The Great Unwinding

[CptTrips]

If we have a stock, bond, and real-estate crash (everything bubble), why not quickly increase money supply by 555%, print a fresh $100 trillion?

Because the Fed wants those asset classes to crash (now) as well as a recession to destroy demand through destruction of wealth effect so they can cool inflation without having to raise rates enough to blow up the national debt payments. 

Also a recession causes unemployment which helps easy the tight labor market which also helps cool inflation without having to rely on rate increases alone.

The Fed "Put" is dead until inflation is tamed.  Let the slaughter begin!  (Says the guy shorting the market. )

[CptTrips]

Japan has been printing money and using it to buy government debt for decades.  They have not had gargantuan inflation -- at least not yet.  No one is sure why.

Population aging\crash is my guess.  They are deflating through population decline as fast as they are inflating through printing.

[decoy]

I feel the same. Big crash coming.

But if the feds print 100 trillion, wouldn't that just make inflation get much worse?

Bingo, Gina.  What we're seeing right now is called Discretionary Bias Inflation, which occurs when you have massive amounts of discretionary spending (in the current case, all those economic supplement checks, extended unemployment payments, all in connection with the pandemic) without a subsequent rise in the cost income.

Discretionary spending, in households, is the money that household spends after necessities have been taken care of.  In government, discretionary spending also includes maintenance of monuments, national parks, gov't grants to every special interest group that can afford a lobbyist, and such.

Now we have to visit the barber shop to split a few hairs.  The Federal Mint prints the money, the Federal Reserve controls the money supply.  They do that by raising and lowering the prime rate, which is the rate Fed banks can borrow money from the Fed.  The importance is that all loans by your local banking company are tied to the Fed rate.

I can keep going, but that's the meat and potatoes.  I will say that the terms for the members of the Fed are fourteen years.  It was set up in that way so that the members wouldn't play partisan politics with the money supply.  Not sure that's working these days.

[Brooke]

Because the Fed wants those asset classes to crash (now) as well as a recession to destroy demand through destruction of wealth effect so they can cool inflation without having to raise rates enough to blow up the national debt payments.

I agree that the Fed wants a crash.  To close wealth disparity a little and take a chunk out of inflation.

But then I think they will print $100 trillion and get back to monetizing debt. 

Because if they don't, the US can't pay its debts.

So, crash (for a year or two), then back to monetization and huge inflation.

I don't see how we can avoid big inflation in future other than outright debt default.  Nations don't pick outright default if they can inflate it away instead.

[Brooke]

Population aging\crash is my guess.  They are deflating through population decline as fast as they are inflating through printing.

I think it's basically that.  Or the same thing expressed more quantitatively:

[CptTrips]

I think it's basically that.  Or the same thing expressed more quantitatively:

(Image removed from quote.)

And they are trapped.

For whatever reasons, all developed nations show the same trend in that as the populations become better educated and more affluent, and more of their wealth is generated as non-farm labor, the marriage\birth rates decline.  WE just don't live on farms anymore and so don't need to breed our personal supply of cheap labor, and we have institutionalized retirement system so don't need to breed a gaggle of offspring to support us in old age.  The US is on the same trend, just a shallower slope. 

However the US has a super-power in that if we need more young, motivated workers we can simply import them through immigration.  There is not shortage of applicants and we can afford to take our pick of the best.  We've done it before in our history.  The West was won mostly by immigrants not native born.

Japan however, for various cultural reasons, would never allow that in any material numbers.  So their demographics are their inescapable destiny. 

Will the last elderly Japanese gentleman please turn off the lights on your way out.

If you want to bake your noodle watch this guy's lectures (if he is right, China and Russia are fq'ed long term):

[decoy]

I agree that the Fed wants a crash.  To close wealth disparity a little and take a chunk out of inflation.

But then I think they will print $100 trillion and get back to monetizing debt. 

Because if they don't, the US can't pay its debts.

So, crash (for a year or two), then back to monetization and huge inflation.

I don't see how we can avoid big inflation in future other than outright debt default.  Nations don't pick outright default if they can inflate it away instead.

I want to respectfully disagree with the idea that the Fed wants a the market to crash to close wealth disparity.  Here's why...

Wealth disparity is a talking point of the liberal left.  The Federal Reserve Board (the Fed, which is not the same as the Federal Government - I apologize if I seem condescending) members are appointed by the president and serve 14 year terms.  Doing the math on that will show that any appointees between 2008-16 will be coming off the Board between now and 2030.  That means that some of them would have to live with the consequences of their actions (or resign) for possibly eight more years. 

Also, once a member serves a full term, they cannot be reappointed.  Someone appointed to fill an unexpired term may be reappointed, but that doesn't happen much.

Keep in mind that the Fed was created to avoid another market crash similar to the one in 1929. 

I'm trying my best to keep my points non-political, but if a party in power, not necessarily the one in power now, wants to flood the market with money, there are other ways to do it than by trying to influence the Fed.

As for the U.S. paying its debts, it can't and never will.  Here's the best and easiest example to prove that point.  If you have a landline telephone, and not that many people do anymore, look at the last bill you got.  There's a Federal Excise Tax, which in our case, generally amounts to between $.26 and $.30 every month.  That tax as implemented by Woodrow Wilson and is used specifically to pay off the debt accumulated by the United States in WWI.  His reasoning was that, since the 'poor' people had sent their kids off to fight the war, the 'rich' people (those with telephones) should pay for it.  And we're still paying for it.

The problem I have with the Fed is the same problem I had with them in 2008, when they dropped the prime rate to 0%.  Since controlling the prime rate is the only way the Fed can control the money supply, once they get to zero, they can't do anything else to increase the money supply.  To restrict the money supply, they can always raise the prime rate, but it never goes much higher than 5.5 or 6%

Sorry.  I didn't mean to deliver a lecture.

[-gg-]

do land prices drop during a real estate crash too? I want to buy at least an acre of land with power to or close to it.

[CptTrips]

Michael Burry of Big Short fame (played by Christian Bale).

Just as a data point for consideration.  Neither endorsing nor disputing....

[CptTrips]

do land prices drop during a real estate crash too? I want to buy at least an acre of land with power to or close to it.

I'm no expert on that.  I suspect it will to some extent as a part of the general "Risk Off" environment. 

If you are talking raw, unimproved land with no house on it, that is really a completely different beast than land with a house.  You might have trouble getting a loan as banks consider raw land a speculation asset.  A lot of land sales have to be owner financed.  THe interest rate might be higher than land wit ha house on it because banks don't consider raw land good collateral.

When I was looking for my land I found this book had a lot of good general info for a newbie that had no experience.

https://www.amazon.com/Country-Property-Dirt-Cheap-Inexpensive/dp/0945959524


I ended up going a totally different route by getting land through the Texas Veteran's Land Board.  Twice a year they have an auction where properties vets had purchased through the program and eventually defaulted on are re-sold.  The first auction is limited to vets only and the second auction is open to the public.  I won my bid on the first auction.  What was great about that program was I'm sure I got it under market value (less investors/brokers to compete against in the vet only auction) and also didn't have to put any money down.  I just had to start payments (30y loan).  That gave me free cash to start building right away.  I paid it off in 8 years.  I hate debt.

[Brooke]

do land prices drop during a real estate crash too? I want to buy at least an acre of land with power to or close to it.

If there is a large market crash, I would think land will go down in price some, too.  But land prices are less volatile usually than house prices.  It can depend on particulars of the land and the local situation.

One thing to keep in mind is that none of this stuff of crashes and future inflation is provably certain.  This is guys, including me, discussing opinions and gut feel.

Also, if you get a lot of utility or enjoyment from it, that can override short-term fluctuation in prices.

[Brooke]

I want to respectfully disagree with the idea that the Fed wants a the market to crash to close wealth disparity.  Here's why...
Wealth disparity is a talking point of the liberal left.

Communists believe that all wealth disparity is bad.  But like many things in the universe, some types are good, and some types are bad.

Good wealth disparity is a result of a free market.  People who make stuff people want get paid more than people who don't.  It is a productive motivation and leads to better quality of life on average over a whole society.

Bad wealth disparity is a result of a government gifting huge amounts of free money to favored classes of people.  That enriches some groups at the expense of others, based solely on their relationship to the government.  That contributes to instability.

Keep in mind that the Fed was created to avoid another market crash similar to the one in 1929.

The Fed was created in 1913.  The Fed didn't avoid the 1929 crash, or the resulting Great Depression.  And market volatility has been higher post Fed than pre Fed.

How can that be?  It's because economists cannot predict the market.  So if they are part of a control system on the market, they can be adding volatility, not reducing it.  It doesn't even require ill intent.  They can have the best intentions for the long-term future of the US economy and still mess it all up.

It has given us this sequence of events:

-- Currency crisis of the 1990's
-- Fed pumps in liquidity
-- Money goes into new hot thing -> dot-com bubble
-- Fed realizes the bubble is out of control -> starts to remove liquidity
-- Dot-com crash

-- Fed pumps in liquidity
-- Money goes into new hot thing -> mortgage backed securities/real-estate bubble
-- Fed realizes the bubble is out of control -> starts to remove liquidity
-- 2008 crash

-- Fed pumps in liquidity.  Also, Covid fubar crisis.  Fed pumps in gigantically more liquidity.
-- Money is so huge that it goes into everything (stocks, bonds, and real estate) -> everything bubble
-- Fed realizes the bubble is out of control -> starts to remove liquidity <------ We are here right now

As for the U.S. paying its debts, it can't and never will.

I'm talking about the US paying the interest on its debt, not repaying all its debt down to zero debt.  The US will never have zero debt, as you say.  But it has to pay the interest on that debt, or it is a default.

[on motivations of the Fed]

In addition to the above dynamic, I'm sure the Fed knows that it cannot keep interest rates high for too long, or the government won't be able to pay interest on debt.  Yet the Fed has a window to try to correct the bubble and battle inflation.  After the bubble is reduced and inflation is reduced, then they can reduce interest rates.  If they are lucky, it goes like this:  Bubble fixed.  Inflation fixed.  Bad sort of wealth disparity reduced.  Then interest rates can go down.  Government can pay its interest.  GDP goes back to growing in real terms.  Nation grows its way out of debt problem.  (I'm skeptical that this Goldilocks path will play out completely, though.)

Or, one can believe that the Fed has dark motivations.  Creating a money pump to transfer money and control away from the plebeians and concentrate it into the hands of the plutocrats.  Your cronies get into the market.   You pump it.  Your cronies get out of the market (maybe even go short).  You crash it.  Repeat.

Both interpretations -- (1) good intent but blindness to the folly and (2) dark designs (or even a mixture of both) -- give the same result.  So it is hard to know which it is based only on action and results.

to flood the market with money, there are other ways to do it than by trying to influence the Fed.

Not when it's increasing the money supply from $1.4 trillion to $18 trillion.  That requires a country's central bank (the organization in a country that determines money supply).  The Fed is our version of a central bank.

Anyway, nothing I'm talking about here is different from one party to the other.  It's just history and economic reality.

[Eagler]

As shown they discovered the bubble and bust cycle a couple of cycles ago..

Each one is worse than the one before it..

They need to refill their quiver - They need the higher interest rates and QT just to lower the rates and print new money out of thin air (QE) when they have caused enough pain to so called "pop the bubble "

Problem is they don't cause/allow enough pain for it to correct far enough to remove the bloat they caused in the previous bubble to be completely removed.

And they can't stop themselves from ruining the money supply by printing $$$$ and giving them out at lower and lower rates...as the next bubble grows.

We had a great opportunity to correct most of this in March 2020 but instead they used it as an excuse to make it much worse..

Eagler

[decoy]

do land prices drop during a real estate crash too? I want to buy at least an acre of land with power to or close to it.

A real estate crash is possible, but not one like the housing bubble burst of 15 years ago.  Take a one sentence look at the market crash on Black Monday.  People owed more money on stocks that they had bought on the margin, and when the margins were called, they defaulted, and the market tanked.

My Daddy, who was born on Oct 27th, 1929, two days before Black Monday, grew up in the depression and never lost his fear that it would happen again.  In the 1970s, farmers across the nation were borrowing money to buy land at ridiculous prices. Farmland that was worth $300/acre was being sold for $1000/acre.  Daddy was afraid those debts would be called and farmers would default, causing a similar drop in the economy to the effect on Black Monday.  In the last fifty years, though, that's a lot more stable than it was.

As for me, I can't tell you what small plots are going for these days because my wife and I have what we want and we're not looking.  But generally, in rural property, the smaller the tract, the higher the cost per acre.  1000 acres of timberland will sell for $2000/acre while a 5 acre undeveloped residential site will go for $4500-5000/acre.  But that's south Georgia.  I'm guessing you're not looking for land in south Georgia.

[CptTrips]

Saw this chart on the latest Wealthion Q\A video:



I think it is a great illustration of sucker rallies and how smart-money harvests multiple crops of muppets all through a collapse.

Not that sucker rallies can't be traded to unload additional risk along the way, but be carfeful.