I watched the Sahm interview, thanks for sending us the link - it was fascinating. They do a good job in the interview discussing a potential rate cut impact post Sahm rule trigger. Powell is in such a pickle, if he cuts rates today he’ll just undone any work done on inflation. What a mess.
I think they are. There is still a lot of Fed money floating around, and plenty of people will do all they can to game markets up if they can. We'll have to see tomorrow, though, if their efforts hold. Things may get volatile and bounce around for awhile; but the interesting point is not so much whether stocks crash or not but the reason for the huge stock drops today being everyone suddenly concerned about recession and about the turn in labor, particularly bringing up the Sahm Rule.
It's the sudden swing toward panic moves over things in the economy that I've been bringing to everyone's attention as the big things to watch out for. Suddenly, they were on everyone's mind when most of these publishers were talking about the Fed having won the fight last week and being ready to ease in for its soft landing.
For sure. It's going to be a huge mess, but it is exactly the corner that I've described for the last five years or so to paying subscribers (and off and on for free to everyone) that I've said Powell was painting himself into ... where he'd still be in the middle of an inflation fight right as he has to step on the gas and reignite the economy.
(At least in terms of how the Fed and feds think. Personally, I wish they'd keep their bloody hands off of everything, and let it painfully sort itself out through actual bankruptcies with no bailouts for anyone to find real economic answers, but they'll never let that happen. So, now we all get to struggle as they remain rich.)
So, the Fed will now be forced to drop rates, maybe even more than 25 basis points. Maybe they will freak out and drop twice more before the end of the year. The government will likely start bailing out the "too big to fail" companies. Then, inflation will rise when rates are cheap, money is distributed to poorly run large corporations, and government spending increases to ever more unsustainable levels. Speculation in housing will continue, and the entire mess will start over again.
I believe the Fed rate should stay where it is, and the economy should be left to work itself out. And government spending should be curtailed. Of course, none of that will happen. Rinse and repeat. Inflation may have slowed, but the elevated prices of the last cycle are still there. Most in the mainstream media act like 3% inflation is "good" and that inflation isn't an issue. But those elevated prices aren't going away, and lower rates, government spending, and all of the measures taken to minimize the recession's impact will lead to another big spike in inflation before long.
I couldn't agree with you more, and I probably should have even clarified that, when I said the Fed has waited too long, I don't mean I wish it would have lowered rates earlier. I just mean it is too long to avoid a crash and recession. The problem is they will, exactly like you say, still do all those things but AFTER we are already deep in recession.
Back in 2008, I was doing my best via articles that were published in good old-fashion newspapers to say we should do NOTHING to bailout ANYONE. We should pay the price and make the changes we need to make in how our economy works, OR ELSE the problem would be far worse down the road. If we had done that, we would have resolved everything by now and be sitting on a very solid economy. But we didn't even try any of what needed to happen.
And here we are, stuck in a BIGGER doom loop because we will have the same desire for bailouts and for stimulus money to escape the pain of a worse recession, but this time the Fed has no room to do that without risking a major rise in inflation because it already has inflation that is trying to rise again, just as I said it would.
And you are right that it is far better to brave the losses from recession because the losses from inflation remain forever. Once those prices go up, they generally stay up, and ALL future years of targeted inflation at 2% become a 2% increase from a much higher base number. So, we get to pay for the inflation with larger inflation jolts forever than what we would have had if we didn't do all that money printing.
The worst part is, as is implied in every word you wrote, that we accumulate moral hazard among the greedy who keep repeating the cycle for as long as they keep getting bailed out, which is why I wrote "DOWNTIME: Why We Fail to Recover from Rinse and Repeat Recession Cycles" ( https://amzn.to/4fxwzjI And, yes, of course, I make money if you click on that link and buy anything from Amazon ; )
I own your book, even though I haven't read it yet. But I will read it! Yes, moral hazard has become a business plan for those in the top 1%, especially those connected to the government. Sadly, I can see exactly how this will play out. And I don't believe for a second that Powell is blind to these realities. I believe he planned this all along and will use the recession as an excuse to increase inflation. Powell never cared about inflation for a minute until it became a political problem.
It's a somewhat cobbled-together book from articles I wrote at the start of the Great Recession, but I did it that way because using those articles shows just how much one could see the cycle would repeat, and now here we are. (I also did it that way because those articles were somewhat humorous, so I thought it would give a lighter touch to an otherwise dark subject.
That might make it a little disjointed to read, but I'll have to let others be the judge of that. The important thing is that it helps one see just what an endless cycle this is and will continue to be unless we radically do the opposite of what we've been doing and bust the cycle (which becomes more painful to try to do with each new round because each new round gets bigger)!
I am old enough to have become pessimistic that anything will change. It is easy to say Powell and those who came before him are stupid, but it is all by design.
I watched the Sahm interview, thanks for sending us the link - it was fascinating. They do a good job in the interview discussing a potential rate cut impact post Sahm rule trigger. Powell is in such a pickle, if he cuts rates today he’ll just undone any work done on inflation. What a mess.
What do you make of the Nikkei almost achieving a full recovery from last night’s wipeout? Are the markets this fickle?
I think they are. There is still a lot of Fed money floating around, and plenty of people will do all they can to game markets up if they can. We'll have to see tomorrow, though, if their efforts hold. Things may get volatile and bounce around for awhile; but the interesting point is not so much whether stocks crash or not but the reason for the huge stock drops today being everyone suddenly concerned about recession and about the turn in labor, particularly bringing up the Sahm Rule.
It's the sudden swing toward panic moves over things in the economy that I've been bringing to everyone's attention as the big things to watch out for. Suddenly, they were on everyone's mind when most of these publishers were talking about the Fed having won the fight last week and being ready to ease in for its soft landing.
For sure. It's going to be a huge mess, but it is exactly the corner that I've described for the last five years or so to paying subscribers (and off and on for free to everyone) that I've said Powell was painting himself into ... where he'd still be in the middle of an inflation fight right as he has to step on the gas and reignite the economy.
(At least in terms of how the Fed and feds think. Personally, I wish they'd keep their bloody hands off of everything, and let it painfully sort itself out through actual bankruptcies with no bailouts for anyone to find real economic answers, but they'll never let that happen. So, now we all get to struggle as they remain rich.)
So, the Fed will now be forced to drop rates, maybe even more than 25 basis points. Maybe they will freak out and drop twice more before the end of the year. The government will likely start bailing out the "too big to fail" companies. Then, inflation will rise when rates are cheap, money is distributed to poorly run large corporations, and government spending increases to ever more unsustainable levels. Speculation in housing will continue, and the entire mess will start over again.
I believe the Fed rate should stay where it is, and the economy should be left to work itself out. And government spending should be curtailed. Of course, none of that will happen. Rinse and repeat. Inflation may have slowed, but the elevated prices of the last cycle are still there. Most in the mainstream media act like 3% inflation is "good" and that inflation isn't an issue. But those elevated prices aren't going away, and lower rates, government spending, and all of the measures taken to minimize the recession's impact will lead to another big spike in inflation before long.
What a mess.
I couldn't agree with you more, and I probably should have even clarified that, when I said the Fed has waited too long, I don't mean I wish it would have lowered rates earlier. I just mean it is too long to avoid a crash and recession. The problem is they will, exactly like you say, still do all those things but AFTER we are already deep in recession.
Back in 2008, I was doing my best via articles that were published in good old-fashion newspapers to say we should do NOTHING to bailout ANYONE. We should pay the price and make the changes we need to make in how our economy works, OR ELSE the problem would be far worse down the road. If we had done that, we would have resolved everything by now and be sitting on a very solid economy. But we didn't even try any of what needed to happen.
And here we are, stuck in a BIGGER doom loop because we will have the same desire for bailouts and for stimulus money to escape the pain of a worse recession, but this time the Fed has no room to do that without risking a major rise in inflation because it already has inflation that is trying to rise again, just as I said it would.
And you are right that it is far better to brave the losses from recession because the losses from inflation remain forever. Once those prices go up, they generally stay up, and ALL future years of targeted inflation at 2% become a 2% increase from a much higher base number. So, we get to pay for the inflation with larger inflation jolts forever than what we would have had if we didn't do all that money printing.
The worst part is, as is implied in every word you wrote, that we accumulate moral hazard among the greedy who keep repeating the cycle for as long as they keep getting bailed out, which is why I wrote "DOWNTIME: Why We Fail to Recover from Rinse and Repeat Recession Cycles" ( https://amzn.to/4fxwzjI And, yes, of course, I make money if you click on that link and buy anything from Amazon ; )
I own your book, even though I haven't read it yet. But I will read it! Yes, moral hazard has become a business plan for those in the top 1%, especially those connected to the government. Sadly, I can see exactly how this will play out. And I don't believe for a second that Powell is blind to these realities. I believe he planned this all along and will use the recession as an excuse to increase inflation. Powell never cared about inflation for a minute until it became a political problem.
It's a somewhat cobbled-together book from articles I wrote at the start of the Great Recession, but I did it that way because using those articles shows just how much one could see the cycle would repeat, and now here we are. (I also did it that way because those articles were somewhat humorous, so I thought it would give a lighter touch to an otherwise dark subject.
That might make it a little disjointed to read, but I'll have to let others be the judge of that. The important thing is that it helps one see just what an endless cycle this is and will continue to be unless we radically do the opposite of what we've been doing and bust the cycle (which becomes more painful to try to do with each new round because each new round gets bigger)!
I am old enough to have become pessimistic that anything will change. It is easy to say Powell and those who came before him are stupid, but it is all by design.