Global Inverted Yield Curve Sparks Fears of Worldwide Economic Collapse
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The Fed and other central banks should lower interest rates to 0 or near 0 levels immediately. That's what they did last time anyway, but they did it too late. This time, do it before. Low interest rates are expansionary and help prevent recessions. Contrary to some versions of Keynesian economics, it won't lead to high inflation either. It didn't last time. Inflation is not driven by interest rates primarily. Inflation is driven by excessive printing of money. But low or zero central bank interest rates can stave off a recession.
Lowering interest rates will actually cause an increase in economic activity which is driven by the availability of inexpensive money. This will exacerbate inflation, not curb it. All the money that has been dumped into the economy the last 3 years has not been a reflection of economic growth but poor monetary policy and already has too many dollars chasing too few goods. If the interest rate doesn't continue to rise, inflation will never come back in line.
What is happening is a good lesson in economic reality. TANSTAAFL--there ain't no such thing as a free lunch. Someone always has to pay. And we're all paying now.
We got into this mess by people thinking that printing money is a solution.
When the US crawled out of the great depression they saw a remarkable correlation between debt and growth. All of the loans were fueling the growth. So then they came up with this idiotic theory that all you have to do to get growth is print money.
However, if interest rates are high people will think long and hard before borrowing the money. But if interest rates are 0% they won't think at all. You will see massive corruption like we saw in the 2008 mortgage meltdown. You will see 25 year old idiots driving $100,000 cars and the sleeziest of people getting multi million dollar bonuses at the end of the year.
Yes, there is a remarkable correlation between growth and debt, but debt does not cause growth, it is the other way around. You do not want growth for growth's sake, that is how you get unsustainable practices which lead to crashes.
At least the debt you mentioned was supported by economic activity. Producing goods to purchase should increase the money supply to accommodate growth. The increase in the money supply absent such production served only to increase the supply of money. The result was very predictable. When you have the same amount of goods and more demand for them, prices will always increase. It's Economics 101. As long as there is an inverse relationship between supply and demand, this will be so.
Increasing interest rates will cause less borrowing of money. Thus, less money will be printed. Eventually, this will lead to less spending. As the supply of money falls so too will demand and inflation will decrease.
Yes, but people should be clear how this is accomplished. You raise interest rates and houses and cars become much more expensive. As a result you see a great decrease in the number of cars and houses sold. This is turn will result in a house cleaning. If I have 100 people working for me and have to fire 50 of them you will try your best to keep the best and most productive ones while eliminating dead wood.
Losing jobs makes people much more serious about work. Instead of crying about not having free child care or having to come into the office to work, or some other lame problem people are willing to work 16 hour days without complaint. They will stop getting these degrees in binary transgenderism or CRT and instead get degrees in Engineering and other specialities that might get them a job. We are going to see many people repenting, and they will be repenting for reaping what they have sown. Many others will blame everyone but themselves and end up in the trash heap.
That works for things people can do without. Necessities will always remain high or go higher especially when spending power decreases because businesses close and more people lose their jobs. Businesses tend to scale back production and raise prices when they know they can get away with it.
Most businesses need buyers to stay afloat & consumers need jobs to keep most businesses in business. It's normally a pretty robust balance but when incompetent/corrupt governments get involved they tend to upset the balance.
Well, it was an Econ 101 course. And economic principles are far more complex. But regardless, putting money in the economy without the underlying growth will inevitably fuel inflation.
Be back later to respond. Elon Musk also agrees that cutting rates would help:
"Elon Musk thinks a recession is coming and worries the Federal Reserve’s attempts to bring down inflation could make it worse.
In a tweet early Wednesday, the Tesla CEO and Twitter owner called on the Fed “to cut interest rates immediately” or risk “amplifying the probability of a severe recession.” https://www.cnbc.com/2022/11/30/elo...s-immediately-to-stop-a-severe-recession.html
Please note that I agree limitless money should not be printed. Money supply should be increased proportionate to GDP increases. But the claim that low interest rates cause high inflation is not indisputable, and new theories argue against it.
And here's a Scholarly Paper on Permazero by James Bullard: https://en.wikipedia.org/wiki/James_B._Bullard
"Permazero James Bullard It is a pleasure to be here today to discuss this important conference topic, “Rethinking Monetary Policy.” The financial crisis of 2007–09 and its aftermath turned monetary economics and policymaking on its head and called into question many of the conventional views held before the crisis. One of the most popular and enduring views in all of monetary economics since the 1970s, and indeed since the 1940s, has been that a nominal interest rate peg is poor monetary policy, and that attempts to pursue such a policy would lead to ruin. Yet, post-crisis U.S. monetary policy could be interpreted as exactly that—an interest rate peg—and an extreme one at that, since the policy rate has remained near zero for nearly seven years. In this talk, I will summarize some recent academic work on the idea of a stable interest rate peg and what its implications may be for current monetary policy choices. I will argue that a stable interest rate peg is a realistic theoretical possibility; that it has some mild empirical support based on a cursory look at the data; and that, should we find ourselves in a persistent state of low nominal interest rates and low inflation, some of our fundamental assumptions about how U.S. monetary policy works may have to be altered. "
https://www.cato.org/sites/cato.org/files/serials/files/cato-journal/2016/5/cj-v36n2-14.pdf
"Elon Musk thinks a recession is coming and worries the Federal Reserve’s attempts to bring down inflation could make it worse.
In a tweet early Wednesday, the Tesla CEO and Twitter owner called on the Fed “to cut interest rates immediately” or risk “amplifying the probability of a severe recession.” https://www.cnbc.com/2022/11/30/elo...s-immediately-to-stop-a-severe-recession.html
Please note that I agree limitless money should not be printed. Money supply should be increased proportionate to GDP increases. But the claim that low interest rates cause high inflation is not indisputable, and new theories argue against it.
And here's a Scholarly Paper on Permazero by James Bullard: https://en.wikipedia.org/wiki/James_B._Bullard
"Permazero James Bullard It is a pleasure to be here today to discuss this important conference topic, “Rethinking Monetary Policy.” The financial crisis of 2007–09 and its aftermath turned monetary economics and policymaking on its head and called into question many of the conventional views held before the crisis. One of the most popular and enduring views in all of monetary economics since the 1970s, and indeed since the 1940s, has been that a nominal interest rate peg is poor monetary policy, and that attempts to pursue such a policy would lead to ruin. Yet, post-crisis U.S. monetary policy could be interpreted as exactly that—an interest rate peg—and an extreme one at that, since the policy rate has remained near zero for nearly seven years. In this talk, I will summarize some recent academic work on the idea of a stable interest rate peg and what its implications may be for current monetary policy choices. I will argue that a stable interest rate peg is a realistic theoretical possibility; that it has some mild empirical support based on a cursory look at the data; and that, should we find ourselves in a persistent state of low nominal interest rates and low inflation, some of our fundamental assumptions about how U.S. monetary policy works may have to be altered. "
https://www.cato.org/sites/cato.org/files/serials/files/cato-journal/2016/5/cj-v36n2-14.pdf
Yes, the two key essentials are food and energy. They are inelastic, that is how you know we are at war. A direct assault on the supply of energy by shutting down and blowing up pipelines and a direct assault on food with 120+ food processing plants sabotaged in the US, worldwide food production attacked by cutting back on fertilizer, and pulling one of the biggest exporters of grain off the market with the war in Ukraine.
Now this does not seem to serve the interests of any individual nation, but it does serve the interests of the globalists. They want to make you an offer (reign of Antichrist) that you can't refuse (because if you do you will starve, freeze and die in the war).
From the research I've done, the only one who seems worried about a worldwide economic collapse is the woman in the video who wants to sell us gold.
There are two problems, one we are printing too much money and two we are seeing a sharp decline in tax revenue.
Of course this is exacerbated by rising interest rates which means the US must pay more and more to finance the huge debt.
The solution is simple: "drill baby drill". If we return to energy dominance it will reduce our inflation by bringing fuel costs down, it will increase our tax revenue.
2nd make peace with Russia. They are right to take issue with Ukraine becoming a member of NATO and us arming them with high tech weapons and with us helping them fight Russia. Apologize and make a peace offering to Russia. Bringing Ukraine's food production back to the world's market will be a big step and eliminating the expensive price tag of this war will be a second.
3 Put an end to Covid lockdowns. Simply take the temperature of people at the door of businesses. If they have a temperature they can't enter.
Of course this is exacerbated by rising interest rates which means the US must pay more and more to finance the huge debt.
The solution is simple: "drill baby drill". If we return to energy dominance it will reduce our inflation by bringing fuel costs down, it will increase our tax revenue.
2nd make peace with Russia. They are right to take issue with Ukraine becoming a member of NATO and us arming them with high tech weapons and with us helping them fight Russia. Apologize and make a peace offering to Russia. Bringing Ukraine's food production back to the world's market will be a big step and eliminating the expensive price tag of this war will be a second.
3 Put an end to Covid lockdowns. Simply take the temperature of people at the door of businesses. If they have a temperature they can't enter.
Not very good research. Try watching Bannon's Warroom, best economic advice there is. An inverted yield curve is a very, very big indicator of collapse.
https://rumble.com/v20ukn0-cortes-market-falls-leading-into-the-holidays.html
Cortes: Market Falls Leading Into The Holidays
There’s a lesson to learn from the energy crisis of the 1970s where Nixon’s government attempted to intervene.
The government placed limits on the price that gas stations could charge for gasoline. As a result, oil companies imported less oil, since they weren’t legally allowed to pass along high costs to consumers, further exacerbating the problem.
A sort of perfect storm broke out to further complicate the issue when the Yom Kippur war began in the Middle East in 1973. As a result, oil prices rose and an oil embargo was imposed on the US. Ultimately, oil inventories shrank in the US causing more panic.
If it can happen to oil, it can happen to anything else.
The government placed limits on the price that gas stations could charge for gasoline. As a result, oil companies imported less oil, since they weren’t legally allowed to pass along high costs to consumers, further exacerbating the problem.
A sort of perfect storm broke out to further complicate the issue when the Yom Kippur war began in the Middle East in 1973. As a result, oil prices rose and an oil embargo was imposed on the US. Ultimately, oil inventories shrank in the US causing more panic.
If it can happen to oil, it can happen to anything else.
The single biggest indicator from my perspective and what I learned as a stock broker is the money. I have known people who brazenly lied to sell stuff they knew was about to collapse. It is illegal, it is called "the Chinese wall" but I have seen first hand that they will use inside information to turn their clients into chumps.
So I look at the money, people lie, the money tells the truth.
An inverted yield curve tells you what the money is telling you. It tells you that the bond holders see a coming collapse in the economy. That is the only plausible explanation of an inverted yield curve.
The second thing I look at is the big money. There are a lot of small fry investors, they don't have the inside information and no one is afraid to stab them in the back, but the big money, that is a very different story. You don't stab them in the back, they have an army of lawyers and a very fat rolodex of contacts. The bond market is 10x the stock market. We are talking about all the Central banks, these are the really, really big guys.
The third thing you look at is major players. China bought 300 tons of gold in one month.
That is all you need to see, 1-2-3, that is it, coming collapse, you can take that to the bank, or better yet pull the money out of the bank and put it into silver.
So I look at the money, people lie, the money tells the truth.
An inverted yield curve tells you what the money is telling you. It tells you that the bond holders see a coming collapse in the economy. That is the only plausible explanation of an inverted yield curve.
The second thing I look at is the big money. There are a lot of small fry investors, they don't have the inside information and no one is afraid to stab them in the back, but the big money, that is a very different story. You don't stab them in the back, they have an army of lawyers and a very fat rolodex of contacts. The bond market is 10x the stock market. We are talking about all the Central banks, these are the really, really big guys.
The third thing you look at is major players. China bought 300 tons of gold in one month.
That is all you need to see, 1-2-3, that is it, coming collapse, you can take that to the bank, or better yet pull the money out of the bank and put it into silver.
Yes, and I work as an Investment Banker. I have an MBA in Finance, along with an FRM, and education in economics, so I'm fairly sure about my viewpoint on this.
This is all the Fed has to do: "The Federal funds rate will be brought down to 0 and remain there for 4 to 5 years". The markets will rise and investors will like it.
Currently, it's at 4.5%: "4.25% to 4.50% - The federal funds rate is currently 4.25% to 4.50%. 2 days ago" https://www.forbes.com/advisor/investing/federal-funds-rate/
This is what Permazero means - keeping the interest rates at or near 0%. It has empirical support, and economists like Prof. John Cochrane support it: https://en.wikipedia.org/wiki/John_H._Cochrane
"Permazero
St. Louis Fed President Jim Bullard gave a very interesting paper at the Cato monetary conference, with this great title...
Jim starts with this great picture. It's a simulation of the standard three equation new Keynesian model as we go from 2% interest rate to zero. This is an upside down version of the first graph in my "Do higher interest rates raise or lower inflation." (Blog post) But Jim makes a new and insightful point with it, that had not occurred to me.
Jim reads this as an account of what happened in 2008, not (my) tentative prediction for what might happen in 2016 in the other direction. It's compelling: The Fed lowers rates. This boosts output (black line) over what it would otherwise be, overcoming the horrendous negative shocks to the economy from a financial crisis. Inflation gently declines, which is also what inflation did after a one time shock in 2009, related to the output shock which the Fed was offsetting."
Taken from: https://johnhcochrane.blogspot.com/2015/11/permazero.html
This is all the Fed has to do: "The Federal funds rate will be brought down to 0 and remain there for 4 to 5 years". The markets will rise and investors will like it.
Currently, it's at 4.5%: "4.25% to 4.50% - The federal funds rate is currently 4.25% to 4.50%. 2 days ago" https://www.forbes.com/advisor/investing/federal-funds-rate/
This is what Permazero means - keeping the interest rates at or near 0%. It has empirical support, and economists like Prof. John Cochrane support it: https://en.wikipedia.org/wiki/John_H._Cochrane
"Permazero
St. Louis Fed President Jim Bullard gave a very interesting paper at the Cato monetary conference, with this great title...
Jim starts with this great picture. It's a simulation of the standard three equation new Keynesian model as we go from 2% interest rate to zero. This is an upside down version of the first graph in my "Do higher interest rates raise or lower inflation." (Blog post) But Jim makes a new and insightful point with it, that had not occurred to me.
Jim reads this as an account of what happened in 2008, not (my) tentative prediction for what might happen in 2016 in the other direction. It's compelling: The Fed lowers rates. This boosts output (black line) over what it would otherwise be, overcoming the horrendous negative shocks to the economy from a financial crisis. Inflation gently declines, which is also what inflation did after a one time shock in 2009, related to the output shock which the Fed was offsetting."
Taken from: https://johnhcochrane.blogspot.com/2015/11/permazero.html
Prof. Cochrane, continued: "
Yes!! Shout it from the rooftops.
Just what is so terrible about zero rates and very low inflation? Zero rates are the optimum quantity of money. They have financial stability benefits too. Banks sitting on huge piles of cash don't go under.
Conventional modeling has been treating the zero bound as a "trap," or a terrible outcome to be avoided. But it's a honey trap, at least in these models. The main complaint one could make is that they don't last, that they lead to spiraling deflation or hyperinflation. But the models said "trap" -- they last -- and the data seem to agree."
Yes!! Shout it from the rooftops.
Just what is so terrible about zero rates and very low inflation? Zero rates are the optimum quantity of money. They have financial stability benefits too. Banks sitting on huge piles of cash don't go under.
Conventional modeling has been treating the zero bound as a "trap," or a terrible outcome to be avoided. But it's a honey trap, at least in these models. The main complaint one could make is that they don't last, that they lead to spiraling deflation or hyperinflation. But the models said "trap" -- they last -- and the data seem to agree."
I heard today that if the US would return to preCovid levels of spending, the budget would be balanced. I recognize that much of this spending has become normalized but any thoughts?
And btw, Trump got this too, and repeatedly said so:
https://www.cnbc.com/2020/01/28/tru...hen-focus-on-paying-off-refinancing-debt.html
https://www.wsj.com/articles/trump-says-fed-should-reduce-rates-to-zero-or-less-11568201306
Agreed. A balanced budget is important, and overspending is bad. But high interest rates, as Trump said above, also mean larger interest payments - another reason lower interest rates are better.
Here's Trump: "President Donald Trump made another pitch to the Federal Reserve to lower interest rates, this time saying that doing so could help the U.S. pay down its burgeoning national debt."
https://www.cnbc.com/2020/01/28/tru...hen-focus-on-paying-off-refinancing-debt.html
https://www.wsj.com/articles/trump-says-fed-should-reduce-rates-to-zero-or-less-11568201306
Agreed. A balanced budget is important, and overspending is bad. But high interest rates, as Trump said above, also mean larger interest payments - another reason lower interest rates are better.
Here's Trump: "President Donald Trump made another pitch to the Federal Reserve to lower interest rates, this time saying that doing so could help the U.S. pay down its burgeoning national debt."
Nothing. However, if you go to zero rates now you would have very high inflation and no one would buy US debt.
No one is going to buy a 10 year note that pays 3% if the annual inflation rate of the dollar is 10% and we would be well over that if the Fed went to 0% now.
And that in a nutshell is what is so terrible about 0%, the temptation to borrow money is very great and as long as we live in a sinful world filled with covetousness you will see debt skyrocket. The US has to sell bonds to finance the country, so there is your problem.