KD wrote..
What's the cause of all of it?
Deficit spending.
That is almost the exact cause. Government expansion is the cause, just like the 1960's-1970's. Deficits are the symptoms. The government is throwing money down the toilet and destroying capacity with regulations. Some of this was sowed by Obama, not unwound by Trump and accellerated by Biden. The Republicans won't fire Santa Claus. Think the alien flow is reducing pressure on required costs?
There were some things I could see in the early 1980's. One was the nature of the tax schedules present in 1980. Government had incentive to inflate, because the income tax code produced higher tax rates with higher pay. The Reagan tax cuts stripped away this hidden tax increase and deficits became permanent. The difference was there was no delusion you could keep spiraling spending. Taxes go into costs in the private sector. So do regulations. They never cut spending, but the rate of growth and every nutty idea of government wasn't installed.
The eye opener for me was when I bought a book by Irwin Schiff that had the budget spending and receipts for the government from 1960 to 1975. I did a projection of the trend and it produced $1 trillion deficits by 1991. The $300 billion we got with the S&L bailouts was shocking and so was the first trillion dollar one around 2008 or 2009, but it was delayed nearly 20 years.
There was one other thing that blew up the 1980's deficit, financing costs. Long term rates doubled and stayed high for years. I believe the Fed was over restrictive in the 80's. Not at the start, but by 1985, funds rates should have been brought down. I don't believe we ever saw a funds rate under 7% until around 1991. Maybe they needed to send Congress a signal, but the move down in the 1990's produced a bubble and excess demand that went out of the country. Investment didn't work with 10% rates. Real Estate imploded and the short cut Congress took to cover up the bankruptcy of S&L's failed massively. There was a demand that couldn't be financed and I believe the housing bubble 20 years later had its roots in this period.
I was in the residential business back then. I was more interested in financial programs than selling houses. I can tell you the typical homebuyer is stupid and their agent is even more clueless. ARM's were the name of the game back then, because rates had to go on a downward trend. The best ARM ever created was the original uncapped 1 year that gave an option to limit P&I increases by 7.5%. The margin above treasury was 1.5%. People wouldn't buy it, because the crooks created monster out of the structure, put in a bought down rate and a 3% margin. Now, if the treasury is 10%, the internal rate on one is 11.5% and the other is 13%. One costs 1.5% up front and the other 3% to get 10%. To get 10% on a fixed cost you 5.75 points, went to 11%, 12% then 13%, giving about a 25% increase in P&I by the 4th year. The subsidy was spent up front and included in the price. If you couldn't pay the increase, effecting a sale in a bad market was not easy, especially with the purchase price padded to include buydown. Then the house might not appraise. Point being the second option already had negative interest in the price, nearly 4% above the first. What people ended up taking were high fixed rates or ARMs with caps and 3% margins. Who could pay 3 successive 2% interest increases, paying 1.5% for the privilege? They were priced to almost guarantee the first increase.
I had an ARM with a 2.25% margin. The real estate agents were clueless what that meant. I could draw them a picture. The start rate was a little higher, but the adjustment was eventually going to produce a 3/4% lower rate permanently. If I had a choice, I would have bought the one with no caps that had the capacity to immediately meet a sizable decrease in rates.
The point of all of this is we are seeing the same game, second verse. We actually have a man in the White House who participated in creating the last mess. Instead of war on poverty, he is running a war on energy, small business and the Bill of Rights. It is a hell of a note they called the looting of the treasury the Inflation Reduction act, when it should have been labelled the Inflation Sustaining and Energy Reduction Act. The bastards stole a trillion dollars upon Biden entering office, took it out the next year and claimed deficit reduction, only to put this trojan horse in to permanently fuck up the system. We haven't seen the electricity bills or the economic limitations they are creating, using our own money to create an emergency.
Today, I wouldn't buy an ARM, because the trend has reversed. The Fed can't do QE this time or they blow the top off inflation. Just like the 1970's, the government is financing counter productive functions. They can twist the narrative all they like, but they can't defeat math and economic responses. Destroying the energy structure and spending trillions on something that can't work and will waste massive resources is akin to feeding cattle so they can shit. They have broken the financial model, giving an immediate $1 trillion cost of financing the debt and this dog won't hunt for long. They are doing this on purpose. The stealing has just begun when we think its already obscene. Whose living standard is going to reduce, DC's or ours? The shit sandwich is in front of us and they are making another. I think they should eat it or we abolish them.
The only function of economic forecasting is to make astrology look respectable.---John Kenneth Galbraith
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