...if the day ever comes when government can't even repay the interest on the National Debt, the illusion of solvency will disappear and the economy will collapse into calamity.
Indeed, the burden of government spending has climbed more than three times faster than inflation during De Blasio’s time in office. If this story sounds familiar, that’s because excessive spending is the cause of every fiscal crisis.
As Congress nears debate on another round of stimulus/relief aid for American households, businesses, state and local governments, schools, Covid vaccination delivery, and more, I thought it would be instructive to see how the direct aid sent as part of Stimulus 1.0 was spent.
A new report from the IRS shows that the first round of economic impact payments (or stimulus checks) primarily benefited households earning less than $100,000.
This is good news.
Less Americans getting infected, more Americans getting vaccinated, $6 trillion in government spending, with at least $4 trillion more on the table, and many trillions more from an anything-goes Fed.
What do they have in common? They’re all converging to create what giddy economists and others, like Axios’ Nicholas Johnston, say will be “a year of U.S. economic growth for the record books.”
With those kind of numbers (think 10 zeros!), it better be record-setting!
Prices at the gas pump are soaring toward an all-time high, but drivers appear to be saying, oh well—for now anyway.
Americans’ credit cards got a sweaty workout in February, as monthly consumer debt rose the highest in over a decade.
Matt Phillips believes it could mean that climbing inflation coupled with households’ diminished savings are forcing more people to use plastic.
The Fed's monthly consumer credit report for February came out yesterday, showing that consumer debt — excluding mortgage debt — jumped by $41.8 billion, or 11.3%.
Revolving credit — typically credit cards — rose by a seasonally adjusted annual rate of 21%, up from 4% the prior month. Nonrevolving credit, which includes auto and student loans, was up 8.4%.
With pandemic stimulus payments now a fading memory — and families’ record savings cushion a thing of the past — it seems a no-brainer that out of control inflation has us back to running up our personal debt.
Sorry for the cliché, but the more things change, the more they remain the same.
Nowhere is this more painfully obvious than in the financial industry – where cracks are expanding in already porous credit dykes all over the world.
You think we'd have learned from the disastrous effects of the Great Recession 15 years ago.
But after additional years of excess from banks stuck with piles of buyout debt, a pension blow-up in the UK and real-estate troubles in China, South Korea and more recently the U.S., we’re finding again that what’s past is prologue.
Thanks to global central bank rate hiking, cheap money is quickly becoming a thing of the past.
Distressed debt in the U.S. alone jumped more than 300% in 12 months, according to Bloomberg News.
Plus, high-yield issuance is much more challenging in places like Europe, and leverage ratios have reached record levels.
The aggressive rate hikes have dramatically changed the landscape for lending – stressing credit markets and pushing economies toward recessions, a scenario that markets have yet to price in.
Nearly $650 billion of bonds and loans are distressed, according to Bloomberg.
It’s all adding up to the biggest test of the stress tolerance of corporate credit since the 2008 financial crisis and may be the spark for a wave of coming defaults.
Will Nicoll, chief investment officer at M&G, said, “It is very difficult to see how the default cycle will not run its course, given the level of interest rates.”
Banks say their wider credit models are proving robust so far, but they’ve begun setting aside more money for missed payments.
Loan-loss provisions at systematically important banks surged 75% in the 3rd quarter compared to 2021 – a clear indication they’re preparing for payment issues and defaults.
Most economists see at least a moderate GDP slump over the coming year.
Some, like Paul Singer of Elliott Management, however, fear a deep recession could cause significant credit issues because the global financial system is “vastly over-leveraged.”
Citigroup economists believe rolling recessions are likely across the globe next year, with the U.S. likely to slip into one by the middle of next year.
Mike Scott at Man GLG warned that “markets seem to be expecting a soft landing in the U.S. that may not happen.”
Eternal optimist Treasury Secretary Janet Yellen says she sees a path for avoiding a recession, with inflation down significantly and the economy remaining strong, given a strong jobs market.
"You don't have a recession when you have 500,000 jobs and the lowest unemployment rate in more than 50 years," Yellen exclaimed.
"What I see is a path in which inflation is declining significantly and the economy is remaining strong."
Of course, being the team player she is, Yellen said inflation remains too high.
But she believes it could fall a lot more because of action taken by the Biden administration, including steps to reduce the cost of gasoline and prescription drugs.
Labor Department data out last Friday showed job growth jumped up steeply in January – nonfarm payrolls leaped by 517,000 jobs and the headline unemployment rate dropped to a 53-and-a-half-year low of 3.4%.
The strength in hiring, despite growing layoffs in tech, overnight reduced investor expectations that the Federal Reserve was close to pausing its cycle of hiking interest rates.
Unemployment is Higher Than What They Tell Us
Investors have itchy fingers these days – or perhaps it’s just the way they have their high frequency computer algorithms programmed.
Either way, it’s why analysts like Felix Salmon see markets “trembl[ing] at the Fed's every twitch.” And yet, he points out, it doesn't seem to be having much effect on the economy.
Salmon adds that the Fed's main policy tool — even more important than setting interest rates or printing money — is the trust that Americans have in it to do the right thing.
According to recent surveys, a majority of Americans believes the U.S. is in an ongoing recession that the Fed has not only failed to prevent but is seen as having caused it (or is on the verge of causing it).
Analysts say the economy is running hotter than it should be, that the job market remains tight with headline unemployment at historic lows, and that mixed signals abound about the scope of the coming downturn.
The drenching Hurricane-turned-Tropical-Storm Hilary is forecast to leave a destructive swath up the western U.S. this week as relief workers in Maui continue their search for any signs of life among the 850 missing residents of Lahaina over 3,000 miles away.
Meanwhile, economic prognosticators are wondering what’s in store this weekend at the Kansas City Fed’s symposium in Jackson Hole, WY.
The annual summer conference, which will be held Thursday through Saturday, features a slew of speakers who will largely be preaching to a pre-occupied choir.
They will mostly pontificate their profligate theories (or, if you prefer, officiously wax poetic) about this year’s theme – “Structural Shifts in the Global Economy.”
Dispassionate and Fedspeak enough to escape the attention of most common Americans? You betcha!
Although the stream of papers slated to be delivered and discussed at the event have yet to be released, one thing is clear:
Perhaps the most compelling mantras underlying the Structural Shifts theme should be focusing on the storm debt – public and private – brewing in the U.S.
As Jennifer Sor suggests in a recent Business Insider article, troubles are already bubbling up to the surface “as loans pile up and borrower confidence falters.”
Banks Were an Early Sign