Archive for the Interest Rates Category

The Envelope, Please:  Dramedy Of The Year For 2022:  The Federal Funds Fiasco (January 30, 2023)

Posted in Federal Reserve, Interest Rates on January 30, 2023 by e-commentary.org

. . .

K          “In a runaway vote, the ‘Federal Funds Fiasco’ show was voted the best new dramedy of the year for 2022.”

J          “The Katzenjammer Kids merge with the Keystone Cops.  And the nightmare was renewed for another season this year.”

. . .

J          “When Powell was up for reappointment, the public saw some visible signs of infighting spill and spew out.  What is clear is that the members of the Federal Reserve itself are using the positions to further enrich themselves to the detriment of the public.  The corruption is cancerous.” 

. . .

K          “Spoiler alert.  Some plot twists are in the works.  The current rate hikes have produced negative effects, yet the real effects – negative and possibly positive – lag by six to nine to twelve months and have yet to manifest.  The calm before the storm.  And because the current price rises are a supply side problem not a monetary phenomenon, the rate increases will do little to slay or even stay inflation.  Real inflation for real folks is and will really remain over at least eight percent throughout this year.  And no one believes that the Fed can raise the rates higher than six percent without breaking the entire economy into shreds and shards.”

J          “Some reality twists are in the works.  The coming recession may slow inflation, yet folks must drive and eat and shelter and live.  They may drive less, but they will continue to eat and shelter and live.”

. . .

J          “Wall Street subsists on and then front runs inside information.  For decades, the conventional wisdom was ‘Don’t fight the Fed’ and roll with the largesse.  The strategy worked even for little folks.  Today, Wall Street is actively running from and resisting what appears to be the settled policy of the Fed.  Two powerful entities running in opposite directions are primed to collide.”    

. . .

J          “Stay tuned.”

K          “The popcorn, por favor.”

. . .

[See “Rural Americans aren’t included in inflation figures – and for them, the cost of living may be rising faster” by Stephan Weiler and Tessa Conroy in “The Conversation” dated January 27, 2023.]

[See the e-commentary discussing inflation in detail and noting almost two years ago that the inflation was and is not “transitory” at Is Inflation Inflating!?!? (April 26, 2021) and assessing the current economic dilemma at The Great Checkmate And The Great Seesaw: Interesting Rates (April 11, 2022).  See also Interning For Clio:  Collecting, Protecting And Preserving The Record (April 4, 2022) and Covid-19 PanICdemic/Plague:  Basically, Back To Basics:  Finding Food; Printing Rutabagas.  Happy Earth Day! (April 20, 2020).] 

Bumper stickers of the week:

WIN  [Wipe Inflation Not So Soon]

Flight the Fed?

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Housing Collapsing Again.  And Then Again In 2029 (May 23, 2022)

Posted in Federal Reserve, Housing, Interest Rates on May 23, 2022 by e-commentary.org

.  .  .

K          “Not again.”

J          “Again.  And then again in 2029.”

.  .  .

K          “Today the interest rate drives about 86 percent of the decision to purchase a house; the Fed dictates interest rates.  The ‘Wealth Effect’ that arises when one’s paper worth rises substantially drives about 13 percent of the decision; the Fed has distorted and inflated the paper worth of assets to stratospheric and unsustainable levels.  The desire by a few astute characters to rebalance their net worth into real estate drives about 1 percent of the decision; the Fed has distorted the relative value of assets and confounded the balancing act.  Those three drivers are decelerating and will soon crash stupendously.”

J          “Carve out about 17 to 23 percent for those folks who were cooped up and want a bigger coop.  Buckets of ‘helicopter money’ were fluttering and floating around without a home in the hands of folks who want a bigger one.  At the Fed’s direction, interest rates are going up, one’s paper worth is going down, and housing may be too large a percentage of one’s net worth.  However, the value of one’s real estate holdings may remain proportionate because the value of one’s paper worth is also declining.  Someone who had a million dollars in assets and a million dollar home may end up with six hundred thousand dollars in assets and a six hundred thousand dollar home.  And be cured of the deceptive and deleterious ‘Wealth Effect’ that often drives one to be less wealthy in the intermediate run.”

.  .  .

K          “Again.”

J          “And again.”

.  .  .

[See the e-commentary at Housing:  Another Bubble Blown By Criminally Low Interest Rates (August 24, 2020) providing a treatise on housing, Housing Again (October 8, 2007) discussing the anatomy of a house, America the Bankrupt: Economics 210 in the Land of the Freeway and the Home of the Wave (January 17, 2005) discussing the “Hyperdive” decline in the economy that is percolating, When the Bubbles Burst (December 4, 2006) discussing the macroeconomic and microeconomic consequences of the housing market collapse when all tools and manipulations finally fail and The Dow Jones (the Murdoch ?) Hits 14 K In A Hollow Economy (July 23, 2007) discussing the decline in the stock market that has been successfully delayed for fifteen years but cannot be avoided forever.]

Bumper sticker of the week:

Again

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The Great Checkmate And The Great Seesaw: Interesting Rates (April 11, 2022)

Posted in Federal Reserve, Great Checkmate, Inflation, Interest Rates, Recession, Stagflation on April 11, 2022 by e-commentary.org

. . .

K          “I doubt the Fed will be able to increase 150 basis points [1.5%] this year before the economic pain is so great that they will be forced to flood the market with free money for the wealthy and exacerbate the obscene wealth divide.”

J          “200 total basis points [2%].  I’ll go big.  I cannot see them raising rates to a total of 250 or even 225 basis points.  If they also start the ‘quantitative tightening’ at the same time, they will suffocate the markets.”

. . .

J          “Some say we will get ‘deflation’ and others say we will get ‘inflation’ without being specific.  We talked years ago about the deflation of bubble assets and the inflation of necessities that continues to get more distended and pronounced every day.”

K          “As I recall, last April we recognized that inflation was permanent and was not transitory.  The Fed did not shed the word ‘transitory’ until December.”

. . .

K          “The self-inflicted Great Checkmate is inescapable.  They say the bond market is about twice the value of the stock market.  They say the equity market is about fifty trillion dollars.  They say the gross domestic product of the United States is about twenty trillion dollars.  If the Fed raises the Federal Funds Rate to provide a reasonable return to bond holders and to attempt to throttle inflation, then the stock market will fall, the housing market will fold its tent, and the federal government will strain to pay the interest on the national debt.”

J          “The Great Checkmate is the Great Seesaw.  The economy is allowed to teeter and then the economy is allowed to totter.  The next year will be quite a roller coaster ride.  Let’s compare notes at the end of the year.”

. . .

[See the “The Coming Global Financial Revolution: Russia Is Following the American Playbook” in “The Web of Debt” dated April 5, 2022 by Ellen Brown, the recipient of the Third Annual Noble Prize In Eco-nomics (October 8, 2018); consider the discussion of some of the possible changes and consequences of World War E in “The commodity currency revolution” in “Goldmoney” dated April 7, 2022 by Alasdair Macleod.]

[See the e-commentary at Careening Toward A Global Totalitarian Authoritarian Behemoth?  And Then There Is The Fed’s Self-Inflicted Great Checkmate. (January 3, 2022), Third Annual Noble Prize In Eco-nomics (October 8, 2018), Economics And Finance:  Girls v. Boys (June 4, 2018) and Gas / Au / Ag / Cu: The Great Commodity / Currency Wars: What’s Up? What’s Down? What’s Really Up? What’s Going Down? (November 17, 2014).]

Bumper stickers of the week:

Dragon < Eagle > Bruin; Dragon + Bruin > Eagle; Eagle + Bruin > Dragon

Free Assange Journalism is not a crime

“The geopolitical war also distracts attention from the urgent agenda of climate change, especially in light of recent indicators of global warming causing climate experts to be further alarmed.  Other matter of global concern including migration, biodiversity, poverty and apartheid are being again relegated to the back burners of global policy challenge, while the sociopathic game of Armageddon Roulette is being played without taking species wellbeing and survival into account, continuing the lethal recklessness that began the day the bomb was dropped on Hiroshima more than 75 years ago.

In concluding, the question ‘why Ukraine?’ calls for answers.  The standard answer of reverse racism, moral hypocrisy, and Western narrative control is not wrong but significantly incomplete if it does not include the geopolitical war that, while not now directly responsible for Ukrainian suffering, is from other perspectives more dangerous and destructive than that awful traditional war.  This geopolitical war of ‘poor’ choice is now being waged mainly by means of hostile propaganda, but also weapons and supplies while not killing directly outside of Ukraine.

This second war, so rarely identified much less assessed, is irresponsibly menacing the wellbeing of tens of millions of civilians around the world while arms dealers, post-conflict construction companies, and civilian and uniformed militarists exult.  To be provocative, I would say that it is time for the peace movement to make sure that the US loses this geopolitical war!  To win it, even persisting with it, would constitute a grave ‘geopolitical crime.’”  Richard Falk

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Is Inflation Inflating!?!? (April 26, 2021)

Posted in Deflation, Federal Reserve, Inflation, Interest Rates on April 26, 2021 by e-commentary.org

. . .

K          “‘Shadowstats’ by John Williams.”

J          “‘Chapwood Index’ by Ed Butowsky.”

. . .

K          “$8.99 two years ago, $13.99 one year ago and $22.77 one week ago.  If it is available.”

J          “$577 two years ago, $777 one year ago and $929 one week ago.  If it is available.”

. . .

K          “The inflation in what is generically referred to as ‘higher education’ must be analyzed over ten years.  Tuition is tied to increases in schooling loans. The federal government makes more money available at steep interest rates which triggers the universities to raise tuition and hire more superfluous administrators.”

J          “Housing prices are through the roof and only getting worse with the price of lumber and consumer durables rising.”

. . .    

K          “What happens when inflation undermines the real rates of return in the bond market and forces the Federal Reserve to consider raising interest rates?”

J          “Raising the interest rate increases the cost of paying off the national Debt.  Thus, the Fed must raise interest rates and must not raise interest rates.”

. . . 

[See the e-commentary on stealth inflation at “Back Door Inflation (July 16, 2007)”, the dubious numbers advanced by the government at “The Economic Numbers Game (May 5, 2008)”, the underpayment of public benefits based on false and distorted information at “Social (In)Security And The C.P.I. (May 29, 2017)”, the consequences of thwarted supply lines at “Covid-19: BAU v. BAU (February 24, 2020)” and a treatise on housing at “Housing:  Another Bubble Blown By Criminally Low Interest Rates (August 24, 2020)”.]

Bumper sticker of the week:

Whip Inflation When?  How?

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Housing:  Another Bubble Blown By Criminally Low Interest Rates (August 24, 2020)

Posted in Covid / Coronavirus, Housing, Interest Rates on August 24, 2020 by e-commentary.org

. . .

K          “We are back in the 2005 – 2007 housing bubble.”

J          “We are careening toward the 2008 bubble burst.”

. . .

K          “The current nearly zero interest rates are a sign of a severely broken economy.  The time value of money should not be zero.”

J          “An irreparably broken economy.  They may drive them negative.  That should be inconceivable and anathema in a market economy.  Free money is not free.”

. . .

K          “Last year it was $49.99 and further reduced with the $10 off coupon for my birthday.  This year it was $59.99 and only reduced with the new $5 off coupon for my birthday.  $39.99 to $54.99 in one year.”

. . .

J          “$7.98 last month to $9.98 this week.  And because of limited supply, I had to drive across city to two stores to find what I needed.”

K          “The cost of the sticks to build a house has gone through the roof.  The cost of roofing materials has gone through the roof.”

. . .   

K          “So many folks are skipping their mortgage payments and using the money and the enhanced and very temporary government financial assistance to buy vehicles and other personal property on credit they may not be able to afford in the coming year.”

J          “Skip one month, look around and discover no immediate consequences.  Skip a second month, look around and discover no immediate consequences.  Skip a third month, look around and discover no immediate consequences.  Then it becomes habit.  Each month they get further and further and further in the hole.  And they forget that when you are in a hole, quit digging.”

. . .

K          “The state foreclosure moratoriums have largely expired yet the federal foreclosure moratoriums are still in place.  The surprise in the market is that the title companies are so busy refinancing loans they cannot get around to handling foreclosures.”

J          “Many present refinancings are future foreclosures in wait.  When you are in a hole, I say, quit digging.”

. . .

K          “Debt may not be repaid but it is always paid.”

J          “Anything that cannot go on forever will not go on forever.”

. . .

K          “Remember when the Queen of England asked some e-con-omists at the LSE why no one had predicted the credit crisis.  She asked the right question to the wrong gang.  What was coming was clear as gin in 2005 and then unfolded predictably over the next few years.”

J          “Do you have her number?”

. . .              

[See the e-commentary at “Housing Again (October 8, 2007)” that discusses the anatomy of a house, “America the Bankrupt: Economics 210 in the Land of the Freeway and the Home of the Wave (January 17, 2005)” discussing the looming “Hyperdive“ decline in the economy, “When the Bubbles Burst (December 4, 2006)” discussing the macroeconomic and microeconomic consequences of the housing market collapse, and “The Dow Jones (the Murdoch ?) Hits 14 K In A Hollow Economy (July 23, 2007)“ discussing the coming decline in the stock market that can only be delayed not avoided.]

Bumper stickers of the week:

“History does not repeat itself, but it rhymes.”  Mark Twain?

Housing Again (October 8, 2007)

A house is a bundle of 1) sticks, 2) dirt, and 3) money/interest obligation.  The Truth In Lending Act requires the lender to provide basic information about the terms of a loan.  A $100,000 house subject to a 30 year mortgage at 10 percent requires the borrower to pay a total of over $316,000 during the life of the loan.  Thus, more than 2/3rds of the money ($216,000) pays for the money; less than 1/3rd ($100,000) pays for the sticks and the dirt.

When interest rate drops to 5 percent, the borrower pays a total of over $192,000 during the life of the 30 year loan.  Thus, less than 1/2 of the money ($92,000) pays for the money; more than 1/2 ($100,000) pays for the sticks and the dirt.

Reducing the interest rate reduces the total purchase price of the sticks, dirt and money/interest obligation needed to acquire the house.  When Greenspan reduced the Federal Funds Rates in 2001 and mortgage interest rates dropped, the price of the money/interest obligation dropped correspondingly.  Those who had the sticks and the dirt at the time were in the money.  Others were able to acquire a house (sticks, dirt, and money/interest obligation), for at least a few years.  Those who obtained a house in the early days of the run-up with a fixed rate mortgage of 5 to 6 percent have a “bird’s nest on the ground” if they keep a cool head.

The interest rate in a typical adjustable rate mortgage (ARM) adjusts upward in the next months and years even if other interest rates do not rise.  When the interest rate rises to 15 percent, the borrower pays a total of over $455,198 during the life of the 30 year loan.  Thus, almost 4/5ths of the money ($355,198) pays for the money; little more than 1/5th ($100,000) pays for the sticks and the dirt.

Many of the ARMs are more difficult to refinance because they include “pre-payment penalties” if the notes are paid early.  A borrower could pay off all but the last month’s obligation and then pay off the last month according to the terms of the note.  Some judges might allow it; some would not.  The pre-payment penalty provisions should be stricken because they are 1) against public policy, 2) unconscionable, 3) fraudulently obtained, 4) buried in adhesion contracts, and/or 5) _________.  There will still be an economic impact because so many investors were fooled and/or fooled themselves into believing that they would receive the substantial returns from the ARMs and other bogus instruments.

The “wealth effect” now has been supplanted by the “poverty effect.”  The “multiplier effect” is being supplanted by the “divider effect.”  And there is not a whole lot that the Fed can do to improve our lot.

However, Al Greenspan recently announced unambiguously that the credit crunch is behind us.  In the near future, no one will even remember this latest pronouncement and hold him to it.

Bumper sticker of the week:

“Time is money, money is time, that is all ye know on earth, and all ye need to know.”    John Maynard Keats

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Seeing 2020:  Federal Reserve Logic:  QE =/= QE.  Print, Lie, Print, Lie, Print, Lie.  The Great Financial Coup D’état Rages On. (January 6, 2020)

Posted in Banks and Banking System, Federal Reserve, Interest Rates, Kleptocracy, Repurchase Agreement on January 6, 2020 by e-commentary.org

. . .

K          “A year ago, Federal Reserve Chairman Powell repudiated a noble but doomed experiment.  After he raised interest rates in an effort to reach a normal, rational and traditional level, he and many others realized that interest rates can never ever ever ever ever be raised again and must be reduced to zero or less than zero to avoid financial collapse.”

J          “On January 30, as I recall, Powell relented because the Federal Reserve realized that the economic and financial system was again on the edge of collapse.  On September 17, as I recall, when the Federal Reserve again recognized that collapse was immanent, it opened up the coffers via the overnight repurchase market and shoveled free money to the banks and hedge funds.  And the free money is still flowing freely.”

. . .

K          “The entire financial and the political system is built on a deep and abiding faith in and reliance upon distrust.  Everyone in the banking and hedge fund world possesses enough self-awareness to know that she and he are corrupt and dishonest to the core.  And everyone in the banking and hedge fund world knows that the others in the banking and hedge fund world are corrupt and dishonest to the core.  Perfect knowledge in a world of otherwise imperfect knowledge.  Profound and well-founded distrust undergirds all decisions.”

J          “Actions and behavior are predictable, if one seeks to predict actions and behavior.  No banker or hedge funder wants to lend to another banker or hedge funder because each if given half an opportunity will not pay the money back.  Thus, they simply steal the money that is given freely by the Federal Reserve.  And the free money is still flowing freely.”       

. . .

K          “Now going on a dozen years, the Great Financial Coup D’état rages on and on and on.”

J          “And on and on and on and on and on without public input or congressional approval or MSM comment.  And the free money is still flowing freely.”

. . .

J          “Print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, print. print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, print, and then rinse and repeat.”

K          “And then lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie, lie and then rinse and repeat.”

. . .

[See the incisive and insightful commentary in “Wall Street On Parade” researched and written by Pam Martens and Russ Martens; David B. Collum, the other Dave who provides a review of the events of the departing year, delivers his written “2019 Year in Review” in two parts and a podcast titled “Pandemonium” in his own inimitable way available at Peak Prosperity.]

[See the e-commentary at “Quantitative Easing = Money Printing (January 19, 2015)” published five years ago discussing the ongoing Quantitative Easing currently in overdrive and part of the Second Great Bank Bailout taking place without public input, congressional approval or MSM comment; “Coups d’état, Bail Outs And Bail Ins:  Clio’s Diary/Chronology.  Oh, And Happy Constitution Day! (September 17, 2018)” published on the ten year anniversary of the Great Financial Coup D’état; and “Twenty Sixteen (January 4, 2016)” published four years ago at the dawn of the year on the prospects for economic collapse in the near future.]

Bumper stickers of the week:

Print, baby, print

Lie, baby, lie

Not all debt is repaid, but all debt is paid

And the free money is still flowing freely

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To Be (In Debt), Or Not To Be (In Debt), what is the answer? (July 23, 2018)

Posted in Banks and Banking System, Debt/Deficits, Interest Rates, LIBOR, Wall Street on July 23, 2018 by e-commentary.org

. . .

K          “The argument and the aspiration is that there will be a debt jubilee relieving them of debt.  Acquire the debt now and be ready for the great debt reset.”

J          “Yet someone else expects to be paid on that debt and may not be jubilant if there is a jubilee.  Few will voluntarily release the debt of another.  That is the dreaded counterparty risk.” 

K          “I remind others that foreclosures continued unabated throughout the First Great Depression.”

. . .

J          “Another observation is that the government’s only solution to debilitating debt and deficits is to keep printing money and then in desperation to inflate the economy and prices.  The debtors who can maintain their cash flow may be able to ride the government’s coat tails and pay their debts with dollars worth substantially less.”

K          “The dollars may be worth less, but the homeowner/renters will be forced to pay more dollars.  I am confident that even someone who has a fixed rate mortgage will discover that the interest rate is nonetheless cranked upward unilaterally by the financial players.  The scandalous LIBOR interest rate scheme is disappearing which may vitiate some loan agreements.  And sure enough, the courts will not offer any hope or redress to the homeowner.”

J          “But the judges will make their tee times.”

. . .

J          “Student loan debt is expressly not dischargeable in bankruptcy and serves to enslave the kids who may be the ones to spearhead a jubilee.”

. . .

K          “If you are in debt, you are in servitude to someone else.”

J          “No question.  But not everyone is free to make the choice to be debt free.”

. . .

[See the e-commentary at “National Financial Literacy Month: Teaching Financial Literacy In The ‘Debt Age’ (April 25, 2016)”.]

[See “The Most Important Number in Finance Is Going Away.  Wall St. Isn’t Prepared” in “The New York Times” by Matt Phillips dated July 19, 2018.]

Bumper stickers of the week:

Debt is not so good

“Some debts are fun when you are acquiring them, but none are fun when you set about retiring them.”  Ogden Nash 

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To Raise Or Not To Raise? (December 14, 2015)  

Posted in Bureaucracy, Federal Reserve, Interest Rates, Movie Reference, Sports, Wall Street on December 14, 2015 by e-commentary.org

. . .

1          “That is the answer.”

2          “They can’t raise it, they can’t maintain it, they can’t lower it.  They are not in a stalemate because they are in checkmate.”

1          “Game over?”

. . .

2          “A decision not to decide is a decision.  The Fed has been deciding not to decide and has decided to destroy the real economy since at least 2008.  If they decide to raise the rate a nominal .125 or .250 percent, they may be able to get away with it.  Anything more substantial will tip over this unreal and surreal economy of their contriving.  Interest rate derivative swaps will strain, fragile emerging markets will sag and the federal government will be forced to spend more of the budget on interest payments.”

1          “They are said to need to show that they are tough guys and gals who are trying to return to a real economy.  They are said to need to establish ‘Wall Street cred’.”

2          “They have no ‘Main Street cred’.  At least among the few dozen folks who give a cred.”

. . .

1          “So will they raise the interest rate?  Yes or no?  If they do, how much?  .125?  .250?”

2          “The question is not ‘will’ they but ‘should’ they raise the interest rate.”

. . .

1          “A betting pool.  There you go.  We might as well have fun.”

2          “No they should not.  .125 to appear to be doing something.  The effective rate now may hover near an average of .100, so they may be able to do something without doing anything.”

1          “Maybe.  .250 to feign cred.  And then be able to reverse gears.”

2          “See we shall.”

. . .

[See the e-commentary at Interest Rates ‘risin (March 30, 2015).]

Bumper stickers of the week:

“Do.  Or do not do.  There is no try.”  Yoda

What happens when you run out of altitude, airspeed and ideas all at the same time?

Otter:  “I think this situation absolutely requires a really futile and stupid gesture be done on somebody’s part.”

Bluto:  “We’re just the guys to do it.”

                                                    “Animal House” movie (1978)

Fed up yet?

“In life, unlike chess, the game continues after checkmate.”  Isaac Asimov

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