There's never any discussion about how core inflation vaulted to the current levels well before the war in Ukraine even began.
The reason for the inflation surge is Biden's war for green energy, the one input which makes everything cost more because green energy costs much more than conventional energy from coal, oil, and natural gas.
Add trillion$ in COVID stimulus chasing too few goods and it's a recipe for the disaster which is ongoing, not moderating.
Some people get it. Most don't.
Yield across the board right now is in the 4s except for one and two month money. The one year is the leader, roughly in the middle of the pack, around which the other rates have been organizing.
Interestingly enough, compound annual growth of nominal GDP since the year 2000 22 years ago has come in at 4.18% through 2Q on 2Q. The 30-yr tonight is yielding 4.19%. This looks like rate normalization to me because rates are compressing in that vicinity, finally commensurate with actual economic growth, after the pitiful all-time-low average annual 30-yr yield in 2020 at 1.56%. We haven't had a 4% average 30-yr yield since 2010.
Given the extraordinary interventions by the US Federal Reserve over the period to suppress interest rates, we may see them explode the other way given the length and depth of the distortions. Trillions upon trillions of US Dollar denominated debt was sold at those repressed prices. In 2020 alone we're talking about $2.9 trillion in 2-10yr Treasury notes, not counting the short end bills and the long end bonds, all yielding well under 1%. It could get really ugly.
Recession doesn't always happen right away, but the signal is pretty clear. It seemed to take forever in the late 1990s.
As always, click images to enlarge.
Recessions are in gray.
And as always, this is not investment advice.
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| daily view through 10/25/22 |
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| monthly view through Sep 2022 |
Debt stopped buying economic growth, if it ever did in the first place, way back in 1982, but no one has seemed to notice.
Prosperity based on debt is not prosperity.
Debt draws forward prosperity, and then when you get forward, there's no prosperity there because you already made off with it.
It's like the polar explorer who starved and froze to death because he ate the food caches on the way to the pole instead of saving them for on the way back.
Full time as a percentage of civilian population in September was 50.3%, and for 2022 through September averaged 50.15%.
Not bad, considering.
The Fed will see little evidence in this figure that its interest rate increase policy is harming employment.
Stocks on Friday collapsed after a head fake to start the week to within 1.5% of the 52-week lows set a week ago.
Long term investment grade bonds and US Treasury securities also revisited lows from 9/27/22, coming within pennies of those benchmarks.
30-year yield for UST is back up to 3.86%. It was 3.87% on 9/27. At the beginning of 2022, yield was a paltry 2.01% by comparison.
UK gilts are experiencing the same action despite the Bank of England intervening to buy bonds.
The bond crisis is not over.
With yields soaring across the board no one wants to own the lower paying outstanding issues, which are legion, destroying their value.
But everything in the global economy is based on those, piled up in earnest after The Great Financial Crisis of 2008, and in orgiastic frenzy afterwards during the late pandemic.
Bond yields in 2022 are telling you that they are overvalued by 92%.
Stock market valuation is telling you a similar thing.
From 1938 through 2019 the median ratio of the S&P 500 to GDP is 81. In 2020 we averaged 154, or 90% overvalued.
This is the major deflationary headwind facing the world, the other side of the COVID-19 inflationary shock coin.
Push here, it comes out over there.
Modern central banking cannot escape this conundrum any more than the gold standard could.
The only thing the individual can do in this situation is to owe nothing and save everything, preferably in your hands.
Good luck.
US GDP last clocked in at $24.883 trillion in 2Q. The total public debt at the end of 2Q is $ trillion.
That's now a mismatch of 123%, up from 105% in 2013, ten years ago, when the total public debt was $16.8 trillion and the GDP $16 trillion.
In other words, the debt has grown by 82% over the period while the GDP has grown by only 56%.
The debt represents spending money we do not have, and the increase in the debt represents the spending of more money we do not have. We simply create it out of thin air to facilitate the process. It doesn't matter what form it takes, whether in the form of Treasury securities or physical money.
Spending go whirr, Fed money machine go whirr, debt go whirr, and eventually inflation go whirr. Inflation is the payback for going into the debt for which we refused to pay at the time.
Debt draws forward prosperity . . .
But it should come as no surprise that the future we robbed has no prosperity in it, now that we have arrived there.
And people wonder where the inflation came from.
Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.
Gee, and Nigeria is only 14% jabbed . . . after all this time.
The U.S. is COVAX’s biggest donor, but not its most generous. Both Germany and Japan have donated a greater share of their gross domestic product. And another big injection of American money looks unlikely as Republicans pull tight the purse strings.
That means fewer vaccines for poorer countries as the pandemic grinds toward its fourth year and vaccination rates in the poorest countries remain stubbornly low—14 percent in Nigeria, for example, compared to the global rate of 63 percent. Starving COVAX “will only enhance global inequities,” Gostin said. ... A few trillion in U.S. government spending, spread out over years, arguably isn’t a lot of money . . ..
More.
The effective federal funds rate stands at 2.33% and $8.85 trillion remains on the balance sheet while Powell makes speeches.
Borrowing is still very cheap for the big boys and the Fed's finger on the scale makes it impossible to know the true value of its mortgage backed securities and US Treasuries.
Meanwhile inflation rages at 8.5% in July.
The market "rout" is merely another yawn as Americans get punished at the grocery store and the gas station.
Current GDP of $24.883 trillion, reported 8/25, implies a fairly valued market level of around 1,600 not 4,057. The S&P 500 remains 153% above that.
They remain rich, and you remain . . . the reason why.
The $90 trillion millstone: We did it to ourselves.
We are now in the future we tapped in the past for the prosperity of "debt draws forward prosperity", and there's little here to be found.
From 1946 to 2008 when we hit the debt growth iceberg, real GDP grew at a compound annual rate of 3.324%. Since then it has fallen 49%, to 1.68%.
We should have stayed with capitalism in the post-war, where one risks actual savings instead of future notional tax, income, and fiat money "revenues". But capitalism went out the window a long time ago, bringing with it the end of the gold standard, the creation of the Fed, and the introduction of the income tax, among other horribles.
Payback is a bitch, and what can't be paid back won't. The rest comes out of your hide.
Recent US GDP: Nominal / Real
4Q2021: $24.0028 trillion / $19.8063 trillion
1Q2022: $24.3867 trillion / $19.7279 trillion
2Q2022: $24.8518 trillion / $19.6817 trillion (first estimate)
BEA, here, Table 3, Line 1.
Everybody's focusing on the short term decline in real GDP this year, as usual, ignoring the much worse big picture.
From 2Q1999 through 2Q2022 the compound annual growth rate comes in at a measly 1.98%, 43.9% off the previous 70-year performance.
That's the real story about real GDP. We are living in much diminished circumstances since 1999.
And nobody knows how to fix it.
Biden, once López Obrador finished, reminded him that America's economy is the fastest growing in the world, while showing no umbrage and restating his respect for Mexico and its leader.
More.
Joe Biden's own US Bureau of Economic Analysis, June 29th, said GDP fell at an annual rate of 1.6% in 1Q2022:
GDPCA, compound annual growth rates
1929-1999: 3.534% (almost 79% better than 1999-2021)
On average in 2022 to date, there were 130.871 million employed full time at average civilian noninstitutional population level of 263.382 million, for 49.7% employed full time on average through April 2022.
Think of all the work we could be doing in this country, but are not.
