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The exceptional degree to which the Fed has trapped itself (and all of us) in an economic death spiral is becoming evident everywhere now.

a black and white photo of a tree in a cemetery — Photo by Rob Martin on Unsplash

My longtime prediction that the Fed will not be able to kill inflation without destroying the economy is showing itself true in articles about hand-wringing from multiple directions today. The short of it is that the Fed either wins inflation but drives us deep into recession, or it rushes to bail out a collapsing economy but lights inflation fully back on fire again. Either route is bringing the collapse of the Everything Bubble that the Fed and multiple federal administrations created.

Let’s look at the concerns that are emerging from all over the financial realm in today’s news headlines to see what many are sensing and what the most reliable economic indicator is now screaming like a siren.

Most reliable recession timer redlines

Let’s begin with the “creator” of the very accurate “Sahm Rule, which says that, whenever the unemployment level rises 0.5% from its one-year low, we are plunging into recession, regardless of what low level of unemployment we start from. This indicator has never been wrong as a timer, and we are right there! However, we already also dealing with very broken labor indicators. So, maybe we are well past a 0.5% rise or maybe still a touch under. Who can know when even Jerome Powell has said the government’s labor numbers are clearly wrong and when CNBC took the rare step of saying they looked “cooked,” though it’s not clear that Powell knows by how much or in what direction? Just clearly they don’t add up, but that has been my major warning of peril for a couple of years now.

…click on the above link to read the rest of the article…

David Stockman on the Continual Rise in the Cost of Living… And Why the Fed has No Shame

May 24, 2024

David Stockman on the Continual Rise in the Cost of Living… And Why the Fed has No Shame

Jay Powell did it again assuring the 1% that he has their back.

Markets recovered their poise over the last 24 hours, as investors were relieved after Fed Chair Powell stuck to his recent views on the economic outlook. In his remarks yesterday, he said that recent data didn’t “materially change the overall picture” and that on inflation “it is too soon to say whether the recent readings represent more than just a bump.” In addition, he reiterated that if “the economy evolves broadly as we expect, most FOMC participants see it as likely to be appropriate to begin lowering the policy rate at some point this year.” So that all helped to validate market pricing, which still expects 71 bps of rate cuts from the Fed by the December meeting.

Needless to say, the man has no shame. And that’s to say nothing of intellectual firepower. There is not even a smidgen of a case that rate cuts in the present context will help main street, and the Fed heads and their Wall Street megaphones don’t actually even try to make that argument.

Instead, they argue for rates cuts by default. If by some tortured version of the CPI (i.e. the “supercore” index, which eliminates 61% of the CPI items by weight) they can espy the in-coming inflation trend settling into a liberally defined vicinity of 2.00%, that’s purportedly good enough to end the money-printing pause that has been in place since March 2022. Thereafter, it’s back to business as usual, flooding the canyons of Wall Street with cheap credit and a new burst of financial asset inflation.

…click on the above link to read the rest of the article…

Record Household Debt, Jump In Delinquencies Signal “Worsening Financial Distress”, Fed Warns

May 19, 2024

Record Household Debt, Jump In Delinquencies Signal “Worsening Financial Distress”, Fed Warns

While the market remains focused on tomorrow’s CPI print, and to a lesser extent the April retail sales reports, which will both be released at 8:30am on May 15. we should flag another important report that doesn’t typically get a lot of attention: the New York Fed’s Household Debt and Credit Report for 1Q 2024 which was just published, and where the latest data on credit card debt and delinquencies has recently been the most important part of the report.

While we already know that in the latest monthly consumer credit report published by the Fed last week and covering the month of March, total consumer debt hit a record high (despite a sharp slowdown in credit card growth) even as the personal savings rate plunged to an all-time low, hardly a ringing endorsement for the strength of the US consumer…

… today’s report provided more granular details which however did not change the conclusion: the US consumer is getting weaker, and while not in a crisis just yet, will get there soon enough.

As the chart from the NY Fed shows, at the end of the first quarter, US household debt reached a record and more borrowers are struggling to keep up: overall US household debt rose to $17.69 trillion, the NYFed’s Quarterly Report on Household Debt and Credit revealed (link here). That’s an increase of $184 billion, or 1.1%, from the fourth quarter.

Consumers have added $3.4 trillion in debt since the pandemic, and that increased debt bears much higher interest rates.

And with both credit card rates and total credit at all time highs, the data corroborate the mounting financial pressures on American families in an age of elevated inflation. The persistent rise in the prices of essentials such as food and rent have strained household budgets, pushing people to borrow against their credit cards to pay for necessities.

…click on the above link to read the rest of the article…

Yoyo Fed and Yoyo Markets

May 19, 2024

Yoyo Fed and Yoyo Markets

Once again, we have a report saying consumer sentiment is collapsing just as economists were projecting it would be continuing to float along, and once again we have a report of rising inflation, just as the Fed decided to reduce its fight against inflation by slowing down QT to save the federal government from its overwhelming debt financing burden, and once again we have an actual voting Fed official saying the Fed may have to raise rates. Yet, all of that has been OK apparently, since, once again, stock and bond markets have shot up in a buying frenzy because, once again, Fed Chair Jerome Powell filled them with his hot air so they would rise again on the hopes that rate cuts still might be coming this year.

So, the delusion in markets, continues intensely, causing investors to take back more of the financial tightening in the last three weeks that the Fed had finally put back into place, undoing, ONCE AGAIN, the premise Powell rested his hope of rate cuts on back in November, which was that the markets were doing enough tightening on their own that the Fed could stop its own inflation fight sooner. This is the second time he’s undone that tightening by markets; so, we’ll see more inflation and a worse inflation fight down the road because Powell has encouraged the markets to loosen financial conditions with his false hopes.

Consumers get what the Fed doesn’t

The University of Michigan Survey of Consumers sentiment index for May posted an initial reading of 67.4 for the month, down from 77.2 in April and well off the Dow Jones consensus call for 76.

…click on the above link to read the rest of the article…

Dear Jerome Powell, Is Everything Under Control? Spotlight Gold and Silver

May 19, 2024

Dear Jerome Powell, Is Everything Under Control? Spotlight Gold and Silver

The US stock markets are all at record highs, gold is at a record high, and silver is at the highest price since 2013. Welcome to the everyone wins market, no craps allowed.

Congratulations to silver bulls, copper bulls, gold bulls, S&P 500 bulls, Nasdaq bulls, Dow bulls, and US housing bulls?

Did I leave anything out?

Record High on Gold

Gold’s Strongest Move In a Year Was When the Dollar Was Rising

Gold and the US dollar are not as inversely correlated as widely believed. Sometimes gold and the dollar move strongly in the same direction. Let’s discuss why.

Gold and US Dollar charts courtesy of StockCharts.Com, annotations by Mish.

On April 11, 2024, I noted Gold’s Strongest Move In a Year Was When the Dollar Was Rising

Gold’s strongest move in over a year started in March with the US dollar index generally moving higher.

Gold vs the US Dollar

Charts courtesy of Stockcharts.Com, annotations by Mish

Gold vs the US Dollar Synopsis

Contrary to widespread myth, gold is not a good US dollar hedge.

With the US dollar Index at 90, gold has been at $380, $1000, $1130, and $1900.

And there are times when gold and the dollar rise together.

When Does Gold Do Best?

In general, gold is a poor inflation hedge. The best example is gold fell from$850 to $250 per ounce with inflation every step of the way.

In the mid-to-late 1990s, everyone thought “The Maestro”, Alan Greenspan, had everything under control. In such periods, gold is among the worst assets to hold.

Gold is best viewed not as a hedge against inflation but a hedge against credit stress, stagflation, and faith in central banks.

Is Everything Under Control?

Hello Jerome Powell. Sorry for asking, but we need to know: Is everything under control?

…click on the above link to read the rest of the article…

Fed’s Asset Purchases Result in Increased Market Volatility

May 18, 2024

Fed’s Asset Purchases Result in Increased Market Volatility

“Once again, the empirical evidence supports reigning in the Fed; the economy works better when the Fed does less, not more.”

The Federal Reserve underwent a massive regime shift following the 2008 financial crisis. It incorporated several new tools into its monetary policy arsenal, ranging from interest on excess reserves to large‐scale asset purchases (“quantitative easing”) to deal with the crisis. Unfortunately, as with most public institutions, power given is seldom relinquished.

As a recent Cato CMFA article noted, if the Fed is expected to massively increase its balance sheet in response to every major crisis, it will never return to a pre‐2008 operating system. Furthermore, the COVID-19 pandemic spurred a further round of massive quantitative easing, so much so that instead of shrinking back down, the Fed’s asset holdings are now over one‐third the size of the entire US commercial banking sector.

It stands to reason that such a massive shift in central banking should have effects on the financial system. A recent Wall Street Journal opinion piece makes this argument and uses options market data to suggest that the Fed’s involvement in financial markets has increased stock market volatility.

To be fair, the article points out a singular observation, one which may not reflect any underlying trend.

But there are ways to check for any underlying trend, such as vector autoregressions (VARs). In this post, I use a VAR method and demonstrate that the Fed’s 2008 regime shift has indeed had serious repercussions for market volatility as measured with the CBOE Volatility Index (“VIX”). (For those interested, I provide more details on the methodology after discussing the results.)

…click on the above link to read the rest of the article…

Mike Walden: Is it ‘greedflation’ or something more keeping prices high?

May 17, 2024

Mike Walden: Is it ‘greedflation’ or something more keeping prices high?

Photo by Adam Nir on Unsplash

Although the pace at which prices are rising has moderated, prices are still going up. In 2021, average consumer prices surged 7%; in 2022 they jumped 6.5%; in 2023 prices went up a more tolerable 3.4%, and the latest reading for 2024 shows consumer prices are up 3.5% from the same period in 2023. Cumulatively this puts prices up over 20% since 2021.

As long as consumers’ financial resources increase at the same or a higher rate than price inflation, then there’s no loss of purchasing power. But most people know this hasn’t happened. Indeed, from 2021 to now, the average consumer’s purchasing power is off by 5%.

I mention these statistics to show that inflation is still a problem, which is something most people know. The next question is, why is inflation still a continuing issue?

When inflation began its spurt in 2021 there was an easy-to-understand reason – consumers were trying to buy more than sellers had to offer. Consumers were flush with cash as a result of the COIVD-19 relief programs enacted in both 2020 and 2021. These programs culminated in $6.5 trillion being rapidly pushed into the economy. Initially there were few buying opportunities as large parts of the economy had not yet reopened.

When consumers were able to buy, they had what economists call “pent-up demand,” meaning they wanted to buy a lot! Typically this wouldn’t have been a problem, but there was another issue that had emerged – supply-chain problems. So, in short, consumers wanted to really buy, but many of the shelves were bare. In this situation, it was inevitable prices would rise substantially, which they did.

But today, consumers have spent most of the COVID money, and the supply-chain has mostly been fixed. Yet inflation is running hotter than the 1.8% in 2019, before the pandemic….

…click on the above link to read the rest of the article…

How Powell Destroyed His Inflation War as he Eats the Poor

May 17, 2024

How Powell Destroyed His Inflation War as he Eats the Poor

I’m going to save discussion of today’s CPI report for my Deeper Dive this weekend because it requires digging deep into the numbers involved in the report to show why it is not the game-changer for the new trend in inflation that the stock market made it out to be today. Not even close. It could, of course, become a first blip in the direction of a new downward trend against the rising trend for inflation that has held all year, but this year’s trend, so far, remains firmly anchored.

Even Minneapolis Federal Reserve Bank President Neel Kashkari said today, after the CPI report came out,…

that he is unsure how restrictive monetary policy is right now, and that borrowing costs should stay where they are as U.S. central bankers take stock of inflation. “The biggest uncertainty in my mind is how much downward pressure is monetary policy putting on the economy? That’s an unknown,” Kashkari told the Williston Basin Petroleum Conference in Bismarck, North Dakota. “And that tells me we probably need to sit here for a while longer until we figure out where underlying inflation is headed before we jump to any conclusions.”

In fact, another article out today claims, as I’ve been claiming here, that Fed policy is not restrictive at all; and that’s the interesting point for the day I want to focus on as I think the article says it well:

Time and again, Jerome Powell has made it clear. Financial conditions, the Federal Reserve’s key lever for cooling the US economy, are tight.

HOWEVER …

After an $11 trillion rally in US equities since late October — and the sudden revival of meme-stock fever — many on Wall Street think he’s dead wrong. Not only are popular gauges of the investing climate famously loose — some are looser than before the Fed kicked off its historic monetary-tightening campaign more than two years ago.

…click on the above link to read the rest of the article…

New Schiff Interview: All Inflation Has One Source

May 16, 2024

New Schiff Interview: All Inflation Has One Source

On Wednesday, Peter appeared on This Week in Mining with Jay Martin. Jay and Peter discuss the state of the economy, the government’s assault on sound money, and why the mining sector constitutes a good investment.

Early on in the interview, Peter lays out the dilemma the Federal Reserve will face in the near future:

“Inflation is going to get much stronger as the economy weakens and enters recession. … Then the Fed has to choose, and it’s going to be at the point where it’s damned if it does and damned if it doesn’t. But it’s going to have to make a choice, a very unpopular choice. Does it fight inflation, which means much higher rates than the rates we have now (the rates we have now are not high enough)? Does the Fed hike rates even though there’s a recession and even though the hikes will make this recession worse and potentially cause a massive financial crisis? … Or will the Fed ignore the inflation problem and try to rescue the economy by creating more inflation?”

As the government continues to grow and encroach on individual liberty, Peter explains what would happen if gold is ever outlawed, as it was in the 1930s:

“There always will be a market. If it’s illegal, then there’s a black market. People sell all kinds of drugs in this country, and they’re not legal. But there are plenty of buyers. It just means the market is underground, and of course, even if it’s illegal in America, that doesn’t mean it’s going to be illegal in every country, so there will be plenty of legal gold markets…

…click on the above link to read the rest of the article…

Peter Schiff: Biden Lies Again on Inflation

May 16, 2024

Peter Schiff: Biden Lies Again on Inflation

This week on the Peter Schiff Show, Peter covers a week of dismal economic reports. Both jobless claims and consumer sentiment came in worse than expected last week, with both figures missing predictions by a wide margin. Peter also discusses public statements made by both Joe Biden and Donald Trump on the nature and origin of inflation.

The Fed faces a difficult choice. Does it prioritize fighting inflation or keep rates low for consumers?

“If Powell looks at these numbers and decides we need to raise rates because consumers are worried and they’re pessimistic about inflation, that’s going to make the high-interest rate problem worse. Consumers are upset about both high inflation and high interest rates. So how is the Fed going to do something about that? Because if it raises interest rates, it’s going to make that problem worse. And if it doesn’t raise interest rates, or cuts interest rates, it’s going to make the inflation problem worse.”

In a recent interview, President Biden took to blaming private companies for inflation. Peter explains how absurd this explanation is:

“He immediately changed the subject to shrinkflation and then started blaming greedy corporations. And he said, ‘We have a problem of corporate greed. That’s why everything is so expensive now.’ As if corporations weren’t greedy until Joe Biden became president. All of a sudden, Biden’s president and these corporations decide, ‘You know, let’s stick it to the consumer. We can make some extra money if we really jack up the price of food.’ Where were all these greedy corporate officers a few years back?”

Peter rebuts Biden further. If anything, corporations initially took losses in the hopes that inflation was temporary:

…click on the above link to read the rest of the article…

Why The Establishment Fears a Trump-led Fed

May 14, 2024

Why The Establishment Fears a Trump-led Fed

While in office, Trump blamed the Fed for tightening monetary policy. Now members of Trump’s team allegedly plan to give a re-elected Trump more power over the Fed, igniting panic from mainstream economists about a politicized Fed. Our guest commentator explains why the real risk, from the establishment’s perspective, is not that Trump will turn the Fed into a political organization but that he will expose that it already is one.

The following article was originally published by the Mises Institute. The opinions expressed do not necessarily reflect those of Peter Schiff or SchiffGold.

Discourse about the Federal Reserve is frequently full of myths, dishonest framing, and outright lies. Listen to a press conference by Chairman Jerome Powell or read an article from a major outlet’s lead Fed correspondent and you’re bound to hear at least a few. For instance, it’s common for the financial press to characterize the Fed’s current conundrum as “walking a tightrope.”

It’s said that the Fed is working to guide the economy along without tipping it over into either high inflation on one side or a recession on the other. The last couple years, we’re told, saw the economy wobble too far toward the inflation side, with the Fed now attempting to pull the economy back to the thin line of stability without tipping over too far and plunging into a recession.

But anybody who actually understands what causes recessions can tell that this framing is, at best, incredibly misleading. The Fed doesn’t prevent recessions, it directly causes them. These days the tightrope analogy contributes to the myth that, while difficult, a recession is possible to avoid. It isn’t. All the Fed can do is delay and amplify the painful correction that earlier monetary policy made inevitable.

…click on the above link to read the rest of the article…

David Stockman on Why There is No Noticeable Benefit from the Fed’s Policies

May 14, 2024

David Stockman on Why There is No Noticeable Benefit from the Fed’s Policies

Here is the only noticeable “benefit” from the Fed’s pro-inflation policies since Greenspan’s arrival at the Eccles Building. To wit, these policies have pleasured the tippy top of the economic ladder with massive wealth gains owing to the relentless inflation of financial assets. During the 34 years since 1989, therefore, net worth has increased as follows:

Aggregate Net Worth Gain, Q4 1989 to Q3 2023

Top 0.1% or 131,000 households (purple area): +$18.2 trillion or 11.4X.
Top 1.0% or 1.34 million households (black area): +$40.0 trillion or 9.5X.
Bottom 50% or 65.7 million households (blue area): +$3.7 trillion or 5.1X.

For want of doubt, the corresponding net worth gains on a per household basis are as follows:

Net Worth Gain Per Household, Q4 1989 to Q3 2023

Top 0.1%: +$139 million each.
Top 1.0%: + $30 million each.
Bottom 50%: +$55,000 each.
Ratio of Top 0.1% Versus Bottom 50%: 2,500X

Aggregate Net Worth By Economic Class, 1989 Q4 to 2023 Q3

Needless to say, the only cohort to experience net wealth gains roughly in line with nominal GDP growth during this 34-year period was the bottom 65.7 million households. Their 5.1X gain was only a tad larger than the 4.9X gain in nominal GDP during the period, which rose from $5.7 trillion to $27.6 trillion.

The veritable eruption of net worth at the tippy-top of the economic ladder at more than double the gain in GDP, therefore, should not be confused with superior virtue, greater investment prowess or any other meritorious factor.

To the contrary, it was an unearned windfall owing to massive, artificial asset price inflation. In rough terms, those Fed-fostered windfalls amount to about half the gain reported above or about $20 trillion for the top 1% and $9 trillion, or about $70 million per household, for the top 0.1%.

…click on the above link to read the rest of the article…

Peter Schiff: Rate Hikes on the Horizon?

May 9, 2024

Peter Schiff: Rate Hikes on the Horizon?

Peter’s back to recap the last week in markets and economic news. This episode starts with April’s dismal stock performance and also discusses Jerome Powell’s most recent appearance. Peter wraps up the episode by recounting the Bitcoin debate he participated in on Friday.

Peter notes that April’s losses in the stock market were in part created by doubt about the Fed’s future rate cuts:

“The reason for that was heightened talk not just about the Fed not cutting rates, but for the first time, I heard people discussing the possibility that the Fed might have to raise rates, that the next move may in fact be a hike and not a cut. Now that‘s the first time that I’ve heard any mainstream discussion of that possibility. … I’ve been saying that that is the correct policy. If the Fed really is data-dependent, and if the Fed really wants to fight inflation, based on the data, they should resume their hikes.”

Despite this possibility, markets are unduly optimistic. The Fed’s historical record is not very successful, even decades ago when America’s fiscal health was much better:

“The markets believe that the Fed is going to succeed. This is pure nonsense! I look back at the inflation statistics for the 40 years before the 2008 financial crisis— so 2008, 2007, going back to 1968, those 40 years— there were only 3 years where inflation was 2% or lower. The average inflation rate over those 40 years was 4.8%. … If the Fed wasn’t able to come close to 2% during those 40 years, why does anybody think it’s going to come anywhere near it over the next 30 years?”

Fed Chair Jerome Powell still refuses to criticize federal fiscal policy, despite the apparent need for rate hikes:

…click on the above link to read the rest of the article…

Republic First seizure signals more bank failures to come, expert warns

May 8, 2024

Republic First seizure signals more bank failures to come, expert warns

Fears of contagion reignited by first US bank failure of 2024

Feds’ rate cut promise caused banks to drastically mismark books: McDonald

The Bear Traps Report founder Larry McDonald says the New York Community Bank collapse speaks to a greater economic problem on “Making Money.”

Republic First Bank, a regional lender based out of Philadelphia, became the first bank failure of 2024 on Friday when it was shut down by Pennsylvania’s bank regulator and the Federal Deposit Insurance Corp. (FDIC) seized control of the operation.

The FDIC quickly made a deal for Fulton Bank to buy Republic First’s assets, but one expert on financial regulatory reform and bank failures says the collapse could be a harbinger of things to come.

“This bank failure indicates that additional failures will occur and will range between smaller community banks and larger banks,” said Joseph Lynyak, a banking attorney at Dorsey & Whitney, regarding the seizure of Republic First by U.S. regulators.

Ticker	Security	Last	Change	Change %
FULT	FULTON FINANCIAL CORP.	17.23	+0.17	+1.03%

Fulton Financial Corp.

“The cause is twofold: higher-cost deposits exceeding the yield on low-yield treasury securities and similar investments held by banks, and the deteriorating commercial real estate market and commercial real estate loans,” said Lynyak, who specializes in bank receiverships and failures.

COMMERCIAL REAL ESTATE FORECLOSURES JUMPED 117% IN MARCH AS TROUBLE LOOMS

Regional banks have been struggling to retain deposits as customers seek the safety of larger “too-big-to-fail” rivals, and higher interest rates have diminished the value of their loan books due to increased unrealized losses and lower commercial real estate values.

A worker tells people that Silicon Valley Bank’s headquarters in Santa Clara, California, is closed on March 10, 2023. The bank was shut down by California regulators and put in control of the Federal Deposit Insurance Corp. (Justin Sullivan / Getty Images)

…click on the above link to read the rest of the article…

Open the Overton Window

May 8, 2024

Open the Overton Window

You may have heard of the “Overton window.”

The concept of the Overton window caught on in professional culture, particularly those seeking to nudge public opinion, because it taps into a certain sense that we all know is there.

There are things you can say and things you cannot say, not because there are speech controls (though there are) but because holding certain views makes you anathema and dismissable. This leads to less influence and effectiveness.

The Overton window is a way of mapping sayable opinions.

The goal of advocacy is to stay within the window while moving it just ever so much. For example, if you’re writing about monetary policy, you should say that the Fed should not immediately reduce rates for fear of igniting inflation.

You can really think that the Fed should be abolished but saying that is inconsistent with the demands of polite society. That’s only one example of a million.

To notice and comply with the Overton window is not the same as merely favoring incremental change over dramatic reform. There is not and should never be an issue with marginal change.

That’s not what’s at stake.

To be aware of the Overton window, and fit within it, means to curate your own advocacy. You should do so in a way that’s designed to comply with a structure of opinion that’s pre-existing as a kind of template we’re all given.

It means to craft a strategy specifically designed to game the system, which is said to operate according to acceptable and unacceptable opinionizing.

In every area of social, economic and political life, we find a form of compliance with strategic considerations seemingly dictated by this window. There’s no sense in spouting off opinions that offend or trigger people because they’ll just dismiss you as not credible.

…click on the above link to read the rest of the article…

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