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Key Takeaways

The podcast episode with Cem Karsan, Founder of KAI Volatility Advisors, provided profound insights into the current state of the markets and the economy. Jem discussed the intricate dynamics of inflation, distinguishing between structural and cyclical inflation. Cyclical inflation correlates with the business cycle, whereas structural inflation arises from deep-seated societal and political shifts, such as increasing labor rights and populist policies that address inequality.

Cem emphasized that these structural changes have inflationary consequences and that the younger generation has been disproportionately affected by inequality, which has driven the popularity of Bitcoin as an alternative asset. He also delved into the potential for stagflation, where the economy experiences stagnation alongside persistent inflation, and critiqued the notion of a 'soft landing' in the economy.

Exploring the Federal Reserve's role, Cem argued that the Fed is in a challenging position, as it attempts to manage cyclical forces against a backdrop of structural inflation. He predicted a potential recession coupled with inflation above 2% and drew parallels between the current economic situation and the 1970s stagflation.

Moreover, Cem contended that the United States holds a unique position of power in the global economy, which allows it to manage its debt differently from other nations. He suggested that the U.S. might eventually undertake a form of debt jubilee, subtly reducing its debt burden without undermining the dollar's strength.

Lastly, Cem shared his views on the limitations of Bitcoin as a global currency, arguing that while it may continue to gain popularity and see short-term success, it will inevitably face resistance from entities in power that wish to maintain control over monetary systems.

Best Quotes

1. "If we prioritize median people's outcomes, that is actually less efficient for GDP, but maybe better for us as a society."
2. "The younger generation has been kind of screwed... they have seen labor's share decrease of GDP and have seen inequality dramatically increase."
3. "Empires fade away over time... but in the history of the world, empires don't fall from their peak."
4. "If tomorrow the Federal Reserve hit a button and our debt went away... what happens to the US dollar?"
5. "If we went on for more decades without crisis, I would argue you're at more risk of something like that happening."
6. "Crisis leads to growth and change... it's good we're getting to crisis."
7. "Life isn't fair... if we want fairness, we got to create and reinstall the structures that allow for some level of fairness."
8. "Bitcoin is the embodiment, almost religious embodiment, of this generation."

Conclusion

In conclusion, Cem Karsan's insights offer a reflective and nuanced view of the current economic scenario, which is far more complex than what meets the eye. The episode highlighted the tension between cyclical and structural factors driving inflation, the evolving role of the Federal Reserve, and the political and generational shifts shaping market dynamics.

Cem's analysis suggests that we may be entering a period reminiscent of the 1970s, with long-term stagflation pressures, and that the U.S. might employ unconventional methods to manage its debt. While the episode touched upon the burgeoning popularity of Bitcoin among younger generations, it also cautioned against viewing it as an ultimate solution to monetary control, given the entrenched power structures that govern global currencies.

Overall, the podcast episode offered a comprehensive examination of the interplay between economics, politics, and societal change, leaving listeners with a deeper understanding of the challenges and opportunities that lie ahead in the financial landscape.

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Earlier today the Federal Reserve Bank of New York released a report on the state of consumer credit. Dissecting data across student, auto, mortgage credit card, and other similar types of loans that US consumers have taken out and painting a bleak picture of the state of the average American. We'll take a look at some of the most glaring data below, but we'll first state that it seems pretty clear that the average consumer is completely tapped out, struggling to stay afloat, and quickly losing the ability to pay back the debt they've accrued.

[

NY Fed Q4 2023 Consumer Credit Report

NY Fed Q4 2023 Consumer Credit Report.pdf

2 MB

.a{fill:none;stroke:currentColor;stroke-linecap:round;stroke-linejoin:round;stroke-width:1.5px;}download-circle

](https://tftc.io/content/files/2024/02/NY-Fed-Q4-2023-Consumer-Credit-Report.pdf "Download")

The report dropped on the same day that consumer credit numbers for December came in with only $1.56B in new debt while expectations were $16B. Put another way, the amount of consumer credit that was created in December was 90% lower than the smartest people on Wall Street were predicting. While I am no fan of credit myself and I think people should avoid it as much as humanly possible, this is a pretty stunning miss that signals the American consumer, who is notoriously ADDICTED to credit, can't take on anymore of the heroin because they have reached their limit. Another limit increase would send them into no man's land.

One of the most shocking pieces of data to come out of this report, something that made me rub my eyes to make sure I was reading the right axis correctly, is the number of credit cards held by Americans. Just under 600 MILLION. That is 2.29 credit cards per American over the age of 18. Utter insanity. As you can see from the chart below that number has increased by ~20% since 2020 and far surpasses the number of credit cards held by Americans right before the Great Financial Crisis.

To make matters worse, people are starting to fall behind on their payments for these credit cards at an alarming rate.

Here is the transition into delinquency of more than 30 days:

Here is the transition into delinquency of more than 90 days:

Using a squinting eye test it seems that the slope of the increase in 30+ day delinquencies for credit cards is steeper than it was in the lead up to 2008 and the 90+ day delinquency rate seems to be following a similar trajectory. It will take more time for that chart to paint a clearer picture. But I think it is easy to figure out what is happening here when you look at the delinquency rates across the different types of credit.

When it comes to the hierarchy of credit as dictated by Maslow's Hierarchy of Needs, it makes sense that credit card delinquencies are the first to rip higher with auto loans coming in second and mortgages rounding out the top three. People stop paying off their credit cards first and make sure they make their car and mortgage payments as they take priority. People need a way to get to work and drive the family around and they need a house to live in. If forgoing the repayment of credit card debt doesn't prove to be enough, people will stop paying their cars off next and their houses off last.

With interest rates as high as they are and with the amount of consumer debt expansion that happened in 2020-2022, it isn't that surprising that the American consumer is feeling the pain right now. That pain has been exacerbated over the last year with mass layoffs across every sector despite the fact that the Biden administration would lead you to believe that the jobs market and economy are stronger than ever.

"Lowest initial jobless claims in decades" - Even Goldman is mocking the constant political BS spewed by the Biden Dept of Labor propaganda. pic.twitter.com/MKCjQAV4hC

— zerohedge (@zerohedge) January 30, 2024

All is not well in the economy right now and with a banking crisis rumbling on the horizon I find it hard to believe that things could make a rapid turn for the worse in the coming months.

[

Bank Runs Are Back On The Menu

The sector of the economy that seems to be on the top of everyone’s mind is commercial real estate. The combination of economic lockdowns driving people out of their expensive office buildings and into their home offices and a precipitous increase in the cost of capital has created a perfect storm.

TFTC – Truth for the CommonerMarty Bent

](https://tftc.io/bank-runs-are-back-on-the-menu/)

One has to wonder if the average American even cares that they're falling behind on their credit card payments specifically. When you consider that the average American adult holds 2.29 credit cards and the rate of expansion over the last four years, it isn't hard to believe that many have simply thrown their hands up and decided, "If everyone is getting bailed out, I might as well run take advantage of as much credit as is humanly possible and never pay it back. Bail myself out with a trip to bankruptcy court." It's almost as if a nihilistic fervor has taken over the country and most people have decided they might as well get going while the goings good. Ignore the potential consequences and deal with them later. Gary Brode joined us on The Last Trade podcast last week and laid out this exact case.

"If you put yourself in the shoes of the American consumer and they look at everyone else getting bailed out, you can see why people might be willing to run up huge credit card debt and just say we're going to make it somebody else's problem." - @Gary_Brode pic.twitter.com/8v6jcFqVkd

— TFTC (@TFTC21) February 2, 2024

As Gary explains, while many people may be feeling this way and running up their credit because they don't care about the consequences of bankruptcy, someone pays that debt at the end of the day. If enough banks find themselves on the hook for a growing amount of deadbeat credit in the form of credit card, auto and mortgage loans it could lead to a systemic problem that forces the Fed and the Treasury to step in to fill the gap, which means more money printing and price inflation in the future. A vicious cycle currently set on repeat for humanity. Except every subsequent time the song reaches its crescendo it gets louder and more disorienting.

Regardless of whether or not there is a material cohort of American citizens who have adopted a nihilistic view on their relationship with credit, the numbers don't lie. It is becoming increasingly impossible for more and more Americans to cover their debts as they get thrown in the tumbler of inflation eating into their ability to sustain an expected quality of life and a piss poor job market that has turned a worrying amount of people into a triple "employed" gig workers.

It doesn't have to be this way. All of these problems stem from a monetary system that is rotten at its core. A monetary system that encourages all of this unnecessary risk. Central planners did this to you and the only way to get out of this problem is to remove the central planners from the equation. This is why we bitcoin, freaks.

Final thought...

I need to take more notes.

Use the code "TFTC" for 15% off

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The Possibility of Deflation

In the short term, the U.S. economy could experience a brief period of deflation, which might stem from a severe external shock. However, this scenario is considered unlikely due to the existing fiscal framework and the U.S. status as a reserve currency issuer.

U.S. Debt and Deficit Concerns

The United States' debt-to-GDP ratio stands at 120%, coupled with a deficit of 7 to 8% of GDP. With unemployment rates hovering around 3%, and a net international investment position at negative 65%, these factors create a concerning fiscal landscape. This situation is compounded by the $13 trillion in U.S. dollar-denominated debt held by foreign entities.

Treasury Market Dysfunction Risks

Should deflation occur and not be immediately countered with increased dollar liquidity, the U.S. could face Treasury market dysfunctions, potentially leading to auction failures. Historical precedence suggests that the Federal Reserve and Treasury would intervene to prevent such outcomes, as they have during past instances of market stress in September 2019, March 2020, and several occasions in 2022 and 2023.

Currency Debasement and Asset Values

In the event of deflation, assets that typically benefit from currency debasement, such as stocks, real estate, bitcoin, and gold, would likely retain value. These assets could perform well even if the Fed and Treasury allowed a Treasury auction to fail, which remains a highly hypothetical scenario.

The Need for Dollar Liquidity

The current fiscal situation, characterized by true interest expenses consuming all tax receipts, indicates an urgent need for additional dollar liquidity. Without intervention, the U.S. could revert to a regime where the dollar strengthens while other asset classes decline, a pattern observed in the third quarter of 2023.

Fiscal Dominance and Market Dynamics

Market behaviors suggest a shift towards fiscal dominance, where Treasury market functioning takes precedence over traditional Federal Reserve mandates concerning employment and inflation. This shift is evident in the performance of debasement trades and asset pairings like GLD over TLT, bitcoin over TLT, and S&P 500 over TLT.

Interest Payments and National Defense Spending

Interest payments on U.S. debt now exceed national defense spending, with gross interest spending reported by the Treasury Borrowing Advisory Committee surpassing other significant budget items. As of early 2023, the 'big three' expenditures (entitlements, defense, and interest) amount to 125% of tax receipts, up from 89% in the second quarter of 2016.

Policy Implications and Investment Strategy

The U.S. government's fiscal position suggests that without a productivity miracle or politically unfeasible spending cuts, the only viable solution is to add more dollar liquidity, possibly through rate cuts or currency devaluation. This informs a macroeconomic view that favors positions in gold, bitcoin, and short-term treasuries, all held without leverage. This strategy accounts for the expected continued volatility in global rates, currencies, and risk assets.

Inflation and Interest Payments

Inflationary pressures may increase as the U.S. fiscal situation compels the Fed and Treasury to intervene in the Treasury market to maintain its functionality. The repo rate spike in September 2019 exemplifies this dynamic, marking a point where fiscal circumstances began to significantly influence inflation trends.

In conclusion, the U.S. fiscal situation, characterized by high debt and deficit levels, poses significant risks to the treasury market and broader economic stability. The Federal Reserve and Treasury are expected to intervene as necessary to prevent dysfunction, potentially leading to increased dollar liquidity and inflationary pressures. This landscape informs investment strategies that emphasize assets likely to benefit from currency debasement and accounts for heightened volatility in financial markets.

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The Federal Reserve has signaled that there will be no interest rate cuts in the immediate future, particularly not by March. This forecast aligns with the inflation model predictions, which suggest a stall in the declining inflation rate. This situation may dampen market enthusiasm, which had previously anticipated imminent rate cuts.

Inflation and Market Response

Inflation, which had been expected to reduce, is now likely to plateau, thereby delaying the anticipated rate cuts. The market's previous euphoria over potential cuts has been tempered by this development. Risk assets, including stocks and high-yield bonds, had reached high levels of enthusiasm, with valuations returning to early 2022 figures. However, the Fed's candid approach, especially regarding a March rate cut, has led to a recalibration of expectations.

Employment and Economic Growth Risks

Despite favorable headline establishment surveys on the employment market, other indicators suggest increasing unemployment rates across states. A majority of states have reported a rise in unemployment over the last six months, presenting a discrepancy with the national unemployment rate. Leading indicators such as continuing claims and temporary employment are on the rise, while the quits rate has returned to pre-pandemic levels.

Interest Rates and Bond Market

The Federal Reserve is maintaining a real interest rate on Fed funds, which poses risks to economic growth. The bond market, particularly the short end, has seen a decrease in yield, yet the market should not expect a rate cut in the next few months. The market had heavily priced in a March rate cut, affecting valuations across risk markets.

Inflation Indicators and Future Cuts

There are some optimistic signs for future inflation trends, such as the Producer Price Index (PPI) remaining negative year-over-year, and import and export prices, which are not subject to adjustments, also showing negative figures year-over-year. Despite this, a rate cut delay is anticipated, and the market is less euphoric as a result.

Federal Reserve's Political Neutrality and Decision Making

The Federal Reserve's decision-making process is influenced by its dual mandate, and although there is speculation about its political motivations, especially in relation to the upcoming presidential election, the focus remains on achieving an inflation rate that approaches or stays near 2%. The Fed's higher-for-longer stance may result in a weakened economy and necessitate rate cuts later in the year.

Commodity Prices and Economic Indicators

Commodity prices, tracked by the Bloomberg Commodity Index, show a protracted downtrend, indicating a possible weak global economy. Geopolitical tensions have not significantly impacted oil prices, suggesting that commodity and oil demand may be waning.

Recession Predictions and Market Strategy

There is an expectation of a recession in 2024, with concerns about the valuation of risk assets and credit markets. The bond market, particularly treasury bonds, may present attractive opportunities, especially if the Fed's policies engineer a lower inflation rate. A defensive stance is recommended, with a preference for cash and defensive bonds as a hedge against potential market downturns.

Banking System Concerns

The regional banking system may face challenges, especially in the context of commercial real estate. Recent issues with New York Community Bank highlight the potential for broader concerns that could influence the Fed's actions.

Deficit and Fiscal Policy

The deficit issue, while not immediately at the forefront of market concerns, presents longer-term risks. Rising interest costs and the potential insolvency of Medicare and Social Security within the decade are serious considerations that could shape future fiscal policy.

The Dollar and Foreign Markets

The dollar is expected to remain stable or strengthen as rate cuts are postponed. However, in the event of a recession, the dollar's behavior may differ from past trends, potentially weakening due to policy responses. India is highlighted as a robust economy with investment opportunities, particularly in its equity market.

Conclusion

The Federal Reserve's stance on keeping interest rates high for an extended period may lead to a weakened economy, potentially culminating in a recession in 2024. Investors are advised to adopt a defensive approach, focusing on cash, treasury bonds, and cautious engagement with emerging markets. The overarching sentiment is one of caution, particularly given the potential for an economic slowdown and its implications for various asset classes.

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In a video published this morning by Porkopolis Economics, Matthew Mežinskis delved into an expansive historical overview of the S&P 500 index, tracing its evolution over an astonishing 220 years. This comprehensive analysis, which pivots away from the more limited scopes typically seen in financial assessments, offers a unique insight into the long-term performance of the United States stock market.

Matthew begins by establishing the historical backdrop for the New York Stock Exchange, which dates back to before 1792, while the creation of indices such as the Dow and the S&P 500 didn't occur until the late 1800s and early 1920s, respectively. The latter is particularly significant as it marked the beginning of a more systematic tracking of market performance.

The pre-1923 data in the video is based on the compilations by Australian researcher Nick Laird, who meticulously reconstructed an index representing the stock market's performance during those early years. Although the dataset excludes dividends, it provides a rare glimpse into the market's long-term growth trajectory.

Matthew emphasizes the importance of using a logarithmic scale when analyzing such extensive data. This approach reveals the market's exponential growth pattern, a consistent upward trend from the lower left to the upper right on the chart. He points out the market's volatility, noting historical periods such as the Civil War and the Great Depression, during which the market deviated significantly from its long-term trend.

A particularly striking observation is that the S&P 500 did not surpass its pre-Great Depression peak until decades later, underscoring the enduring impact of significant market downturns. The video also highlights how the abandonment of the gold standard in 1971 and subsequent fiat money printing appeared to steepen the market's growth curve.

The analysis concludes that while the stock market inherently exhibits exponential growth, it is also prone to sustained periods of volatility. Matthew cautions viewers about the complexities of market timing and the necessity of a long-term perspective, particularly when considering the compounded annual growth rate of the S&P 500, which stands at 3.9% per year without reinvesting dividends.

This reflection on the grand scale of market history not only contextualizes present-day market performance but also poses critical questions for investors about the true nature of stock market returns over the vast expanse of time.

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Performance Review of 2023

In 2023, financial markets experienced a generally positive year outside of the commodity and currency complexes. Notable performances included:

• Equity Markets: The S&P 500 increased by 26%, closely mirrored by the Euro Stoxx 50, up 27% in dollar terms. The Nikkei 225 also saw a significant rise, with a 22% increase, and the Nasdaq surged by nearly 45%.
• Bond Market: There was an unexpected bond rally during the final two months of the year. The Bloomberg Barclays Aggregate Index outperformed, with treasuries yielding 4.1% for the ten-year and 3.5% for the two-year. Investment-grade corporate bonds were up by 8.5%, outperforming treasuries by a substantial margin.
• Currencies: The U.S. dollar ended down for the year after a period of volatility.
• Commodities: Gold and copper were among the few commodities with positive returns, both around 2%.

Recession Indicators and Economic Analysis

Yield Curve Inversion

Historically, a yield curve inversion has been a precursor to recessions. In 2023, the yield curve had been inverted for a length of time generally preceding economic contractions, suggesting a high probability of a recession in 2024.

Leading Economic Indicators

The leading economic indicators have shown a negative trend, with manufacturing weakening followed by a handoff to a stronger services sector. This pattern, coupled with the distortionary effects of monetary stimulus from previous years, makes economic analysis challenging.

Unemployment Rate

The unemployment rate, traditionally a lagging indicator, began to show signs of increasing. Historically, once unemployment starts rising, it tends to accelerate quickly, particularly in the context of recessionary periods.

Payroll Revisions

There have been significant downward revisions in employment data, raising concerns about the reliability of initial employment reports.

Federal Budget and Interest Expenses

The U.S. budget deficit remained high despite low unemployment, diverging from historical trends. As interest rates rise, the federal interest expense as a percentage of tax revenue is also increasing, foretelling potential fiscal stress.

Investment Landscape for 2024

Equities

The S&P 500 reached a double top, signaling a potentially unfavorable trade location. Earnings growth in 2023 was minimal, and there is skepticism about the forecasts for 2024, particularly in the face of a possible recession.

Fixed Income

The credit market, especially high-yield bonds and bank loans, performed well in 2023. However, with the potential of a recession in 2024, investors may need to reassess positions in riskier bonds.

Currencies and Commodities

The dollar's decline could lead to better performance in gold and emerging market equities during a recession. Commodities performed weakly in 2023, which may continue until recessionary policies potentially drive prices up.

Conclusion

Markets rallied in 2023 and ended on a positive note, but leading indicators and economic analyses suggest the potential for a recession in 2024. This looming threat will likely require active management and a strategic response to the evolving investment landscape. Investors should prepare for volatility, with a potential decline in interest rates followed by inflationary responses to economic weakness.

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The holidays are done and inflation is back.

After months of mainstream victory laps – including Paul Krugman's famous "inflation is over. We won at at very little cost" – it turns out inflation's not dead after all. It's not even resting.

As my colleague EJ Antoni put it, inflation ripped the stake out of its chest and loosened a blood-chilling scream.

So first the numbers. The Bureau of Labor Statistics, who lovingly hand-craft our alleged inflation numbers, put out fresh data for December. Saying headline CPI went up at an annualized pace of 3.7%.

That's a problem because it's almost 3 times higher than the previous month -- the month that Paul Krugman was celebrating.

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Worse, the CPI is currently running double the pace of last December -- a year ago.

So transitory is looking a lot longer than it used it.

It's even worse on so-called "core" CPI -- which strips out food and energy. That came in at an annualized 3.8. About a half point higher than the previous month.

Finally, so-called "SuperCore" inflation -- not a joke. Which the Fed pulled out of its hat to strip out housing costs. That one's doing even worse, hitting almost 5% annualized.

That feeling when your fake statistics don't work out.

The problem is none of this should be happening since we've just gone through the most savage Fed-induced credit strangle since the 1970's. In fact, in terms of money supply -- how much confetti is in existence -- it's been the worst Fed-induced credit strangle since the 1930's.

So we've got the creeping recession to show for it -- as everybody, including the Fed, expected. And yet inflation isn't just undead, it's positively rocking the graveyard.

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Why Inflation’s Back

So what happened? Two things.

First, the Federal govt never actually cut spending.

Second, there was so much bank and hedge fund money parked at the Fed that as it drained out -- especially the reverse repo -- that meant there was plenty of money sloshing around Wall Street. It was only tight for the unwashed voters trying to, say, buy a house. Or pay down their credit card.

The federal spending, in particular, has been eye-watering. In fact, just hours after the BLS inflation report, Janet Yellen rolled up with her bag of goodies, reporting the federal deficit for December soared to one hundred and thirty billion dollars. in a single month.

For perspective, the typical budget deficit during the Trump years was on the order of $20 billion. Under Biden it was 80 billion last year, and now it's 130.

And there's still another year to go -- maybe more if the dead vote swings blue again.

Inflation Going Worldwide

Later in the week, we got further confirmation from British inflation numbers, which showed the first rise in almost a year. It's worth noting Reuter's economist survey had expected inflation to go down. Not up.

Throw in rising inflation rates in Canadian and the Eurozone, and inflation is now rising pretty much across the West.

Now, the UK had been a canary in the coalmine since it had gone up so bad these past few years -- even worse than the US. In fact, early last year official food prices in the UK were running 20% inflation.

At this point British food's still running 8%, but the big surprise was evertyhing else: services, transport, recreation, stuff you drop on your foot and stuff you do not.

Air fares were up 60% on the month. Clothes went up when they normally collapse post-Christmas. Live music, holidays, theater — it’s all up.

In fact services rose to 6.4% annual inflation. Which is a problem since they make up the majority of what the British buy.

This mirrors what's been happening across the West. Indeed, that same FT article notes what I've been saying in videos: there's been essentially zero progress on inflation outside energy, which is driven by looming recession and the winding down of Mr Putin's war.

Why hasn’t inflation gone anywhere? For the simple reason that obscene government spending has continued also across the West.

Essentially taking the money they grabbed for Covid lockdowns and recycling it into everything from diversity to global warming to millions of random migrants.

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What’s Next

Interestingly enough, surging inflation hasn't really changed market expectations of rate cuts. That's weird, since normally you'd expect central banks to not cut rates if inflation is rampant.

There are a number of hypotheses why: perhaps, as I've argued, the Fed is so afraid of recession that it'll just let inflation rip to knock down those coming unemployment headlines.

Of course, there's a much darker possibility: perhaps the Fed isn't actually looking at inflation or the economy. Because what they're afraid of is the stability of the financial system itself.

As in, the Fed and its minion central banks are desperate to cut rates even in the face of inflation because the alternative is a financial collapse too big to bail out.

After all, high rates were what crashed all those banks back in March, and they never really fixed it, they just papered it over.

Indeed, the Wall Street Journal notes that most cases when central banks slash rates to the degree markets currently expect are driven precisely by "some form of financial panic."

Central banks across the West – really across the world – have painted themselves into the mother of corners, potentially facing durable global stagflation for the first time in 50 years, this time paired with a financial crisis that would make it a combination not seen since the 1930's.

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Originally published on [_profstonge.com_](After months of mainstream victory laps – including Paul Krugman's famous "inflation is over. We won at at very little cost" – it turns out inflation's not dead after all. It's not even resting.)

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As the festive cheer of the holiday season fades, the specter of inflation looms large over the United States economy. Contrary to the premature declarations of victory over inflation by Nobel laureate economist Paul Krugman, recent data suggests that inflation is far from being a closed chapter in our economic narrative. According to the Bureau of Labor Statistics (BLS), the Consumer Price Index (CPI) rose at an annualized rate of 3.7% in December, a figure nearly triple that of the preceding month and almost double the rate of the same period last year, signaling that the transitory nature of inflation may have been a miscalculation.

The core CPI, which excludes the volatile prices of food and energy, climbed to an annualized 3.8%, marking a significant uptick from the previous month. Even more alarmingly, the Federal Reserve's "supercore" inflation measure, which further removes housing costs from the equation, surged to an annualized rate of nearly 5%. These numbers reveal an uncomfortable truth: despite the most aggressive tightening of credit by the Fed since the 1970s, and the most severe since the 1930s in terms of money supply contraction, inflation persists.

The resilience of inflation can be partly attributed to the federal government's continued robust spending. The federal deficit for December alone soared to an eye-watering $130 billion, a staggering increase from the typical deficits during the Trump administration and the $80 billion recorded last year under President Biden.

This fiscal profligacy, combined with the abundant funds that banks and hedge funds had parked at the Fed, has resulted in a liquidity that is abundant on Wall Street but painfully scarce for ordinary Americans grappling with soaring housing costs and rising credit card debt.

As the nation grapples with the twin challenges of inflation and a looming recession, the path ahead is uncertain. With federal spending at the heart of the economic crisis and the political establishment seemingly indifferent to the fiscal recklessness, Americans are braced for a continued cycle of inflation, recession, and joblessness reminiscent of the 1970s.

For an in-depth analysis of the current economic climate and its implications, check out the latest podcast episode at peterstonge.com. Stay informed, stay vigilant, and see you next time.

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Home ownership was supposed to be the American dream, the thing to which the entire middle class could not only aspire but also achieve. That dream has turned into a nightmare, thanks in large part to the Biden administration and the big spenders in Congress. Now home ownership is increasingly out of reach for Americans.

The Federal Reserve Bank of Atlanta began maintaining a Home Ownership Affordability Monitor Index in 2006 because homes were so unaffordable at that time. The latest reading from that index, which has plunged 36 percent since President Joe Biden took office, is the lowest in its history and indicates record unaffordability. It now takes 44 percent of median income—before taxes—to afford a median-price home.

It’s even worse in several major metropolitan areas across the country. The cost of a median-price home is 50 percent of median income in Boston, 55 percent in Miami, 63 percent in New York, 84 percent in San Fransisco, and 85 percent in Los Angeles. But these are percentages of before-tax income, which means the cost of home ownership in some of those places exceeds 100 percent of net income. “No joke,” as Biden would say.

And it’s not just a problem in a few major cities—it’s everywhere. A recent report estimated the affordability of the median-price home for the average American in 572 counties. Going through the data in the report reveals that homes in 99 percent of the country are below the affordability threshold, meaning that they cost more than 28 percent of a family’s income.

>>> How Bidenomics Wrecked America’s Housing Market

What’s even scarier is that measurements like the one from the Atlanta Fed are underestimating the problem. Their index assumes a buyer has a 10 percent down payment, but most people can only comfortably afford a 3 percent down payment. If the median prospective buyer wipes out all his savings, he still only has enough for an 8 percent down payment.

Putting less down means a larger loan, which means larger monthly payments, which means lower affordability. Additionally, interest rates have continued to rise and are now over 7.6 percent, compared with the 6.8 percent used in the Atlanta Fed’s calculations. Home prices have also risen, and both factors further increase the monthly payment on a mortgage.

How we got here is a lesson in excessive government spending.

During the pandemic, the government spent trillions of dollars it didn’t have and created money out of nothing to pay for it all. In 2021, instead of allowing government spending to return to normal levels, Biden and a spendthrift Congress rammed through trillions of dollars in additional spending while the Federal Reserve continued creating money to finance the deficit spending.

The predictable result was 40-year-high inflation. That sent prices, including the prices of homes, through the roof. Artificially low interest rates compounded the problem by allowing people to take on ever-growing mortgages without increasing their monthly payments. Home prices rose even higher.

But inflation caused people’s real (inflation-adjusted) earnings to fall and forced interest rates to rise. This was a deadly combination for home-ownership affordability.

Lower real earnings mean everyone is spending more on food, transportation, energy, etc., with less available in their monthly budget for housing. At the same time, home prices have been pushed to record highs and mortgage rates are at the highest level in 23 years. At the same moment as people have less money to pay for housing, the price of housing has shattered all previous records.

>>> Biden Is Killing the American Dream of Homeownership

To be clear, the foundation for this problem was laid long before Biden became president. The Fed’s persistently artificially low interest rates have been causing asset bubbles for two decades, and its purchase of housing-related financial derivatives has further buoyed housing prices.

In the years immediately preceding the pandemic, the Fed had begun a tighter monetary policy, which helped blunt the inflationary impact of government spending in 2020. But Biden’s continued overspending, excessive borrowing, and oppressive regulating—along with creating money to pay for it all—gave the problem a violent shove into overdrive.

For example, impractical corporate-average-fuel-economy and heavy-haul-emissions standards—along with higher fees on coal-power plants and leases for oil and gas wells on public lands—have all increased energy and transportation costs, which have trickled down throughout the economy, raising prices everywhere.

Had Biden not imposed these regulations and merely allowed spending to return to previous levels, the problem, and $2 trillion annual deficits, could’ve been avoided. But now we’re trapped in a nightmare it’ll be hard to wake up from.

This article was originally published on Heritage.org

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Japan bonds (JGBs, corporates, etc) have come under tremendous pressure since the BOJ's mild tweak to yield curve control.

Group just clocked the worst 2-day slump in at least 23 years pic.twitter.com/lhkxN2BHJj

— David Ingles (@DavidInglesTV) July 31, 2023

As everyone and their mother seems to be mentally prepping for a soft landing, it seems that things are starting to go terribly awry in the world of sovereign debt. Late last week the Bank of Japan made a surprise policy change and didn't put a confident foot forward when changing the range within which they plan to employ yield curve control. Since the policy change JGBs have experienced their worst two-day slump in at least 23 years and the yen has weakened significantly against the dollar. Reaching 142.5 earlier today. In layman's terms, markets are signsling that the little confidence they had left in the Bank of Japan's ability to maintain the monetary system was just destroyed with this spastic move. This move follows their abrupt policy change around Christmas of last year, which spooked markets at the time.

In a world that runs on a hyper-connected and intertwined financial system where everything everywhere needs to be in place for everything to function properly, the Bank of Japan, the JGB market, and the yen are the canary in the coal mine that signal turbulance on the horizon. And if we pan over to the US, things aren't looking so hot on the sovereign debt side of things either.

Earlier today, Fitch downgraded the US governments sovereign debt rating to AA+ from AAA. Joining S&P which downgraded to AA+ in 2011. Leaving the US with no AAA rating to point at while declaring that it has iron clad credit. While we've learned to be wary of credit ratings coming from these ratings agencies due to their abject negligence and pandering during the lead up to the 2008 finacial crisis, it is safe to say that the US debt situation is becoming impossible to ignore. These agencies tend to be very generous with their ratings. If they're downgrading the US government, you know things have to be pretty bad. Likely much worse than a AA+ status. Just look at how much debt Treasury is looking to take out to finish out their pillaging of the American people in 2023.

The Treasury's new guidance today is that they want borrow

::checks notes::

$1.85 trillion during the second half of this year. pic.twitter.com/zIYTB38oDe

— Lyn Alden (@LynAldenContact) July 31, 2023

If my back-of-the-napkin math is in the right ballpark, we're about to increase the national debt by ~10% this year. Utter insanity. And don't look now, but oil prices have been creeping higher and look like they are about to break out. Especially when you consider the inventory draws we've seen recently.

WTI first consecutive closes over the 40-week MA since July 2022. pic.twitter.com/oGLXTy2lQL

— Larry Tentarelli, Blue Chip Daily (@LMT978) July 31, 2023

Your Uncle Marty thinks the inflation problem is still pervasive, but it will begin to become even more obvious as it will be forced to be recognized by CPI prints because of energy costs rising. Let's hope this superconducter stuff is legit.

I don't think there's anything more attractive on the planet than bitcoin hovering between $28,500 and $31,000. The tremors are beginning to rumble louder and louder, the central banks have lost control of their monetary systems and the governments have absolutely no ability to stop themselves from binging on debt, which makes for a pretty precarious situation. It's not shocking that they want you focused on aliens, climate change, and the latest round of Trump indictments. They have completely lost control of the money behind the scenes.

Final thought...

Headed to the Big Apple tomorrow. Come check out the mining mert up at PubKey tomorrow night if you're in town.

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