2021 - Is inflation finally back in the conversation?

[NoRagrets 1125]

They can’t justify lower rates yet. Employment was great, inflation is normalizing but still a bit high. You lower rates to stimulate the economy for employment growth and to creat a little inflation. Sadly we had rates so low for so long when we didn’t need to that permafucked the real estate, development, and heavy industry economics by making them dependent on lower rates. It will take some time for everything to adapt to the non free money world.

if housing rates ever get back to the low 5’s, I think you’ll see another boom in developments and, hopefully, major capital expenditure investments by big business (factories, equipment, etc). 

[Redneck Mutha 8003]

23 hours ago, bernorange said:

If that is accurate. so much for central bank independence.

• In a new memoir, Volcker recounts being privately ordered by Reagan's chief of staff to not raise interest rates prior to the 1984 election while Reagan was in the room.

https://www.businessinsider.com/ronald-reagan-fed-chair-volcker-trump-2018-10

[Guest]

1 hour ago, NoRagrets said:

They can’t justify lower rates yet. Employment was great, inflation is normalizing but still a bit high. You lower rates to stimulate the economy for employment growth and to creat a little inflation. Sadly we had rates so low for so long when we didn’t need to that permafucked the real estate, development, and heavy industry economics by making them dependent on lower rates. It will take some time for everything to adapt to the non free money world.

if housing rates ever get back to the low 5’s, I think you’ll see another boom in developments and, hopefully, major capital expenditure investments by big business (factories, equipment, etc). 

Yeah, I'm lost on why people (not really here, but the "market") seems fixated on when the Fed will cut. There's no reason to cut now outside of trying to make our massive debt more affordable. 

Rates aren't choking the economy, inflation still isn't completely knocked out, unemployment is ridiculously low. I absolutely don't think they are going to raise, but if you made me pick one side or the other, I'd say that things point more to a rate hike than a cut at the moment.

[Cum Rocket 136]

14 hours ago, StassneyHorn said:

Pull up the last president’s remarks on the Fed and Powell so we can review. You won’t 

The previous President criticized Powell and the Fed regularly. Biden’s remarks were different in the sense that they seemed more like a wink wink prediction. 
 

I guess it all depends on what you think is more noteworthy. An orange man railing against something he can’t control, or an Average Joe sharing what he heard around the water cooler? Sure, the previous Chair of the Federal Reserve is around the proverbial water cooler but whatever.   

[StassneyHorn 6613]

You think the wink wink prediction is because of behind the scenes pressure to interfere in an election year, while others would consider all economic indicators are factored in and point to this occurring 

[UTPhil2006 3807]

41 minutes ago, FirstTimeCaller said:

 I'd say that things point more to a rate hike than a cut at the moment.

As of right now, I would think it’s a when not if they’re cut. June seems to be the current thought. 

[Neonmoon 38129]

3 hours ago, Cum Rocket said:

The previous President criticized Powell and the Fed regularly. Biden’s remarks were different in the sense that they seemed more like a wink wink prediction. 
 

I guess it all depends on what you think is more noteworthy. An orange man railing against something he can’t control, or an Average Joe sharing what he heard around the water cooler? Sure, the previous Chair of the Federal Reserve is around the proverbial water cooler but whatever.   

Did Biden admit pressuring Powell to lower rates and because of said pressure, he lowered the rates.

https://thehill.com/homenews/sunday-talk-shows/4208224-trump-interest-rates-too-high-people-cant-buy-homes/

Quote

The remarks harken back to the contentious relationship the two officials had when Trump served from 2017-2021.

Using the platform formerly known as Twitter, Trump often berated Fed officials, once calling them “boneheads,” and compared Powell to “a golfer who can’t putt.” Those remarks came while the Fed was raising interest rates in 2018 and 2019.

“We do know that I put a lot of pressure on him,” Trump told Welker. “It was outside pressure, because nobody knows whether or not you can really do that, but I did, because I thought his interest rates were too high. And he ultimately dropped his interest rates.”

 You guys are fucking clowns 

[Cum Rocket 136]

3 hours ago, StassneyHorn said:

You think the wink wink prediction is because of behind the scenes pressure to interfere in an election year, while others would consider all economic indicators are factored in and point to this occurring 

Which economic factors point to a rate cut?

[Cum Rocket 136]

2 minutes ago, Neonmoon said:

Did Biden admit pressuring Powell to lower rates and because of said pressure, he lowered the rates.

https://thehill.com/homenews/sunday-talk-shows/4208224-trump-interest-rates-too-high-people-cant-buy-homes/

 You guys are fucking clowns 

Lulz. 
 

Which is more likely? Powell cutting rates because of something Trump said, or Trump falsely taking credit for something? 

[StassneyHorn 6613]

1 hour ago, Cum Rocket said:

Which economic factors point to a rate cut?

The soft landing that our back wheels just touched down on that is apparent to everyone but you, unless you wanted me to do your homework with a lengthy post about inflation numbers continuing to trend downwards. PCE hitting 2.4% last month as part of the continued falling trend that the Fed favors over other inflation measures is the most obvious. We had percentages in the 90s of a rate cut for this March but January repricing spooked people and set the timeline back. 

6 weeks ago we were looking at a 90% chance of a cut this month, now we’re around 33%. The question is when not if.

[Neonmoon 38129]

1 hour ago, Cum Rocket said:

Lulz. 
 

Which is more likely? Powell cutting rates because of something Trump said, or Trump falsely taking credit for something? 

About as likely as Biden having anything to do with Powell or rate cuts you clown. Is this your 32nd username? 

[Cum Rocket 136]

3 hours ago, StassneyHorn said:

The soft landing that our back wheels just touched down on that is apparent to everyone but you, unless you wanted me to do your homework with a lengthy post about inflation numbers continuing to trend downwards. PCE hitting 2.4% last month as part of the continued falling trend that the Fed favors over other inflation measures is the most obvious. We had percentages in the 90s of a rate cut for this March but January repricing spooked people and set the timeline back. 

6 weeks ago we were looking at a 90% chance of a cut this month, now we’re around 33%. The question is when not if.

What’s the Fed’s inflation goal?

[Hefeweizen 5328]

4 hours ago, Neonmoon said:

About as likely as Biden having anything to do with Powell or rate cuts you clown. Is this your 32nd username? 

It’s his best without a doubt.

[StassneyHorn 6613]

2 hours ago, Cum Rocket said:

What’s the Fed’s inflation goal?

Don’t ask questions we already know the answer to, especially when you know the number is a lagging response.

[bernorange 8362]

Quote

Consumers increasingly doubt the Federal Reserve can achieve its inflation goals anytime soon, according to a survey Monday from the New York Federal Reserve.

While the outlook over the next year was unchanged at 3%, that wasn't the case for the longer term. At the three-year range, expectations rose 0.3 percentage point to 2.7%, while the five-year outlook jumped even more, up 0.4 percentage point to 2.9%.

All three are well ahead of the Fed's 2% goal for 12-month inflation, indicating the central bank may need to keep policy tighter for longer. Economists and policymakers consider expectations as a key factor in viewing the path of inflation, so the Survey of Consumer Expectations for February could be bad news.
...

https://www.cnbc.com/2024/03/11/long-term-inflation-expectations-rise-spelling-possible-trouble-for-the-fed-survey-shows.html

 

[Cum Rocket 136]

20 hours ago, StassneyHorn said:

Don’t ask questions we already know the answer to, especially when you know the number is a lagging response.

Ok well hard to see the justification with great employment numbers and CPI well above goal. 
 

 

[StassneyHorn 6613]

@bernorange last link they point blank asks Jpow if he’s waiting til he sees 2 flat and he says no btw. Around 1:50

[jimmyjazz 45975]

Yeah, I'm not sure I see the logic in delaying (small) rate cuts until the inflation target is hit.  Seems like a classic "too late" move, prone to overshoot.  (Well, undershoot in an absolute sense.)

[Cum Rocket 136]

52 minutes ago, jimmyjazz said:

Yeah, I'm not sure I see the logic in delaying (small) rate cuts until the inflation target is hit.  Seems like a classic "too late" move, prone to overshoot.  (Well, undershoot in an absolute sense.)

What’s the impetus for rate cuts then? Is there some softening in the economy that is under appreciated by most?

[jimmyjazz 45975]

5 minutes ago, Cum Rocket said:

What’s the impetus for rate cuts then? Is there some softening in the economy that is under appreciated by most?

Absent human psychology, I would expect a rate cut delayed until we hit the target inflation metric to allow that inflation number to drop further, as it should take time for markets to respond.  Perhaps I'm wrong.  I deal with oscillatory systems daily, I think in engineering terms that might not apply.

[Cum Rocket 136]

A couple data reports this week.

 

 

tracking expected June rate cuts

 

 

[troph 24851]

On 3/9/2024 at 3:34 PM, StassneyHorn said:

The man is literally saying out loud what most people think will happen before the election. He didn’t even put a number on it, just said down.

I bet he’s got some Cherry Luden cough drops in his pocket.

I bet he’s gonna find a quarter behind some young kids ear.

I bet he might have an ice cream cone sometime this summer.

deep state.

[TxTower 652]

Yeah, I'm not sure I see the logic in delaying (small) rate cuts until the inflation target is hit.  Seems like a classic "too late" move, prone to overshoot.  (Well, undershoot in an absolute sense.)

Where is the logic in cutting rates (small) when inflation has been stuck between 3-4% for the last 8 months, GDP fine, labor market fine and your target is 2%?

I’m afraid it’s higher for longer. You didn’t hear it here first.

[Captainant 27680]

4 hours ago, TxTower said:

Where is the logic in cutting rates (small) when inflation has been stuck between 3-4% for the last 8 months, GDP fine, labor market fine and your target is 2%?

I’m afraid it’s higher for longer. You didn’t hear it here first.

Historically speaking 7% is pretty low. My folks first mortgage back in the 80s was at 9.5%, but their principle amount was less than most pickup trucks nowadays. 

Interest rates and principle amounts this high don't really jibe with a national median income of $41k, but the free market will adjust or something. Just like after the 2008 black swan event lol

[Biff Tannen 45691]

All I know is god damn chicken wings went up to like $19/10 pieces right after covid and somehow are never coming back down again, despite everything saying there are no supply chain issues.  It's almost as if people keep paying inflated prices instead of using their consumer habits to force corporations to capitulate.  But that couldn't be.

[UTPhil2006 3807]

8 hours ago, Captainant said:

Historically speaking 7% is pretty low. My folks first mortgage back in the 80s was at 9.5%, but their principle amount was less than most pickup trucks nowadays. 

Interest rates and principle amounts this high don't really jibe with a national median income of $41k, but the free market will adjust or something. Just like after the 2008 black swan event lol

A lot of people are sitting on the sideline at 7% 

[Captainant 27680]

36 minutes ago, UTPhil2006 said:

A lot of people are sitting on the sideline at 7% 

I can't imagine that more people are coming in at a higher interest rate than a lower one lol, but also the inflated home values from the 2020->2023 run up are what's really making the monthly payments out to reach for hourly wage earners. 

It's wild that pretty much the entire market shot up 50% or more, for really no reason aside from speculation. Every attractive house my wife and I have looked at (we would love a yard and not 3 stories) is $700k-$900k in 2024 but had a market value in the $400-500s pre-COIVD. 

Heck, my parents sold their old house in NE San Antonio for $175k in 2017. Last year it was on the market and sold for $300k, and judging from the listing photos of the flooring I installed, they didn't put money into the property to improve things THAT much. 

That ain't inflation, that's gouging. 

Edited March 15 by Captainant
Typo'd a number

[bernorange 8362]

Quote

...
What the PPI is telling us. The measure that tracks consumer-facing inflation, the Consumer Price Index, has for months seen hot and rising services inflation, but durable-goods inflation has been negative (deflation) since the peak of the spike in 2022, and these negative readings in durable goods, plus the plunging energy prices of yore provided a big counterweight to services inflation and a downward push for the overall CPI readings in 2023. But this counterweight and downward push is now in the early stages of fizzling – that’s what the PPI is telling us.

https://wolfstreet.com/2024/03/14/what-the-ppi-is-telling-us-disinflation-in-core-goods-a-hefty-counterweight-to-hot-services-inflation-may-be-over/

 

[B00M 6416]

On 3/10/2024 at 7:35 PM, Hefeweizen said:

It’s his best without a doubt.

For #33, I propose Facialized Clown

Edited March 17 by B00M

[Neonmoon 38129]

On 3/15/2024 at 8:44 AM, Captainant said:

I can't imagine that more people are coming in at a higher interest rate than a lower one lol, but also the inflated home values from the 2020->2023 run up are what's really making the monthly payments out to reach for hourly wage earners. 

It's wild that pretty much the entire market shot up 50% or more, for really no reason aside from speculation. Every attractive house my wife and I have looked at (we would love a yard and not 3 stories) is $700k-$900k in 2024 but had a market value in the $400-500s pre-COIVD. 

Heck, my parents sold their old house in NE San Antonio for $175k in 2017. Last year it was on the market and sold for $300k, and judging from the listing photos of the flooring I installed, they didn't put money into the property to improve things THAT much. 

That ain't inflation, that's gouging. 

The market didn’t shoot up 50% due to speculation or gouging. There are real economic reasons. Housing has been under built for over a decade, some estimates today say around 5.5 million homes. Due to Covid, money became cheaper than ever before. Everyone, including their mother either bought a house or refinanced. Now, we still are under built and no one wants to move due to their low Mortage rate and 40% don’t even have a mortgage, hurting inventory even more. It’s not speculation or gouging, it’s supply and demand. Want home prices to come down? Build more houses. That’s it. 

Improvements are not the only reason a home’s value increases. Scarcity also increases the value of an asset. 

Some markets were overinflated (like Austin) but they have come down 10% or more from peak. Other markets that were not overinflated have increased continuously 

[jimmyjazz 45975]

In case anyone is interested, I plotted Austin's single-family residential pricing from 2011 forward.  Data came from the Texas A&M Real Estate site. 

We are currently down ~ 23% from the summer 2022 peak, and are approximately even with spring 2021 prices.

[B00M 6416]

10 hours ago, jimmyjazz said:

In case anyone is interested, I plotted Austin's single-family residential pricing from 2011 forward.  Data came from the Texas A&M Real Estate site. 

We are currently down ~ 23% from the summer 2022 peak, and are approximately even with spring 2021 prices.

Is this a soft landing? 

[statsman 5472]

On 3/10/2024 at 9:09 AM, Redneck Mutha said:

• In a new memoir, Volcker recounts being privately ordered by Reagan's chief of staff to not raise interest rates prior to the 1984 election while Reagan was in the room.

https://www.businessinsider.com/ronald-reagan-fed-chair-volcker-trump-2018-10

In fairness, the 1984 election was a real squeaker

[Wally Fairway 5559]

On 3/9/2024 at 4:34 PM, StassneyHorn said:

The man is literally saying out loud what most people think will happen before the election. He didn’t even put a number on it, just said down.

I bet he’s got some Cherry Luden cough drops in his pocket.

I bet he’s gonna find a quarter behind some young kids ear.

I bet he might have an ice cream cone sometime this summer.

Hey, quit putting CR posts in the inflation thread (and you didn't even predict an ice cream flavor)

[Trey3216 15347]

On 3/15/2024 at 7:44 AM, Captainant said:

I can't imagine that more people are coming in at a higher interest rate than a lower one lol, but also the inflated home values from the 2020->2023 run up are what's really making the monthly payments out to reach for hourly wage earners. 

It's wild that pretty much the entire market shot up 50% or more, for really no reason aside from speculation. Every attractive house my wife and I have looked at (we would love a yard and not 3 stories) is $700k-$900k in 2024 but had a market value in the $400-500s pre-COIVD. 

Heck, my parents sold their old house in NE San Antonio for $175k in 2017. Last year it was on the market and sold for $300k, and judging from the listing photos of the flooring I installed, they didn't put money into the property to improve things THAT much. 

That ain't inflation, that's gouging. 

So now every home owner in America getting the price they ask when they sell their home is gouging?   Jesus Tapdancing Christ bro.   

 

When will the government step in and stop the collusion!!!!!!??????  

 

lol 

[LCHorn 2620]

On 3/17/2024 at 1:43 PM, jimmyjazz said:

In case anyone is interested, I plotted Austin's single-family residential pricing from 2011 forward.  Data came from the Texas A&M Real Estate site. 

We are currently down ~ 23% from the summer 2022 peak, and are approximately even with spring 2021 prices.

I would caution anyone from misreading “price” as “value”.  Values, for the most part, don’t appear to have fallen by much in the aggregate (just my opinion, but I think homes in the $1m-$1.5m or so aren’t moving and that’s probably the weakest part of the demand curve).  

[Snake Diggity 4625]

57 minutes ago, LCHorn said:

I would caution anyone from misreading “price” as “value”.  Values, for the most part, don’t appear to have fallen by much in the aggregate (just my opinion, but I think homes in the $1m-$1.5m or so aren’t moving and that’s probably the weakest part of the demand curve).  

Anecdotally I can confirm this.  I have 3 homes in Austin.  The 2 in the $350k-$500k range have recent comps that show their prices are continuing to go up or are at least stable.  My other property is in the $600k-$900k range and the asking prices for similar homes has come down a bit, but not 20% down from peak.  My guess is that 20-25% decrease is coming from the homes in the $900k-$2M range.

Edited March 18 by Snake Diggity

[StassneyHorn 6613]

7 hours ago, Wally Fairway said:

Hey, quit putting CR posts in the inflation thread (and you didn't even predict an ice cream flavor)

My last post in here was a straight shot about PCE, before Cum Rocket and bernorange brought CR into it.
Also IDGAF about the manly cries and shrieks of CR in an inflation thread.

and he's clearly a vanilla bean soft serve guy

Edited March 18 by StassneyHorn

[LCHorn 2620]

7 minutes ago, Snake Diggity said:

My guess is that 20-25% decrease is coming from the homes in the $900k-$2M range.

The decrease is because a greater proportion of home sales than 2021 is coming from new construction in the $500k or below range.  Builders need to move inventory.  Everyone else has a 30 year note at 3% they don’t want to lose.

[jimmyjazz 45975]

1 hour ago, LCHorn said:

The decrease is because a greater proportion of home sales than 2021 is coming from new construction in the $500k or below range.  Builders need to move inventory.  Everyone else has a 30 year note at 3% they don’t want to lose.

Do you think that isn't having an effect on existing home pricing?  

I wasn't trying to make some grand statement, I was just using very coarse data to seed a conversation.  That said, if supply has increased and demand has dropped (for reasons listed previously), then downward price pressure makes sense, even on existing houses.  Maybe not that 22% number, but significant, regardless.

[Biff Tannen 45691]

1 hour ago, LCHorn said:

Everyone else has a 30 year note at 3% they don’t want to los

[LCHorn 2620]

3 hours ago, jimmyjazz said:

Do you think that isn't having an effect on existing home pricing? 

I don't think the effect can be explained as easily as "my house was worth X, now it's worth 80% of X", which is typically where your interest lies on the real estate/mortgage thread. I know you're weren't making that claim, but I wanted to clarify in case someone else might benefit from the reassurance their home's value hadn't fallen to that degree.  When you have a decline in values that's broadly effecting everyone it'll make lenders risk averse and that hasn't happened in Austin (with the exception of Citibank). 

To your point, I'm sure downward price pressure exists, even on the new construction side but it's not being revealed in sales prices (this is an exaggeration, but a builder would rather give you $50K in incentives than reduce the sales price by $10K, that's how hard-wired they are on fighting for sales price).  The place to tease that out is on profitability and I haven't seen that data. 

[B00M 6416]

5 hours ago, Snake Diggity said:

Anecdotally I can confirm this.  I have 3 homes in Austin.  The 2 in the $350k-$500k range have recent comps that show their prices are continuing to go up or are at least stable.  My other property is in the $600k-$900k range and the asking prices for similar homes has come down a bit, but not 20% down from peak.  My guess is that 20-25% decrease is coming from the homes in the $900k-$2M range.

[52-80 19162]

On 3/15/2024 at 4:35 AM, Biff Tannen said:

All I know is god damn chicken wings went up to like $19/10 pieces right after covid and somehow are never coming back down again, despite everything saying there are no supply chain issues.  It's almost as if people keep paying inflated prices instead of using their consumer habits to force corporations to capitulate.  But that couldn't be.

show me the divergence in producer vs consumer prices

and the pre-vs-post profit margin of the largest chicken producer in the world

[52-80 19162]

On 3/18/2024 at 7:57 PM, Trey3216 said:

So now every home owner in America getting the price they ask when they sell their home is gouging?   Jesus Tapdancing Christ bro.   

 

When will the government step in and stop the collusion!!!!!!??????  

 

lol 

i feel like this is the kind of people we run into on this website.. (from nber)

[52-80 19162]

on the housing discourse and particularly its effect across the covid period:

-home ownership rate continued to increase, and sits at/above long term national average; the majority of households are homeowners

-"net housing values grew substantially for families across the usual income distribution, reaching their highest levels on record"!!

-this has the effect of increasing net worth, in real terms, for aggregate households -- the highest ever in 31 year history of the fed's survey of consumer finance (scf).

quote: "with respect to changes between the 2019 and 2022 surveys, increases in both median and mean net worth were near universal across different types of families"

(the increase was positive for every single family demographic whether by income, age (head of hh), education, race/ethnicity, geography, etc!)

-the inverse effect is that measures of "financial vulnerability" kept decreasing!! some measures of debt level (vs asset/income) were lowest on record!

 

now, if you are in the minority of people who didn't already own property, the entry price for buying property went up.  [cue the usual whiners here]. and if the prices had gone down... that wouldve dragged down the net worth of the majority of households, and the usual whiners wouldve whined even harder. 

the only sure thing is that whiners gonna whine, and will blame anything and everything on nefarious external forces. 

in summary, the majority of families owned property, and as property value went up, it was a large financial boost for them. but regardless, everybody in the country also did well! and if you want cheaper houses... build more houses. 

[bernorange 8362]

25 minutes ago, 52-80 said:

in summary, the majority of families owned property, and as property value went up, it was a large financial boost for them. but regardless, everybody in the country also did well! ...

It's a reflection of the value of the dollar diminishing via inflation.  Properties did not become more valuable.  The dollar became less so.  This is the immorality of the 2% inflation targeting writ large.

[52-80 19162]

26 minutes ago, bernorange said:

It's a reflection of the value of the dollar diminishing via inflation.  Properties did not become more valuable.  The dollar became less so.  This is the immorality of the 2% inflation targeting writ large.

housing value rose more quickly than inflation, as measured by typical basket of expenditures.  in real terms it went up.

we're both opposed to current profligate fiscal policy and agree fed was too accommodating/lax with their rate policy, but the net effect on country (so far!!) is that  total net wealth, already adjusted for inflation, also went up.  thats a good thing.

 

[bernorange 8362]

Quote

If you want an idea of how the current fiscal and asset bubble in the US might end, pay close attention to Bernard Connolly, esteemed consigliere to hedge funds and central bankers across the world for the last quarter century.

It will not end in a soft landing – a “chimaera” – and will certainly not end in another leg of accelerating economic growth. Nor will it end in soggy stagflation.

The invidious choice facing the Federal Reserve, he warns, is either to allow a deep economic slump to unfold, or slash rates to the bone before inflation has fallen back to target. The latter course will send the dollar into free fall and destabilise the world’s dollarised financial system, an outcome already being sniffed out by the reawakening gold market.
...
“There can be little doubt that there will be a US recession unless the Fed loosens hard and soon. The labour market is weakening and ‘excess savings’ from the pandemic-era handouts are exhausted,” he said.

“The likeliest near-term outcome is that, as in 2000 and 2007, the Fed holds off cutting interest rates just yet, citing worries that inflation is not convincingly and sustainably moving to target. By mid-year the weakening of the economy will have become evident even to the Fed’s modellers. But they will not cut far enough or fast enough,” he said.
...
This points to an initial rate cut in June, followed by cascading cuts in rapid succession, though still too little, too late. The Fed Board is already preparing for a hand-brake U-turn. Governor Adriana Kugler recently reminded everybody that the Fed has a “dual mandate”: jobs as well as inflation.

Days earlier, New York Fed chief John Williams said the supply-side shock of the pandemic had blown over and that US inflation had carved out a near perfect round trip, “like the Apollo missions to the moon and back.” He said three-year inflation expectations are now below their 2014-2019 average. This is a Fed preparing its alibi.

As I wrote last week, the US economy has lost a net 900,000 workers since November, based on the US household survey. This has lifted unemployment from 3.4pc to 3.9pc. The jump is close to triggering the Fed’s ‘Sahm Rule’ recession indicator.

The US economy is not as strong as widely assumed. The latest US financial accounts show that gross domestic income (GDI) grew by just 1.2pc last year. This measure has been consistently weaker over recent quarters than the GDP figure, which ought to give pause for thought.

A Fed study found that GDI is more accurate when the economy rolls over. It foretold a recession in 2007 at a time when the GDP figures (revised down later) were still signalling clear blue sky.
...
The Wicksellian theme running through Mr Connolly’s book is that central banks have created a chronic ‘intertemporal’ misalignment in the western economies, starting with Alan Greenspan in the 1990s.

They have let asset booms run unchecked but have always stepped in to prevent the economy coming back into balance during downturns. But you cannot pull consumption from the future forever without consequences. The future catches up with you.

“The real difficulty with the Greenspan maxim – that a problem deferred is a problem solved – is that you have to keep on deferring, via ever-bigger bubbles that ultimately threaten to destroy both capitalism and democracy,” he said. Furthermore, this reflex obstructs the Schumpeterian cleansing process of creative destruction.

As Joe Biden’s budget boom deflates this year it will become clear that the US economy cannot handle interest rates anywhere near the current level of 5.33pc. America and the West will discover that they are on the same conveyor-belt towards “ever-lower real interest rates”, requiring drastic cuts to refloat the next bubble in equities and credit.

My angle is slightly different. Deflation will keep coming back to haunt us with each cycle – requiring zero rates and crazy money – because of ageing demographics, digital technology, and above all the Asian saving glut.

The cardinal fact is that China produces 31pc of global manufactured goods but accounts for 13pc of total consumption. Xi Jinping’s regime is dumping massive excess capacity on the rest of us. It is reverting to the worst practices of Leninist capitalism. This is the elephant in the global rowing boat.

Whether Mr Connolly is right or savings glut theorists are right, both imply a secular collapse in the natural rate of interest and the subversion of western free market system.

The central banks and the academic priesthood are floundering because their canonical DSGE model – new neoclassical synthesis – assumes that the economy comes back into equilibrium when it patently does no such thing. The model is self-evidently defective but all other voices – Wicksellian, monetarist, Austrian, or old Keynesian – have been shut out of the debate.

The priests were badly wrong in 2007-2008. We will find out who is badly wrong this year soon enough.

https://www.telegraph.co.uk/business/2024/03/19/central-banks-face-horrible-choice-warns-bernard-connolly/

@52-80- Real Estate valuations are affected by credit/debt markets and other factors that act as multipliers on the inflation base.  If the Fed continues QT through the coming storm, real estate is going to crash hard.  $.02

[52-80 19162]

7 minutes ago, bernorange said:

https://www.telegraph.co.uk/business/2024/03/19/central-banks-face-horrible-choice-warns-bernard-connolly/

@52-80- Real Estate valuations are affected by credit/debt markets and other factors that act as multipliers on the inflation base.  If the Fed continues QT through the coming storm, real estate is going to crash hard.  $.02

that's the job walking the tightline that we dont want.  i would think that the fed recognizes property as one of the cornerstone of wealth and wouldnt want to shock that market/asset class.  note that there have been few real estate 'crashes', and that they were not fed-induced.  e.g. 2007 was due to action of lenders, while FFR was around a reasonable 5%