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2021-11-23 07:00 by Karl Denninger
in Federal Reserve , 586 references Ignore this thread
So Powell It Is
[Comments enabled]

Biden has chosen, and Powell will be re-nominated for a second term.

Yes, the same man that has sent prices skyrocketing by backing Congressional "dump credit and pray" policies.

Of course he's popular in Congress, with good cause.  If he had said "Go to Hell" instead the choice would be 6% interest rates at the short end or Congress would have to cut it out.  I remind you that a 6% short term interest rate means about 8% on the longer end of the curve, mortgage rates about the same and the ability of the US to continue to fund its debt binge gets cut off.

So what now?

Well, the same choice is still there.

But there's a problem with going along with it beyond his confirmation, which I expect will be a perfunctory matter: If he doesn't tell Congress to go to Hell in the coming year inflation risks getting wildly out of control on a feedback basis, at which point he and Congress both get riots and possible civil unrest at a level that cities burn.  If he does tell Congress to "go to Hell" then he gets all manner of finger-pointing, the market stops playing "nice" for indebted companies (that's most of them), the scam-someone firms (that's a lot of them) blow up entirely and the Democrats lose half their seats in the midterms.

I love watching someone sit on their own pile of logs that they doused with gasoline while people walk by and flick cigarette butts at them.

Sooner or later someone's going to flick one that still has hots on the end of it.

Here we go.

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Themortgagedude
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Who the **** would want the job?

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I think its time we ask ourselves if we still know the freedoms that our founding fathers intended for us. Ronald Reagan 1964
Blanca
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@tickerguy
Do you have any thoughts to share on the red-hot, crazy housing market and the impact of the need to raise interest rates? Would Powell do this and risk popping the real estate bubble?
Stalag13
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Great excuse for a cigar.

As many people peeped about natural born citizen for Powell as they did for Harris during a recent 85 minute interlude.

Thermal runaway inflation style can get nasty ...

Edit: Orange County CA declared BK due to rogue bond investments by Tax Collector Bob Citron in mid 90's ... the volatility was tame compared to what it would take to get back to 6%+ (chart is 10 yr US Treasury). I always thought it was amusing to write Property Tax check to Bob Citron instead of Orange County. I don't know if raising Income tax across the board by any interest increase would be an option if the rates ever creep back up.
Inline

Reason: Bob Citron
Flappingeagle
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Heres how I see it.

The Fed does what congress wants it to do. If the Congress wants more money, the Fed makes it happen. If the bankers need a bailout, if congress approves (which I am not sure requires a vote, just the approving nod of leadership and the president), the bankers get a bailout.

Now we get to interest rates. Rates will not be raised unless we get leadership in the Oval Office and maybe congress that says raise rates. Carter, after having seen Johnson(?), Nixon, and Ford fail at controlling inflation not only approved of, but told Volker to raise rates and get inflation under control. Do we have someone with that much moral character today? I doubt it.

Going off on a tangent here, what made Reagans deficit spending possible? Carter being willing to take it up the ass for the benefit of the country.

Back to raising rates more than a token amount. I dont know that you can do that without detonating the whole country. Everything is swimming in debt except for a very few businesses and individuals. By everything, I mean: corporations, individuals, state, and local governments. They have all borrowed too much money and made too many promises to weather an increase in rates.

Now, I cant say all of the above without a prediction of how the future plays out. I predict that rates will stay low and that congress will continue deficit spending with one story for the public and another story for behind closed doors. The behind closed doors story/discussion will be: what is the appropriate level of deficit spending to keep the party going and under control. That will be the strategy going forward until it fails.

Flap

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Here are my predictions for everyone to see:
S&P 500 at 320, DOW at 2200, Gold $300/oz, and Corn $2/bu.
No sign that housing, equities, or farmland are in a bubble- Yellen 11/14/13
Trying to leave the Rat Race to the rats...
Zappafan
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Meh. I was rooting for Hot legs Brainard.

If we have to endure more lies about inflation, we would have at least had a nice view of her landing gear.

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The illusion of freedom will continue as long as it's profitable to continue .. @ the point where the illusion becomes too expensive to maintain, they'll just take down the scenery, they'll pull back the curtains, they 'll move the tables & chairs out of the way & you'll see the brick wall at the back of the theater/FZ
Cmoledor
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Morning Karl and homies. Welp. Since I dont fully understand fiscal policy in the US ( by design I would imagine, although Im doing my best to change that by learning what I can) Im going to place my bets that Karl is correct.

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The whole world is one big ****ing scam
Why are you giving a vulgarity warning here? Our genial host is an advocate of both skull****ing and sodomy via rusty chainsaw. Credit to Rollformer
Clay3482
Posts: 1238
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Alaska
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Flap

That can't happen. As our host pointed out, if they keep rates low and continue to allow the exponential growth of our money supply then inflation will rapidly approach double digits, which with the stimulus already signed is almost guaranteed.

The choice is simply

1 keep going down the current path and have 10% to 20% inflation which causes business, and the average Joe to go broke, homeless, and hungry

Or

2 raise interest rates, as will have to happen if the fed continues to taper its qe by looking at the last few Treasury auctions, which will cause a whole lot of business and people to go broke, homeless and hungry.

Either way it's going to be bad. Gotta figure out which group to protect. The few thousand ultra rich or the 300 million average Joe and Jane.

The amount of time left is very short.

The era of procrastination, of half-measures, of soothing and baffling expedients, of delays is coming to its close. In its place we are entering a period of consequences.

Winston S. Churchill

Kgmqt
Posts: 236
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Minnesota
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Quote:
If he doesn't tell Congress to go to Hell in the coming year inflation risks getting wildly out of control on a feedback basis, at which point he and Congress both get riots and possible civil unrest at a level that cities burn.


This is what drove Arab Spring - mostly food inflation. We have already started to see it here, but in the US there are a number of shock absorbers in the system. During Arab Spring when the price of grain went up 30% it was a direct pass through to many low income people. They buy grain, not a box of cereal. In the US that box went from $3.75 to $4.

The US spends much less on food as a percentage of income than other countries and has a number of 'programs' to help the low income. This allows the price of food to float up without a huge impact to the poor, and those above poor can absorb it.

We also have a much larger diversity of food options in the US. I could buy that box of cereal, or I could buy the raw grains, or I could swap it out thousands of other products. There is always a cheaper option. We have seen price shocks on a number of products. Right now it is bacon and other pork products. Earlier this year it was chicken and chicken wings. There was a stretch when eggs were in short supply. But right now there is a glut of turkey because they were produced for a normal Thanksgiving but many families are not participating because they are scared. Filling up the freezer with $0.49 cent turkey stretches the budget.

We really got lucky this year crop wise. There were a number of areas with drought that got some late season timely rains. CA has gotten some rain to help with produce.

At some point the shock absorbers are no longer going to have room to absorb any more. If people do not have access to cheap food there will be riots. Hungry people get pissed off very quickly, and hungry people with hungry kids get pissed off even faster. They will get desperate and be looking for people to blame. Those SF looting the other night will be nothing. The poor will strip the stores clean. Those with means will not have anything left to buy.

Dingleberry
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I've always maintained the Fed doesn't care about inflation until wages start to rise significantly.

Actual inflation measurements are nothing but manipulations and lies.

But wages are much more difficult to obfuscate.

Once that happens, inflation is suddenly a "problem" and the Fed will be called on to "act"!

We are truly living in clown world. You can now get a mortgage for half the "official" rate of inflation, and the real inflation numbers are easily 10%. I've already got increases for some of my bills for that much and more.

If you can reasonably expect a decent annual COLA or pay raise, you would be enticed to take on more debt as inflation will eat some of it away, perhaps a lot.

Or you can save your money and watch it burn away due to inflation.

Hang on kids. It's gonna be a bumpy ride.



Susanlauren
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Do I understand this correctly - if the Federal Reserve raises rates, the government can't borrow and can't keep spending because of the cost of interest. If the Federal Reserve keeps interest rates low, the government can keep spending but eventually hyperinflation bites us all in the ass. Does anyone here think any of these debts (i.e., individual, corporate or government) will ever be repaid? They will print until it implodes. Then what? My bet is then they take us to war. Or there will be some other major world distraction or event. One thing is certain - tough times are ahead and the standard of living we have now in the USA will not continue.
Tickerguy
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One problem with trying to game this with mortgages (and lots of people do and think they're "winning") is that, as my parents found out, the property tax increases that come with increased "valuations" eventually ruin you. It takes 5-10 years to get you, but get you it will, and when it does you're ****ed as the so-called "value" of said house on resale gets destroyed, low mortgage rates or no.

Their timing was ok in that they both died before it blew up in their face, but it was in the process of doing so when my mother passed. Had she lived another couple of years she would have been ****ED. Shaving it that close is only ok if you're prepared to suck-start something when it all comes apart on you.

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Themortgagedude
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They have to get the supply chain in order. They should have military at the shipyards. There's no way to continue to run product shortages with extra cash in the market without continuing runaway inflation. This includes the energy markets.

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I think its time we ask ourselves if we still know the freedoms that our founding fathers intended for us. Ronald Reagan 1964
Themortgagedude
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I'm looking at a home purchase in my hometown. $58K needs updates. Great 2 car oversized garage. 2 br 2 ba. Rock solid house. If I do the work myself I can be in for under 70 on a heck of a house. If I borrow the whole $58k and carry a mortgage my escrows will be higher than my P an I.

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I think its time we ask ourselves if we still know the freedoms that our founding fathers intended for us. Ronald Reagan 1964
Tickerguy
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@Themortgagedude -- The problem isn't at the shipyards. It's everywhere.

You can't fix it with the military as there aren't enough military. As I've pointed out unloading containers from ships that have no way to immediately get them unloaded and back to the ship at their final destination is pointless since without an empty to put BACK on the ship you cannot close the supply loop, and you MUST close it in order for more supply to come in.

Fuel inflation makes all of this worse by far, and we're EXPORTING oil and refined products! That's nuts. See the "53 cents/mile" thing on the back of truck trailers? That's nice. At $4/gallon for diesel and 9mpg on said truck down the highway mind telling me how much, after fuel, is left over to pay for the truck, the tires, maintenance on said truck (e.g. oil changes) and similar, never mind something for the ass sitting in the seat?

That would be a negative rate of pay my friend, so how many people do you think want to drive a truck at that price?

Uh huh.

The military cannot solve a problem caused by excess credit emission. Only stopping the bull**** that led to the problem in the first place helps, along with ban-hammering the sale of US resources overseas into the maw of said higher prices, which companies love but are doing so at the expense of the common person trying to buy a dozen eggs.

Oh, and while we're at it? Keystone and now Line 5. Line 5, I may remind you, supplies about 40% of the PROPANE used in rural Michigan. Go talk to the people THERE about what happens in the middle of the ****ing winter when they can't get the fuel for their heating plant. SOME have wood for backup (good!) but many have removed it because the impact on insurance is insane and in the days of nice, low prices for propane well......

Yeah.

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Onething@atime
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I don't want to hear any complaining about gasoline prices from people who voted for Biden.

You broke it, you bought it.

Or maybe it's the other way around...

Reason: I had a second thought. Imagine the possibilities...
Prof_dilligaf
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Well, then, it's civic unrest then, since the latest "solution" to skyrocketing energy costs is, wait for it . . . releasing less that 3 days worth of oil from the SPR, which won't even deliver the "temporary relief" they're claiming.
Tickerguy
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Yep. He makes the announcement and oil futures go..... UP.

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I don't give a flying **** if you're offended.
Ahhz
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Tickerguy wrote..
Shaving it that close is only ok if you're prepared to suck-start something when it all comes apart on you.


yep, wait for option 4 to be explained:



Redjack
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Iowa
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Just got my tax increase from my house in Iowa.

Smaller house, 1280 Square feet. Bought in the $130K's, now valued at $200K (the assessor used the ZILLOW assessment).

I challenged it, but well, my town has a bunch of new housing developments going up with property tax deferrals, and they have to make the money somewhere.

It isn't that much, but it is the principal of the thing. My tax bill is getting higher, and the services are declining. The town just sold the sewer system to Iowa American Water, because they blew the last 40 years of tax revenue on stupid crap and now he sewers are collapsing. So my water and sewer bill are three times what they were two years ago. Voted the whole lot out, and half the council now works for IAMW.

Small town politics is the same as national politics, with much smaller dollar amounts.
Augeries
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North of Boston, but not North enough.
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Hmm well I'm glad I've got a backup wood stove. Also I just picked up a truckload of split wood from the side of the road, plus the owner came out to offer me a whole other tree he hasn't cut up yet. Ok guy, I'll take it. Might save my ass this winter or the next...

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I'm Team Virus. It Deserves to Win.
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Themortgagedude
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I'd just rather see the military at the shipyards and delivering the goods than not. Consider it logistical training.

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I think its time we ask ourselves if we still know the freedoms that our founding fathers intended for us. Ronald Reagan 1964
Tdurden
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@Clay3482
Quote:
Gotta figure out which group to protect. The few thousand ultra rich or the 300 million average Joe and Jane.


We have (at the very least) a 13 year track record of obsequious devotion to one and sneering contempt for the other.

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"I'd like to live just long enough to be there when they cut off your head and stick it on a pike as a warning to the next 10 generations that some favors come with too high of a price." -Vir Cotto Babylon 5
Bzelbob
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Jacksonville
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@Susanlauren
Quote:
They will print until it implodes. Then what? My bet is then they take us to war.

In that vein, I would observe that bringing a large chunk of military forces home from Afghanistan was most likely not done just on a whim.

Like the shots, like the pipeline, like everything POTUS has done, it was rushed. Almost as if there was a plan...with a timetable.

Winter is (still) coming. Hold Door!

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"Threats are illogical. And payment is usually expensive." - Sarek of Vulcan
Disgusted
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The cowards always choose the path of least resistance and kicking the can just a little further down the road. If anyone thinks that they will raise interest rates any more than a token amount, you're delusional. The whole thing would crash in record time. It's going to be kick the can and huge inflation. Inflate or die immediately. That means an even bigger hyperinflationary collapse later. Maybe that's why they are trying to kill off half the population. Less people to riot and kill the ****ers that caused it all. We've crossed the debt spiral line a long time ago, and there is no stopping the death of the dollar now. The maniacs are going to get a "great reset", just not the one they were trying to accomplish. It's going to be interesting to watch the parasites lose it when their EBT cards won't buy anything anymore. DC, Chitgago, and NY, will look like they would after a few hydrogen bombs go off. Some of my former friends used to make fun of me calling me a God, gold, and guns conspiracy guy. Pretty sure they are going to eat those words.
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