is 4.40%, slightly higher than 4.33% "Federal Funds rate." Corporate bond yield with single-A rating is 5.09%, lower than in 2023. Don't these numbers look good?
The Nasdaq-100 and the S&P500 stock market average are both near the all-time highs they set in February. Bitcoin set an all-time high last month and is still near that level. The CBOE Volatility Index, which spiked to 52 in April, is now a mild-mannered 20.2. The gold price, for whatever meaning it has, set an all-time high in April and is still near that level. Where is the panic? Some will say "It's coming soon. Just wait a month or two." But aren't the markets supposed to look forward?
The Bond Bears, eager to look for dark clouds rather than silver linings, point to "stealth QE" by the Fed. Normally transparent, and informing the public that it's trying to reduce its balance sheet, the FedRes has bought significant amounts of Treasury debt recently and without any fanfare. What could be the reason if not to prop up prices? Even the Treasury has been buying its own bills to "improve liquidity" -- this seems peculiar. (These purchases do not create money: The Treasury has to borrow the funds back.)
Something else the pessimists point to is the failure of the Dollar to surge in response to the Israel-Iran War. Does this failure show that the Dollar is less of a "safe haven" now? (But I spot-checked 2 or 3 other recent crises and didn't see any strong dollar surge.)
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What mystifies and bother me is the relationship between the FedRes and its Member Banks. 4.4% interest on excess reserves??? Easy money; and note that the FedRes doesn't put that money to work. Instead it takes a LOSS. (These are the first net losses in its history.) And 4.4% is almost the same as the rate on long-term Treasuries. But IIUC FedRes makes the big banks "an offer they cannot refuse" -- they are expected to slurp up Treasury debt.
And why has the FRED discontinued data series like the excess reserves interest rate? And doesn't reducing the reserve ratio for demand deposits to ZERO seem over-indulgent?
Is this all a house of cards ready to collapse?
Personally I feel that many types of inflation should NOT be tackled with interest hikes. In particular, raising interest rates are appropriate when "overheating" is pushing up wages, but the present inflation risks have other sources, I think.
People have been predicting doom for the U.S. economy, but that has not yet materialized. The change in prices between May '24 and May '25 is 3.16% or 2.77% or 2.38%. (The third number includes food and energy and is for urban consumers; but even the first number -- which IIUC is one the FedRes uses -- is close to their 2% target.) There was a slight net increase in employees from April to May. 10-year Treasury yields are 4.46%; Interest rate on excess reserves is 4.40%, slightly higher than 4.33% "Federal Funds rate." Corporate bond yield with single-A rating is 5.09%, lower than in 2023. Don't these numbers look good?
The Nasdaq-100 and the S&P500 stock market average are both near the all-time highs they set in February. Bitcoin set an all-time high last month and is still near that level. The CBOE Volatility Index, which spiked to 52 in April, is now a mild-mannered 20.2. The gold price, for whatever meaning it has, set an all-time high in April and is still near that level. Where is the panic? Some will say "It's coming soon. Just wait a month or two." But aren't the markets supposed to look forward?
The Bond Bears, eager to look for dark clouds rather than silver linings, point to "stealth QE" by the Fed. Normally transparent, and informing the public that it's trying to reduce its balance sheet, the FedRes has bought significant amounts of Treasury debt recently and without any fanfare. What could be the reason if not to prop up prices? Even the Treasury has been buying its own bills to "improve liquidity" -- this seems peculiar. (These purchases do not create money: The Treasury has to borrow the funds back.)
Something else the pessimists point to is the failure of the Dollar to surge in response to the Israel-Iran War. Does this failure show that the Dollar is less of a "safe haven" now? (But I spot-checked 2 or 3 other recent crises and didn't see any strong dollar surge.)
- - - - - - - - - -
What mystifies and bother me is the relationship between the FedRes and its Member Banks. 4.4% interest on excess reserves??? Easy money; and note that the FedRes doesn't put that money to work. Instead it takes a LOSS. (These are the first net losses in its history.) And 4.4% is almost the same as the rate on long-term Treasuries. But IIUC FedRes makes the big banks "an offer they cannot refuse" -- they are expected to slurp up Treasury debt.
And why has the FRED discontinued data series like the excess reserves interest rate? And doesn't reducing the reserve ratio for demand deposits to ZERO seem over-indulgent?
Is this all a house of cards ready to collapse?
SLD
Contributor
Well the fed left rates unchanged and the markets dropped about 200 points immediately after the news. They are still concerned about inflation.
Obviously they are concerned about the impact of the tariffs on inflation but it’s just too soon to tell. Right now inflation hasn’t accelerated despite the tariffs. But those really haven’t yet really come into play much or hit consumers as of yet. And it’s still unclear if they will even be ultimately implemented.
More concerning are other issues such as ICE raids taking away a massive amount of our work force and that could effectively destroy many businesses. The impact on agricultural production as well. The targeting of legal immigrants such as students and others.
Add to that the mass layoff of government workers and the impact that will have on things like business regulation and numerous other related matters and so on down the line.
The problem is that the impact of these issue probably won’t be apparent until the end of summer or around mid September at the earliest.
Are we on the verge of economic collapse? Let’s just say I don’t hold out much hope for any real economic growth over the next four years. But for my own personal sake I hope I’m wrong.
Obviously they are concerned about the impact of the tariffs on inflation but it’s just too soon to tell. Right now inflation hasn’t accelerated despite the tariffs. But those really haven’t yet really come into play much or hit consumers as of yet. And it’s still unclear if they will even be ultimately implemented.
More concerning are other issues such as ICE raids taking away a massive amount of our work force and that could effectively destroy many businesses. The impact on agricultural production as well. The targeting of legal immigrants such as students and others.
Add to that the mass layoff of government workers and the impact that will have on things like business regulation and numerous other related matters and so on down the line.
The problem is that the impact of these issue probably won’t be apparent until the end of summer or around mid September at the earliest.
Are we on the verge of economic collapse? Let’s just say I don’t hold out much hope for any real economic growth over the next four years. But for my own personal sake I hope I’m wrong.
Elixir
Made in America
Jason Harvestdancer
Contributor
Of course the US economy is in bad shape. It has been in a worrisome condition ever since the 2001 recession was "fixed" with stimulus instead of being allowed to run its course. When you suppress the symptoms they come back stronger later, which happened in 2008. The economy since 2008 has been queasy, and the 2020 lockdowns were a disaster. Ending the lockdowns "created growth" according to some measures, but the stimulus during the lockdowns has made an inflation disaster that is only now easing.
The current situation has been building since 2001. The can got larger every time it got kicked down the road. We're running out of road to kick it down.
The US has defaulted on its debt obligations more than once in the past, so doing so again isn't outside the realm of possibility.
The current situation has been building since 2001. The can got larger every time it got kicked down the road. We're running out of road to kick it down.
The US has defaulted on its debt obligations more than once in the past, so doing so again isn't outside the realm of possibility.
Swammerdami
Squadron Leader
Most of your comment is either wrong or exaggerated but I'll comment myself with one question:
Where do you get the "more than once"? FDR stopped redeeming paper for gold in 1933, but IIRC any other "default" claim is nitpicking.
There is a lot of doom-saying about a dollar collapse on YouTube, but many of the complaints seem excessive. The debt DOES seem to be unsustainable in the long term, so I'll go with the opinion expressed by the CEO of JPMorganChase:
JamieDimon said:
JPMorganChase, by the way, holds about $370 billion worth of US Treasury paper, more than any country except the US itself, Japan, UK, China, Cayman Islands, Belgium and Luxemburg.
Jason Harvestdancer
Contributor
Except for the times the US has defaulted, it never has.
Perhaps the default of the continental currency in 1779 doesn't count because it was before the constitution.
There was also the partial default of 1782 but that was eventually paid - sort of. The funding act of 1790 repudiated the loans it was defaulting on, but offered to convert them into loans that would be redeemed on less favorable terms. So they did get paid, kind of, just not what was promised, so you probably don't consider that a default.
In 1862 there was the greenback default. The original greenbacks were redeemable in gold until the US Treasury defaulted on that. They were replaced with unbacked greenbacks after that. It was a wartime measure, but it was still a default.
You are familiar with the liberty bond default of 1934, you even mentioned it yourself. I am told "it wasn't a default they got paid". They loaned gold on the promise of gold, they got paid back in depreciated paper and told "take this or you get nothing at all". Half a loaf is better than none, so it is said, so they did get something. Still, I do count that as a default.
There was another one in 1968 which had the government refusing to honor the silver dollars the same way it had previously refused to redeem gold. This time the offer was to trade the silver backed dollar for an equivalently marked treasury note, very much like 1934.
Then there was 1971, the closing of the Bretton Woods window by Nixon. This time it was other countries that felt the brunt of the default, not domestic investors, but it does exist as well. Once again they were offered gold and got paper, so the diehard can claim there was no default.
Of course default isn't the end of the world, but to pretend it hasn't happened before is just foolish.
Swammerdami
Squadron Leader
Three of your examples repudiate the conversion of paper money into specie. I won't argue with those except to ask to see the relevant text in the Bretton-Woods Agreement which obligated the gold sales.
The Funding Act of 1790, rather than repudiating debts of the United States (which was effectively founded in 1789) did rather the opposite: The new country assumed debts incurred during the Revolution, albeit on, as you say, less favorable terms.
That leaves only the "greenbacks" of 1862, about which you are completely mistaken, if my understanding is correct. A .gov webpage gives this synopsis of the greenbacks: (I've reddened two exceptions to the use of those notes as legal tender. 1. US paid interest on its old debt in gold. 2. Merchants buying foreign goods with gold had to pay their tariffs in gold. Is this correct?)
The Legal Tender Notes ("greenbacks") were all eventually redeemable for gold at their face value.
Swammerdami
Squadron Leader
What I overlooked here is that the mass deportation of immigrant workers WILL create labor shortages and push up wages. The problem will affect agriculture, hospitality and logistics.
* California's almond harvest has been delayed due to missing workers.
* New Jersey's warehouses struggle with disrupted shift schedules.
* Texas oil operations are delayed due to reduced maintenance crews.
The loss of these workers may have a big impact on the labor market. Supposely 200,000 immigrants have already been deported in 2025, but that figure may be misleading: Many "Wetbacks" are turned back early before they have a chance to enter the labor market.
Countries around the world explore alternative trading partnerships. Trump left the G7 summit in a huff, not even offering polite handshakes.
Interesting times.
bilby
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And many more will fear arrest and deportation at their workplaces, and will quit working (or find work at places that they expct are less likely to be raided) until this all blows over.
Some will leave the US on their own terms, not wanting their photographs and fingerprints to appear in ICE records.
The number deported will likely be significantly fewer than the number lost to the labour market, and skewed towards the larger employers.
Jimmy Higgins
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Inflation disaster? It didn't even approach the 1970s. The global economy was jostled in the pandemic. Inflation began as a supply side issue, not stimulus problems. Stimulus would be on the down end. Stuff got more expensive because supply dropped and it rippled. Inflation we experienced was hardly a "disaster".
The current situation has been developing since 1981 with trickle down economics and the GOP embracing deficit spending to starve the beast. You say "kicking the can", this is the GOP's whole plan.
Swammerdami
Squadron Leader
I fully agree with Mr. Higgins here. I just want to show some stats to remind us how wrong-headed and hypocritical are the QOPAnon rants against "Biden's inflation." In this post "Inflation" will denote the percentage change from a year before of Fred's CPIAUCSL (Consumer Price Index for All Urban Consumers: All Items).
Beginning in 1972 under Republican Nixon, inflation began rising sharply and reached 12.2% by late 1974. It was a modest 6% for most of Carter's term but reached 14.6% in April 1980. That 14.6% was the worst inflation ever seen in the U.S. but for many Americans unemployment was a much more serious problem. And PLEASE let us not exaggerate the severity of 14.6% inflation or misapply words like "hyperinflation." If 14.6% inflation were sustained for a long period -- which it was not -- prices would triple once every 8 years. "Hyperinflation" is what happened in Hungary in 1946, at the height of which prices tripled once per DAY.
The FedRes chief whom Carter had appointed soon brought inflation under control, to 2.4% in 1983. Inflation remained low -- often even below the 2% target -- until the Covid crisis of 2020. (It was briefly as high as 5.5% in July 2008 due to the credit crisis Dubya had provoked.)
Inflation during the Covid crisis has been hugely exaggerated. Some of the latest rants have been about the cost of chicken eggs. Do these ignoramuses know about bird flu? Anyway, inflation didn't pass 5% until June 2021 and was back under 5% by March 2023. (This is CPI -- Consumer Price Index -- we're looking at. Inflation in PPI -- composite Producer Price Index -- peaked at 22.7% in November 2021. 22.7% That's NOT consumer stimulus; that's SUPPLY SHOCK.) "Core inflation" (Sticky Price Consumer Price Index less Food and Energy, CORESTICKM159SFRBATL) peaked briefly at 6.5% in December 2022.
During the four years 2021-2024 CPIAUCSL increased from 263 to 318, a 21% rise. That averages to a 4.8% annual rise. (1.048^4 = 1.21) From 1968 to 1982 the inflation rate was almost NEVER as low as 4.8% !
I have gone into excruciating detail in an effort to fight ignorance. Some people get ALL their information on inflation from right-wing channels, and YouTubes hoping to sell them over-priced gold.
@Jason Harvestdancer -- Do facts help? Learn anything?
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Swammerdami
Squadron Leader
I happened on a story (via YouTube) which I cannot confirm. Supposedly Trump and his Treasury Secretary have a plan to stop selling long-term Treasury bonds and notes. Google appears to know NOTHING about this. Yet this "plan" would make sense from Trump's standpoint.
Treasury would continue to need money, so would sell short-term Treasury bills. Unlike 20-year bonds which are "bets" on the Dollar's future, Treasury bills are like cash. These bills would be rolled over continually. Thus this is a way for Treasury to "print its own money", bypassing FedRes which is normally charged with monetary control.
The "thinking" is that Jerome Powell will be replaced as FedRes chief when his term expires next May, so Trump would avoid locking in high long-term interest rates during the next ten months, and then appoint a MAGAT who will follow Trump's instructions as FedRes Chief.
I lack the expertise to understand this, but doubt that it is a good idea. In principle neither FedRes nor USG controls long-term interest rates. I suspect that the present rates may be too LOW; this is one reason for the bubble in asset prices. Lower interest rates will aggravate the bubble, and push the Dollar down further.
I am confused about all this. I'll just close this post with some miscellaneous facts.
Start by comparing the yields on 10-year and 30-year Treasuries. Not surprisingly these numbers move closely together, with 30-year yield usually about 0.1% higher. Logical: The long duration carries risk and the extra 0.1% compensates for that risk. But right now, the yield difference is a whopping 0.3%. In effect, the market "thinks" that between 2035 and 2055 the dollar may lose value.
Last week the S&500 and the NASDAQ-100 set all-time highs. This is treated as simple good news by many, but has a cruder explanation. People have fistfuls of dollars and can't think what else to do with them besides buying stocks and bitcoins. Bitcoin set its record high in late May and is still trading near that level.
What else is up? As recently as February you could buy one Euro for $1.04 in American Dollars; the price is about $1.18 now. Over that period the S&P500 has fallen by 11% when measured in euros instead of dollars. The British pound is up 12% from its January low; The Swiss franc is up 15%. (The Japanese Yen is up about 10% since its January low, but other Asian currencies have not risen much.) The dollar is falling. This may be Trump's goal, since the lower valuation will help American exporters.
Jerome Powell's term as Chairman of the Fed expires in May 2026.
And yet Powell is an "interest rate hawk" compared with Trump! I am confused!?!
Treasury would continue to need money, so would sell short-term Treasury bills. Unlike 20-year bonds which are "bets" on the Dollar's future, Treasury bills are like cash. These bills would be rolled over continually. Thus this is a way for Treasury to "print its own money", bypassing FedRes which is normally charged with monetary control.
The "thinking" is that Jerome Powell will be replaced as FedRes chief when his term expires next May, so Trump would avoid locking in high long-term interest rates during the next ten months, and then appoint a MAGAT who will follow Trump's instructions as FedRes Chief.
I lack the expertise to understand this, but doubt that it is a good idea. In principle neither FedRes nor USG controls long-term interest rates. I suspect that the present rates may be too LOW; this is one reason for the bubble in asset prices. Lower interest rates will aggravate the bubble, and push the Dollar down further.
I am confused about all this. I'll just close this post with some miscellaneous facts.
Start by comparing the yields on 10-year and 30-year Treasuries. Not surprisingly these numbers move closely together, with 30-year yield usually about 0.1% higher. Logical: The long duration carries risk and the extra 0.1% compensates for that risk. But right now, the yield difference is a whopping 0.3%. In effect, the market "thinks" that between 2035 and 2055 the dollar may lose value.
Last week the S&500 and the NASDAQ-100 set all-time highs. This is treated as simple good news by many, but has a cruder explanation. People have fistfuls of dollars and can't think what else to do with them besides buying stocks and bitcoins. Bitcoin set its record high in late May and is still trading near that level.
What else is up? As recently as February you could buy one Euro for $1.04 in American Dollars; the price is about $1.18 now. Over that period the S&P500 has fallen by 11% when measured in euros instead of dollars. The British pound is up 12% from its January low; The Swiss franc is up 15%. (The Japanese Yen is up about 10% since its January low, but other Asian currencies have not risen much.) The dollar is falling. This may be Trump's goal, since the lower valuation will help American exporters.
Jerome Powell's term as Chairman of the Fed expires in May 2026.
And yet Powell is an "interest rate hawk" compared with Trump! I am confused!?!
Swammerdami
Squadron Leader
This claim may apply to the last few years, but is horribly wrong over recent decades. I've attached a graph showing three interest rates over the past 45 years, with difference between 30- and 10-year yields multiplied by ten and shown as the red line. (It would be too hard to see the values without the multiplication by ten.)
So that difference has recently passed 0.5%, was about 0.1% during some of the Biden year, but soared above 1.0% during the low interest-rate regimes that followed the Bush recessions. This parameter -- the red line -- increases with fear of inflation, i.e. unwillingness to "lock in" relatively low interest rates.
(I didn't realize this parameter got so high. The whole topic is confusing and/or I am confused!)
Swammerdami
Squadron Leader
This YouTube is mainly an infomercial for the narrator's Hedged Hyper Growth Portfolio Blueprint but the first 14 minutes explain that the FedRes has started "printing money." This will accelerate, forcing up asset prices and causing an economic boom. Buy stocks! After a year or three inflation will raise its ugly head. (Sell your stocks before the boom collapses.) I think this is what many have been saying but this guy explains some of the details.