An economics, investment, trading and policy blog with a focus on Modern Monetary Theory (MMT). We seek the truth, avoid the mainstream and are virulently anti-neoliberalism.
The expected future path of inflation and rates aren't driving long term rates higher this year. Treasury markets aren't waiting for someone to make the call, they called it last year and corrected bond prices higher, even as the Federal Reserve's Orthodoxy bantered about raising rates and ending QE with their long straight recovery lines that extend far into the future.
Once the Fed finally gets out of there Ryan, rates will finally be able to come down....
btw we are seeing what might be the start of the next leg up:
http://chartsninja.com/charts/single/6495
At least some YoY increases over the last 2 or 3 months.... if this fiscal trend is sustained and we get the Fed to start to let some of the portfolio roll off we might be looking at a decent recovery finally in 2015....
If the GOP takes the Senate in 14, forget any fiscal expansion. The likelihood of fiscal contraction increases instead — unless there is a significant expansion in military expansion, which becomes more likely under those conditions.
The wild card now is possible deflation gripping the EZ with a resulting debt deflation with TPTB committed to "expansionary" fiscal austerity.
Defense has already taken quite a hit in those YoY numbers .... both the Vendors and the Active Duty.....and we are still starting to show nascent YoY growth in the top-line spending ... once the Fed lets the portfolio roll off a bit and starts to raise rates we should get rolling pretty good imo...
banks will then come in until they blow themselves up again, yada yada, etc...
Its the automatic appropriations which are starting to kick in.... Medicare/Medicaid/SS.... nothing they can do about it ... its the demographics...
Baby boom of 1946 + 65 years is 2011.... its just starting... iirc last time I tried to compute it we were at about 133k new sign-ups per month and growing.... we are transitioning to a "baby boom retirement" economy...
sounds like the "smart" GOP (in the form of Rove) has called it quits on austerity... its a loser politically...
On the other hand, as older people retire, they will be replaced with younger people making less money. The increased government transfer payments will be offset by lower private wages and increased profits. But profits are deflationary as they go to those who are prone to save rather than spend. So I don't see a (demographic) boost from higher government spending on SS and Medicare. Good food for thought, though...
The central bank's monetary is being used to offset fiscal policy. As long as fiscal policy remains tight, the Fed won't loosen much. The Fed under Ben and now Janet have sent this message to both Congress and the financial markets.
Well Dan I think the way it works is that the economy responds to where the govt is increasing its spending....
The last decade we saw first the GWOT, then 'no child left behind' then 'Medicare Rx Drugs', and then DHS was being stood up along the way, TSA, cameras, etc...
Look at this graph it is straight up YoY back then:
http://chartsninja.com/charts/single/6956
But now the big increases are starting to come in the automatic appropriations.... so as long as we get a govt topline that looks like this, on the upslope, then we should get back to the type of topline growth we saw in the first decade of this century...
the banks will eventually come in with more credit once the govt increases incomes ...
banks, by no means in charge of any thing, will just finance things tertiary to where the major govt spending growth is... (typically property and autos...) until they crash that gravy train as they usually do...
I dont think it will matter what we increase spending on as long as we are increasing the spending, the system will respond to where the increases are...
we simply need increases in govt spending to grow under FFNC ... we just arent getting any meaningful increases since 2009 if you look at that chart and btw you have to take away probably 600B to 700B for TARP and the GSE bailouts as those were capital investments (dont count) and also the Fed has been removing both govt bond interest and Treasury is removing mortgage interest now paid to their GSEs.... so it is even WORSE than what this second graph depicts...
Once the Fed lets the non-govt get back in the bonds and lets the MBS pre-pays kick in, then (hopefully) raises rates, and we get some decent COLAs in the discretionary areas, we should get going again...
Fingers crossed for 2015 we are up YoY in July and now August... we'll see about Sept. and for sure Oct and Nov will be ALOT higher YoY because we had the "shutdown" last year during those months...
so we are going to have some easy YoY comps looks like thru end of November at least... market just keeps going up as the big non-financial firms are killing it in this environment simply working to provision we all.....
7 comments:
The expected future path of inflation and rates aren't driving long term rates higher this year.
Treasury markets aren't waiting for someone to make the call, they called it last year and corrected bond prices higher, even as the Federal Reserve's Orthodoxy bantered about raising rates and ending QE with their long straight recovery lines that extend far into the future.
Once the Fed finally gets out of there Ryan, rates will finally be able to come down....
btw we are seeing what might be the start of the next leg up:
http://chartsninja.com/charts/single/6495
At least some YoY increases over the last 2 or 3 months.... if this fiscal trend is sustained and we get the Fed to start to let some of the portfolio roll off we might be looking at a decent recovery finally in 2015....
rsp,
If the GOP takes the Senate in 14, forget any fiscal expansion. The likelihood of fiscal contraction increases instead — unless there is a significant expansion in military expansion, which becomes more likely under those conditions.
The wild card now is possible deflation gripping the EZ with a resulting debt deflation with TPTB committed to "expansionary" fiscal austerity.
Tom,
Defense has already taken quite a hit in those YoY numbers .... both the Vendors and the Active Duty.....and we are still starting to show nascent YoY growth in the top-line spending ... once the Fed lets the portfolio roll off a bit and starts to raise rates we should get rolling pretty good imo...
banks will then come in until they blow themselves up again, yada yada, etc...
Its the automatic appropriations which are starting to kick in.... Medicare/Medicaid/SS.... nothing they can do about it ... its the demographics...
Baby boom of 1946 + 65 years is 2011.... its just starting... iirc last time I tried to compute it we were at about 133k new sign-ups per month and growing.... we are transitioning to a "baby boom retirement" economy...
sounds like the "smart" GOP (in the form of Rove) has called it quits on austerity... its a loser politically...
rsp,
Well said, Matt.
On the other hand, as older people retire, they will be replaced with younger people making less money. The increased government transfer payments will be offset by lower private wages and increased profits. But profits are deflationary as they go to those who are prone to save rather than spend. So I don't see a (demographic) boost from higher government spending on SS and Medicare. Good food for thought, though...
The central bank's monetary is being used to offset fiscal policy. As long as fiscal policy remains tight, the Fed won't loosen much. The Fed under Ben and now Janet have sent this message to both Congress and the financial markets.
Well Dan I think the way it works is that the economy responds to where the govt is increasing its spending....
The last decade we saw first the GWOT, then 'no child left behind' then 'Medicare Rx Drugs', and then DHS was being stood up along the way, TSA, cameras, etc...
Look at this graph it is straight up YoY back then:
http://chartsninja.com/charts/single/6956
But now the big increases are starting to come in the automatic appropriations.... so as long as we get a govt topline that looks like this, on the upslope, then we should get back to the type of topline growth we saw in the first decade of this century...
the banks will eventually come in with more credit once the govt increases incomes ...
banks, by no means in charge of any thing, will just finance things tertiary to where the major govt spending growth is... (typically property and autos...) until they crash that gravy train as they usually do...
I dont think it will matter what we increase spending on as long as we are increasing the spending, the system will respond to where the increases are...
we simply need increases in govt spending to grow under FFNC ... we just arent getting any meaningful increases since 2009 if you look at that chart and btw you have to take away probably 600B to 700B for TARP and the GSE bailouts as those were capital investments (dont count) and also the Fed has been removing both govt bond interest and Treasury is removing mortgage interest now paid to their GSEs.... so it is even WORSE than what this second graph depicts...
Once the Fed lets the non-govt get back in the bonds and lets the MBS pre-pays kick in, then (hopefully) raises rates, and we get some decent COLAs in the discretionary areas, we should get going again...
Fingers crossed for 2015 we are up YoY in July and now August... we'll see about Sept. and for sure Oct and Nov will be ALOT higher YoY because we had the "shutdown" last year during those months...
so we are going to have some easy YoY comps looks like thru end of November at least... market just keeps going up as the big non-financial firms are killing it in this environment simply working to provision we all.....
rsp,
Post a Comment