There is a general insanity premium. Not sure how you make this dense stuff so readable but I'm glad you do. Also glad that you no longer have to satisfy the minders at the NYT and are able to let loose. The world is better for it.
Trump is barking mad and watching everyone running around pretending that this is normal and sane is hilarious. Like crowning a rabid monkey king and everyone is trying business as usual as it throws its poo at anything that moves.
Hilarious, and exhausting. I'm about to use my mom voice on a few people. It's become clear to me most of them are hanging around for their opportunity to cash in. They want a gig, a deal, an ambassadorship, a reality TV show, a state office, some insider trading info, something for sacrificing their reputations and for some, selling out their souls.
Occam's Razor answer - Bond Vigilantes!!!! The Fed does not control the 10-year rate and there are lots of things such as home mortgage rates that are pegged to this. The call of extension of the 2017 tax cuts along with doing away with the debt ceiling will lead to massive deficits going forward. These will need to be funded with more bond sales by the Treasury. Big question is who will buy these? I can see China (in the past a big purchaser of US debt) refusing to do so as a trade war escalates. Social Security and Medicare Trust Funds are spending more than they take in right now and will not be a net investor in US debt unless things change.
After a lot of years of waiting for the Bond Vigilantes to strike, we may now see the reality of the peril. Of course, there may be an embrace of Modern Monetary Theory which makes this all magically disappear, but I doubt it. High interest rates will not be good for the Trump Administration. He claimed to be the King of Debt Financing when he ran in 2016, but one look at his business failures belies that statement.
I think that mortgage rates are a middle class problem. Wealthy people can afford to buy a home, and lower income people are not even in the market (except perhaps for the knock on effect on rents). I get it. I'm an aging curmudgeon, whose first mortgage was at 16.25% (RIP Jimmy Carter, a good man), but I believe that the rate that should get more attention is the one on credit card balances. I did a 15 minute search on the internet, so my data points may be a little fuzzy; however it seems to me, looking at default rates and the cost of short term money, that the banks, as they say, are making bank on credit card balances. And who carries those balances, but the very people who need the most relief from inflation (such as it may be). So I say, regulate the hell out of the credit card companies to bring down inflation in that particular market. And yes, I fully understand that the incoming wrecking crew will probably not take my advice, but a guy can dream...
We should have a no interest loan for houses that cost less than median value of a house. So the mortgage interest deduction isn’t going to help lower class Americans and believe it or not quite a few cities have nice houses for under $200k. So basically a family could buy a house in St Louis for less than renting it if we had a no interest loans. Just require 5 years living in it before selling or renting and only one of these loans at a time and one shot at no down payment. And if they get a better job and have to move walking away from the house is still better than renting and with the better job they would have down payment money for next time.
It’s tricky, though. Cap credit card interest rates and borrowing will increase proportionally. What about approaching the problem from the other direction and reduce the need for borrowing by putting more money in people’s pockets?
Stock traders, up to this point anyway, seem to be anticipating that Trump will do the things he says he'll do that they like, and won't do the things they don't like. When he actually does things, I suspect there will be some sort of correction. Of course bond traders don't ever like nuttiness, because they have such limited upside, so the more of that we see, the higher rates go until we get an actual economic slowdown. But what we will actually get, I doubt even Trump knows.
Two things that I've mentioned in previous comments:
1. Keep a weather eye on Treasury auctions. The primary dealers do not have nearly enough capital to absorb all the debt issuance. In my opinion, a failed auction and a spike in long to intermediate rates is very likely.
2. No-one talks about the dollar which is near its highs. The Euro is almost at parity and the Brazilian real has cratered. I have to look into it further, but I'm very concerned that overseas borrowers may default. If this happens, the Fed will have to provide swaps and inflation could reemerge. Caution: I always expect the worst case scenario.
I particularly loved the note you sent out ahead of this post: "There will be a post coming today, but making it not totally boring has been harder than I expected. Stay tuned."
Whoever comes next will haxe to clean up the mess. Obama had to clean up after GWB. Biden had to clean up after Trump 1.0. Who will clean up after Trump 2.0?
I’ve had the suspicion that after the GWB meltdown, Republicans wanted to be able to blame the obvious and visible consequences on a Democrat. Cain was not a strong candidate, especially after picking Palin as VP. The Democrat built everything back up so and even caused a backlash. So the Republicans could/would loot it again.
Exactly, Republicans can accomplish everything they want with reconciliation and they don’t care about deficits. Republicans are essentially a suicide cult and have been since 2000, Trump made the policies better than Bush/Cheney but a slightly more reasonable cult leader isn’t any better!
I recently read something really wonderful about the limbic system, but I can't remember where. It turns out the limbic system is not part of the reptile brain. Our reptile brain handles only automatic bodily functions like heartbeat and movement coordination.
Reptiles typically function during the daytime and so their reactive system was light based. In contrast, early mammals were nocturnal and relied primarily on their sense of smell. Accordingly, early mammals had to develop a whole new reactive system, the limbic system.
Of course, after the dinosaurs died off, some mammals switched to sight as their major sensory input, but their reactive system still was the limbic system.
I know people here in Alabama, grown men in their 60s that think Trump last time set the interest rates to zero and that Biden could do that now. I have no idea how these people come to these ideas but you can't convince them that the president has nothing to do with it. Rates were low in Trump's last term because the economy was falling, GDP growth was half of what it was under Obama but they have it in their head that Trump is their savour and it seems the only thing that is going to prove to them they are wrong is total and complete failure, the one thing Trump is best at.
I looked at my retirement account % increases over the Biden and Trump administrations. I retirement funds increased 30% during Biden’s administration (which had a terrible year in 2022? Where my account decreased 22%) compared to the trump administration which increased 22% over the 4 years. I’ll take Biden’s economy any day.
The right wing echo chamber just went crazy when Trump lost. Biden lost 13 soldiers in Afghanistan and Trump lost 45 and Bush was losing 15 a week during the GWOT…the right wing echo chamber has made the 13 fallen heroes under Biden seem like the worst war casualties.
Nope. They’ll just be more propaganda to make it democrats fault and they’ll believe it. No amount of facts, logic or evidence can persuade a cult member.
There is a general insanity premium. Not sure how you make this dense stuff so readable but I'm glad you do. Also glad that you no longer have to satisfy the minders at the NYT and are able to let loose. The world is better for it.
Elect a loon, expect madness.
Who knew I would be getting my morning music fix from Paul Krugman.
Paul has given me much musical enjoyment…
I was hoping. I remember Krugman's free blog until the NYT shut that down in which he recommended new musicians. I have several albums.
Trump is barking mad and watching everyone running around pretending that this is normal and sane is hilarious. Like crowning a rabid monkey king and everyone is trying business as usual as it throws its poo at anything that moves.
I cannot understand how those listening to him don’t burst out laughing or suppress a loud guffaw or at least snicker and look away.
‘Barking Mad’. Love it.
Hilarious, and exhausting. I'm about to use my mom voice on a few people. It's become clear to me most of them are hanging around for their opportunity to cash in. They want a gig, a deal, an ambassadorship, a reality TV show, a state office, some insider trading info, something for sacrificing their reputations and for some, selling out their souls.
liked the song as well as the column
Occam's Razor answer - Bond Vigilantes!!!! The Fed does not control the 10-year rate and there are lots of things such as home mortgage rates that are pegged to this. The call of extension of the 2017 tax cuts along with doing away with the debt ceiling will lead to massive deficits going forward. These will need to be funded with more bond sales by the Treasury. Big question is who will buy these? I can see China (in the past a big purchaser of US debt) refusing to do so as a trade war escalates. Social Security and Medicare Trust Funds are spending more than they take in right now and will not be a net investor in US debt unless things change.
After a lot of years of waiting for the Bond Vigilantes to strike, we may now see the reality of the peril. Of course, there may be an embrace of Modern Monetary Theory which makes this all magically disappear, but I doubt it. High interest rates will not be good for the Trump Administration. He claimed to be the King of Debt Financing when he ran in 2016, but one look at his business failures belies that statement.
"Bond Vigilantes." I feel a film script coming on.
Thanks for the reminder about the continuation of low tax rates.
I think that mortgage rates are a middle class problem. Wealthy people can afford to buy a home, and lower income people are not even in the market (except perhaps for the knock on effect on rents). I get it. I'm an aging curmudgeon, whose first mortgage was at 16.25% (RIP Jimmy Carter, a good man), but I believe that the rate that should get more attention is the one on credit card balances. I did a 15 minute search on the internet, so my data points may be a little fuzzy; however it seems to me, looking at default rates and the cost of short term money, that the banks, as they say, are making bank on credit card balances. And who carries those balances, but the very people who need the most relief from inflation (such as it may be). So I say, regulate the hell out of the credit card companies to bring down inflation in that particular market. And yes, I fully understand that the incoming wrecking crew will probably not take my advice, but a guy can dream...
David Salomon
We should have a no interest loan for houses that cost less than median value of a house. So the mortgage interest deduction isn’t going to help lower class Americans and believe it or not quite a few cities have nice houses for under $200k. So basically a family could buy a house in St Louis for less than renting it if we had a no interest loans. Just require 5 years living in it before selling or renting and only one of these loans at a time and one shot at no down payment. And if they get a better job and have to move walking away from the house is still better than renting and with the better job they would have down payment money for next time.
It’s tricky, though. Cap credit card interest rates and borrowing will increase proportionally. What about approaching the problem from the other direction and reduce the need for borrowing by putting more money in people’s pockets?
Stock traders, up to this point anyway, seem to be anticipating that Trump will do the things he says he'll do that they like, and won't do the things they don't like. When he actually does things, I suspect there will be some sort of correction. Of course bond traders don't ever like nuttiness, because they have such limited upside, so the more of that we see, the higher rates go until we get an actual economic slowdown. But what we will actually get, I doubt even Trump knows.
If only there were a sanity clause in the Presidential oath of office. But as Chico Marx told us, there ain’t no Sanity Clause.
The musical coda - perfect. 👩🍳
Two things that I've mentioned in previous comments:
1. Keep a weather eye on Treasury auctions. The primary dealers do not have nearly enough capital to absorb all the debt issuance. In my opinion, a failed auction and a spike in long to intermediate rates is very likely.
2. No-one talks about the dollar which is near its highs. The Euro is almost at parity and the Brazilian real has cratered. I have to look into it further, but I'm very concerned that overseas borrowers may default. If this happens, the Fed will have to provide swaps and inflation could reemerge. Caution: I always expect the worst case scenario.
Buy the dip.
Short the VIX.
Fuck Bitcoin!!
I particularly loved the note you sent out ahead of this post: "There will be a post coming today, but making it not totally boring has been harder than I expected. Stay tuned."
It was worth the wait. I do enjoy a good wonking.
Whoever comes next will haxe to clean up the mess. Obama had to clean up after GWB. Biden had to clean up after Trump 1.0. Who will clean up after Trump 2.0?
I’ve had the suspicion that after the GWB meltdown, Republicans wanted to be able to blame the obvious and visible consequences on a Democrat. Cain was not a strong candidate, especially after picking Palin as VP. The Democrat built everything back up so and even caused a backlash. So the Republicans could/would loot it again.
Exactly, Republicans can accomplish everything they want with reconciliation and they don’t care about deficits. Republicans are essentially a suicide cult and have been since 2000, Trump made the policies better than Bush/Cheney but a slightly more reasonable cult leader isn’t any better!
Suicide for them may turn out to be homicide for some of us. No vaccines?!?
Google Jude Wanniski, two Santa’s strategy.
I recently read something really wonderful about the limbic system, but I can't remember where. It turns out the limbic system is not part of the reptile brain. Our reptile brain handles only automatic bodily functions like heartbeat and movement coordination.
Reptiles typically function during the daytime and so their reactive system was light based. In contrast, early mammals were nocturnal and relied primarily on their sense of smell. Accordingly, early mammals had to develop a whole new reactive system, the limbic system.
Of course, after the dinosaurs died off, some mammals switched to sight as their major sensory input, but their reactive system still was the limbic system.
Just a superb piece!
I know people here in Alabama, grown men in their 60s that think Trump last time set the interest rates to zero and that Biden could do that now. I have no idea how these people come to these ideas but you can't convince them that the president has nothing to do with it. Rates were low in Trump's last term because the economy was falling, GDP growth was half of what it was under Obama but they have it in their head that Trump is their savour and it seems the only thing that is going to prove to them they are wrong is total and complete failure, the one thing Trump is best at.
I looked at my retirement account % increases over the Biden and Trump administrations. I retirement funds increased 30% during Biden’s administration (which had a terrible year in 2022? Where my account decreased 22%) compared to the trump administration which increased 22% over the 4 years. I’ll take Biden’s economy any day.
The right wing echo chamber just went crazy when Trump lost. Biden lost 13 soldiers in Afghanistan and Trump lost 45 and Bush was losing 15 a week during the GWOT…the right wing echo chamber has made the 13 fallen heroes under Biden seem like the worst war casualties.
He spent 4 years braying to his cult that his was the Gretest Economy of All Time, and they believed it.
Nope. They’ll just be more propaganda to make it democrats fault and they’ll believe it. No amount of facts, logic or evidence can persuade a cult member.
"These people are the salt of the earth, the common clay of the new West, you know... Morons." - a great philosopher
Suspicions confirmed about MAGA-madness