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The coming reduction in the Federal Reserve's bond purchases may bear little resemblance to the "automatic pilot" tapering exercise the U.S. central bank conducted seven years ago, as officials grapple with volatile data - on inflation in particular - during the rebound from the COVID-19 pandemic, a Fed official said on Friday.
"In the 2013-2014 taper we went on automatic pilot and didn't do much," St. Louis Fed President James Bullard said in an interview on CNBC.
"This time around, I mean look at this data," he said. "Look at how outsized all these numbers are and how volatile everything has been. I think we're going to have to be more state-contigent than we have been in the past."
The Fed currently holds nearly $7.5 trillion of Treasuries and mortgage-backed securities (MBS) within its $8.1 trillion balance sheet and is adding to those holdings at a rate of $80 billion and $40 billion, respectively, each month as part of its extraordinary measures to support the economy during the pandemic.
In June, so-called retail investors bought nearly $28 billion of stocks and exchange-traded funds on a net basis, according to data from Vanda Research’s VandaTrack, the highest monthly amount deployed since at least 2014. That even trumped the amount retail traders spent in January during the first meme-stock frenzy.
...individual investors have grown in number: More than 10 million new brokerage accounts are estimated to have been opened in the first half of this year, according to JMP Securities. That is around the total for all of 2020.
Retail investors’ enthusiasm is in contrast to professional money managers’ growing unease about the market’s outlook. This has risen as markets on the surface appear placid, but volatility has grown around individual stocks.
...
retail traders’ sentiment currently shows that the group is nearly 70% confident that U.S. stocks will keep rising over the next three months. Meanwhile, professional traders are only about 44% confident that stocks will rally during that period.
"Don't forget the real business of war is buying and selling. The murdering and violence are self-policing, and can be entrusted to non-professionals. The mass nature of wartime death is useful in many ways. It serves as spectacle, as diversion from the real movements of the War. It provides raw material to be recorded into History, so that children may be taught History as sequences of violence, battle after battle, and be more prepared for the adult world. Best of all, mass death's a stimolous to just ordinary folks, little fellows, to try 'n' grab a piece of that Pie while they're still here to gobble it up. The true war is a celebration of markets."
Wombaticus Rex wrote:no matter where the match gets struck, what truly defines the crash is a liquidity implosion.
https://citeseerx.ist.psu.edu/viewdoc/d ... 1&type=pdf
Working Paper No. 681
Lessons We Should Have Learned from the Global Financial Crisis but Didn’t
by L. Randall Wray
Levy Economics Institute of Bard College
August 2011
Abstract
In this paper, I first quickly recount the causes and consequences of the global financial crisis (GFC). Of course, the triggering event was the unfolding of the subprime crisis; however, I argue that the financial system was already so fragile that just about anything could have caused the collapse. I then move on to an assessment of the lessons we should have learned. Briefly, these include: (a) the GFC was not a liquidity crisis, (b) underwriting matters, (c) unregulated and unsupervised financial institutions naturally evolve into control frauds, and (d) the worst part is the cover-up of the crimes. I argue that we cannot resolve the crisis until we begin going after the fraud. Finally, I outline an agenda for reform, along the lines suggested by the work of Hyman P. Minsky.
Keywords: Global Financial Crisis; Subprime Crisis; Hyman P. Minsky; Galbraith and the Great Crash; Control Fraud; Underwriting; Deregulation; Financial Reform
http://www.levyinstitute.org/publicatio ... sky-moment
Policy Note 2018/1 | February 2018
Does the United States Face Another Minsky Moment?
It is beginning to look a lot like déjà vu in the United States. According to Senior Scholar L. Randall Wray, the combination of overvalued stocks, overleveraged banks, an undersupervised financial system, high indebtedness across sectors, and growing inequality together should remind one of the conditions of 1929 and 2007. Comparing the situations of the United States and China, where the outgoing central bank governor recently warned of the fragility of China’s financial sector, Wray makes the case that the United State is far more likely to “win” the race to the next “Minsky moment.” Instead of sustainable growth, we have “bubble-ized” our economy on the back of an overgrown financial sector—and to make matters worse, he concludes, US policymakers are ill-prepared to deal with the coming crisis.
What actually happened is that default rates on
risky mortgage loans rose sharply while home prices plateaued. Megabanks took a look at their
balance sheets and realized they were not only holding trashy mortgage products, but also lots
of liabilities of other mega financial institutions. It suddenly dawned on them that all the others
probably had balance sheets as bad as theirs, so they refused to roll-over those short-term
liabilities. And since the Leviathans were highly interconnected, when they stopped lending to
one another the whole Ponzi pyramid scheme collapsed.
To label that a liquidity crisis is misleading. It was massive insolvency across at least the
largest financial institutions (both banks and shadow banks) that led to the “run on liquidity”
(really, a refusal to refinance one’s fellow crooks—criminal enterprise always relies on trust,
and when that breaks down, war breaks out). The banks had an insufficient supply of good
assets to offer as collateral against loans, just trashy real estate derivatives plus loans to each
other, all backed by nothing other than a fog of deceit. All it took was for one gambling banker
to call the bluff.
As of mid 2011, all the big banks are probably still insolvent. It is only the backing
provided by Tim Geithner and Ben Bernanke as well as the “extend and pretend” policy adopted
by regulators and government supervisors that keeps them open.
It was massive insolvency across at least the
largest financial institutions (both banks and shadow banks) that led to the “run on liquidity”
(really, a refusal to refinance one’s fellow crooks—criminal enterprise always relies on trust,
and when that breaks down, war breaks out).
drstrangelove wrote:- arbitrarily begins the gold standard period in 1880. 52 years of data.
- lops out 40 years of the post gold standard period.
- incorrectly begins the fiat period in 1973 and ends it 11 years short of the period it's being compared with.
drstrangelove wrote:you may begin to notice a seperation between the lines grow, as the second fiat era begins to take off into the 80s.
drstrangelove » Tue Jul 13, 2021 7:47 pm wrote:Gold standard was removed from domestic currencies 1932(give or take a year depending on the currency). gold standard was removed from the US dollar in its role as a reserve currency in 1973.
1932-1973: private citizens and institutions could not exchange paper currency for gold. but world central banks could exchange US dollars for gold reserves.
1973-*: central banks could no longer exchange US dollars for gold.
The following chart plots annual U.S. consumer price inflation from 1880, the beginning of the post-Civil War gold standard, to 2015. The vertical blue line marks 1933, the end of the gold standard in the United States. The standard deviation of inflation during the 53 years of the gold standard is nearly twice what it has been since the collapse of the Bretton Woods system in 1973 (denoted in the chart by the vertical red line). That is, even if we include the Great Inflation of the 1970s, inflation over the past 43 years has been more stable than it was under the gold standard. Focusing on the most recent quarter century, the interval when central banks have focused most intently on price stability, then the standard deviation of inflation is less than one-fifth of what it was during the gold standard epoch.
Annual Consumer Price Inflation, 1880 to 2016
Consumer Price Index (Estimate) 1800-
Source:
Handbook of Labor Statistics
U.S. Department of Labor
Bureau of Labor Statistics
Indexes from 1800 to 1912 and 2015 estimated by splicing the following series:
1800 to 1851 - Index of Prices Paid by Vermont Farmers for Family Living;
1851 to 1890 - Consumer Price Index by Ethel D. Hoover;
1890 to 1912 - Cost of Living Index by Albert Rees;
1890 to 2014 - Consumer Price Index;
2015 - An estimate for 2015 is based on the change in the CPI from second quarter 2014 to second quarter 2015.
To calculate the change in prices, use the formula from the example below:
What is $1 in 1850 worth in 2015?
2015 Price = 1850 Price x (2015 CPI / 1850 CPI)
2015 Price = $1 x (711.1 / 25)
2015 Price = $28.45
$1 in 1850 is worth $28.45 in 2015.
CPI-U
1967 = 100
Why the Housing Market is Likely Fucked
TL;DR: Almost all the key signs that caused the housing market crash in 2008 are back stronger than ever. Mortgage debt is at ATH, consumer debt is 2x higher than ever, lumber futures are down 60% but physical lumber isn't moving, unemployment is still 50% higher than in 2009, housing starts are double what they were in 2008, and median house prices just broke $300,000 for the first time ever, inflation adjusted. All of which are bearish indicators for the economy.
1.) Mortgage Debt and Consumer Debt is at an All Time High
Having high mortgage debt makes your house a debt and not an asset. It is sitting right above 10 trillion dollars. If it goes any higher, we are at an extreme risk for higher foreclosures. However, consumer debt may be a greater issue. It is currently nearing 2x what it was in 2008.
https://www.newyorkfed.org/microeconomics/hhdc.html
2.) Lumber Futures Have Fallen, Physical Has Not
Another way to tell if we are in a bubble is by comparing the futures market to actual prices. When there is a large gap in these two, it usually indicates people are still willing to pay much higher prices for a large supply. It doesn't make any economical sense. People still feel that lumber is in extremely high demand, and will buy lumber (which isn't in high demand), and buy as much as they can anticipating the price to continue going up. It's artificial price increases.
https://www.nasdaq.com/market-activity/commodities/lbs
3.) Unemployment is Still Extremely High After COVID Restrictions Lifted
Unemployment numbers are still 50% higher than they were in 2019. There's no reason to go back to work for ~2% of the population, because the stimulus checks and unemployment add up to more than minimum wage. This money has to come from somewhere, a.k.a money printing. This in turn adds up to more inflation, which is my next point.
https://www.macrotrends.net/1316/us-nat ... yment-rate
4.) Inflation is the Highest it has been in 31 Years
Jpow, our lord and savior, announced today inflation was above expectations of 5%. This has not happened since 1990. Hmm. AP article:
https://apnews.com/article/inflation-ec ... GTON%20(AP
https://www.macrotrends.net/2497/histor ... te-by-year
5.) Housing Starts are Double What They Were in 2008, Nearing 2005 (Peak) Levels
Housing starts measure how many houses are being built. It is currently at around 1,500 a month. They are still recovering from 2005 but quickly approaching 2005 levels. More houses being built means that there is more supply flowing in.
https://www.macrotrends.net/1314/housin ... ical-chart
6.) Median House Prices are at $300,000, Up Nearly 100% From 2012
Although the housing crisis ended around 2009, the bottom for housing prices was in 2012. Since then, housing prices are well above their 2008 levels, even adjusted for inflation. This is a bad sign for the housing market. Having high housing prices means more debt, which leads to more defaults.
https://dqydj.com/historical-home-prices/
7.) 30 Year Fixed Mortgages are at an All Time Low
This is not necessarily a bad sign for the housing economy, but it means if we were to have a recession, it could be really bad. To fix recessions, the fed usually lowers interest rates, which is like turning the economy off and on again. It works most of the time. The grey bars in this picture are recessions. Notice how about halfway through each recession, the interest rates decrease, and the recession shortly ends.
Interest rates are already incredibly low, so this may not be an option for the next recession without making interest rates negative. Having negative interest rates triggers more panic buying houses people can't afford, which results in more defaults. It will quickly become a chain reaction of hell.
https://www.macrotrends.net/2604/30-yea ... rate-chart
Edit: due to the high number of comments, I will not be able to respond to most of them. I did not expect this post to get this popular. I was anticipating being called a retard (which around half of you are).
What I've learned:
1.) This housing market is not really like 2008. It's more secure today, or at least what we know is.
2.) Lumber prices really indicate a bullish position on the housing market. I was wrong about the gap between the futures and physical. I have also been told that was worded poorly.
3.) When you really put effort into a post, it does well. I spent well over 3 hours on this post, and it's the first one that hasn't been removed by the mods.
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