maybe it will moon but the Fed will bring it right back.
Expect a prolonged plateau of high inflation and continued rate hikes far into the future until we see major Changes in China’s regime.
Fed goal from day 1 was stated as “we need to reduce consumer demand” – the intent ultimately to reduce demand on Made-in-China products. Demand has remained stubbornly high due to low supplies and a stubborn addiction to Tech.
tools for sustaining a plateau include:
student loan forgiveness
stimulus
minimum wage increase
bank bailouts
debt forgiveness
fed rate hikes
having other countries join in fed rate hikes, minimum wage increase, debt forgiveness, etc.
By reducing the purchasing power of the consumer, we can put pressure on China and make it harder for them to fund their War efforts.
You see, China started the game of “we will reduce supplies to drive up your demand and drain your economy with high costs” so the US is playing the game of “fine, you want to reduce supply? go ahead, we will reduce our demand on Chinese goods, completely if we have to”.
I think you’re giving too much credit to the USA here in their planning.
This interest rate cranking is because of all the money they printed over Covid. Powell said he’s going to make everyone feel pain until we are back at 2% inflation.
Even now due to this bank failure, there is talk that they will only increase interest 0.25% because he realizes if he goes 0.5% something is going to break in this economy.
Same time last year we were at 0.33% – now we are at 4.57%.
I don’t think we will see 22.3% like in 81’ but 10-12% is probably where we end up next year. (if we don’t see regime change in China)
Stimulus is the scapegoat for the rate hikes, but we can see they have been pretty transparent about inflation and rate hikes being related to the US-China Trade War (which is still raging in case anyone forgot)
Yea it’s started when FDIC was created. It became necessary to bail out banks because bank failure starts a domino cascade that can wipe out the market in short order. One reason president Hoover did poorly because he believed in the power of free market, and so he did nothing which only accelerated market collapse.
So the choice is socialism vs complete economic meltdown because of wall street incompetence. Which would you rather have?
What they need to do is rein in wall street and have some heads roll, or else the government will melt down too if they get bankrupted by irresponsible stockbrokers.
This is a bailout no matter how they spin it. The government is taking Treasury bonds at face value which are valued less because of their low interest rates and agreeing to hold them to maturity taking a loss. They will also get the rest of the cash from assessing penalties to the banks. Guess who is going to pay for it in the end. Not the banks. Not the government.
I would add however that the depositors were not the ones investing in Treasury bonds and getting caught. I don’t see why they would need to be punished due to the bad decisions of SVB management.
While I agree it would suck for them, I can’t help but feel that when someone knows there is a depositor limit of $250k and then they don’t take out any additional insurance on the additional risk, it becomes a them problem
Yes, if we are talking about holding to maturity, then at the end you’ll get back the principal and coupon payments, but will the government really hold those bonds to maturity? Knowing how things are though, what will happen is that one day the Fed will be forced to reduce interest rates, and those bonds will gain in value, perhaps exceeding par, and then the Fed will “return” those bonds for par value and not market value.
And then there’s opportunity cost. The government could have bailed out those banks holding bonds with higher interest rates.
My understanding is the bonds in question are three year at one percent. After the SVB debacle I have a hard time believing there will be any market for treasury bonds yielding historically low interest rates anytime soon.
Interest rates were below one percent for a long time, you can not say that no it will never return to that level again. Yes it might take some time, but say we get another 2008/2009 event, interest rates will go down faster than you can say 1 … 2… 3.
I didn’t say interest rates on government bonds won’t go below one percent again. I said it’s hard to believe there will be a market for them if they do after the SVB debacle.SVB lost 2 billion dollars on the sale of 21 billion dollars worth of bonds. If it had just left the money in cash it wouldn’t have lost anything.
Inflation is usually kept at around 3%, I suspect this year it’s going to be a lot higher because I guess Proctor and Gamble wants to make some extra money (in case you don’t know between Proctor and Gamble and Unilever is essentially something like 90% of the market share of food distribution in the US, if not the world).
Unless your stock/bond/savings/deposits can match or exceed the rate of inflation, you are losing money. And the chances of not losing money is down to a decimal point.
1 percent is basically just enough to get you to put money into it, but not enough that you’ll actually gain anything. In fact you are losing money in the long run.