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> Bed Bath & Beyond, Famous Footwear, H&M, and the Gap, AMC and Regal movie theaters, and 24 Hour Fitness gyms have all missed payments, jeopardizing the stabil
by aazaa 6y ago
> Bed Bath & Beyond, Famous Footwear, H&M, and the Gap, AMC and Regal movie theaters, and 24 Hour Fitness gyms have all missed payments, jeopardizing the stability of their property management companies and municipal governments that rely on property taxes, The Post's Heather Long reported.
All roads lead to the Federal Reserve. Stores defaulting on rent payments starves landlords for cash. Landlords unable to service mortgages or pay taxes starves banks and state/local governments. Banks starved for money turn to the Fed for bailouts. States starved for cash turn to Washington. Washington issues bonds which the Fed buys because nobody in their right mind would buy 10 or 30 year Treasuries with the goal of holding to maturity.
The Fed's balance sheet has exploded higher (>20% GDP), with no end in sight:
https://fred.stlouisfed.org/series/WALCL https://fred.stlouisfed.org/series/WALCL
Where does it all lead? There are two options:
1. Default on the national debt.
2. Currency depreciation.
The most likely outcome is (2). One way or another, the dollar is headed lower. Perversely, this could be great for stocks, bonds, and other assets nominally. The problem is the size of the dollar depreciation that would be required to bring the Fed's balance sheet back under control.
The only problem is that the dollar happens to be the world's reserve currency. As the Fed does its best to slaughter the dollar bull, every other country is printing money as fast as possible to depreciate their own currencies.
Nobody knows where this mess ends.
- ngold 6y agoThere is also 32 trillion sitting outside the US that needs to come home a be burned.
- opportune 6y agoDepreciation (writing off a loss on the fed balance sheet) might cause a lot less problems than you think. Recessions like this are already deflationary. Plus global economic slowdowns increase demand for dollars
- masnaox 6y agoyou forgot where the fed gets their money. yes, it all goes to the fed, then to the tax payers. and all that bounce back to where it began, and the 1% uses it to either buy realstate or save the money in a way its immune to the incomming inflation, making things worse in the long run
- ping_pong 6y agoThe US by definition can't default on its own debt. It's literally impossible because all debt is in USD. If the US gets into the situation where it doesn't have enough money to pay off its interest payments, the only one solution is to print more money to pay off the debt. This will lead to #2 in your list, which is actually just #1. When the US starts printing money, it will lead to a lot of destruction of assets because China will also start selling their UST causing interest rates to jump. I can see a weird situation where inflation starts to jump but also interest rates jumping as well.
- pjc50 6y agoIt can default on its debt by .. refusing to pay it. Remember all the debt ceiling fiasco and the furlough of federal workers? It would be a huge moment of voluntary stupidity, but anything's possible.
- refurb 6y agoThe debt ceiling had nothing to do with not paying debt, it was caused by not taking on more debt and thus the gov't didn't have the funds to run.
- postingawayonhn 6y agoAnd a big chunk of the 'funds to run' go to servicing existing debt. This is a big part of why interest rates never substantially increased to pre-GFC levels. Governments would never be able to afford the higher interest rates.
- martinflack 6y agoTo be legal it would require a constitutional amendment to alter the 14th amendment.
- ping_pong 6y agoIf you have the ability to pay your debt by printing more money, but then default because you don't, is absurd. It just won't happen. They would never choose to not pay when they can simply print more money. If you want to go down that route, you can say that the US can also cancel its own debt by threatening every country that owns its debt with nuclear missile attacks if they don't cancel the debt.
- RcouF1uZ4gsC 6y ago> The only problem is that the dollar happens to be the world's reserve currency. This is actually great for the US. As you said, every other country will deflate their own currency so the dollar will likely not change that much relative to the other currencies. The inflation will make people want to spend money, especially a spent up demand is released as the eco use normalize. We may see rapid economic growth.
- pjc50 6y agoThe problem with betting against the dollar is that the West is to a great extent dependent on the US as a place to park its money and sell things. If the US sneezes everyone else catches a cold. > Perversely, this could be great for stocks, bonds, and other assets nominally Nominal stock values are still climbing despite the mire of bad news. > nobody in their right mind would buy 10 or 30 year Treasuries with the goal of holding to maturity What the hell else are big "cash" holders going to do with their dollars? Put it in a bank which then immediately gives it to the Fed? Try to fill a giant, expensive Scrooge McDuck warehouse with individual greenbacks? 30-year yield is 1.56%. The tiny yield compared to holding stock for 30 years is the huge premium the holder pays for safety.
- bobthepanda 6y ago> The problem with betting against the dollar is that the West is to a great extent dependent on the US Not even just the West. The Asian "tiger" economies are all heavily export oriented. If China, Japan and Korea cannot sell to the US, there is no viable plan B; Europe is in no state to absorb all of that, to say nothing of poorer countries. Chinese consumer purchasing power has certainly grown, but not enough, and if anything the Chinese social safety net is thinner than the American one and they have still not fully recovered from their lockdowns. And CNY has a long way to go before it's as liquid as USD.
- chkaloon 6y agoRegarding #2, or rather inflation, is it a hidden way to transfer wealth from one generation to the next? Older savers see their wealth dissolve away due to inflation, while the younger generations are held somewhat stable by rising wages. It's unfortunate, but probably the least painful way out of this.
- postingawayonhn 6y agoAssets prices are inflating more than anything else. If your savings are in stocks or possibly property you're likely doing quite well.
- chkaloon 6y agoRight now, sure. But I think we're talking longer term. We've been in an asset/debt bubble for quite a while. Some would argue decades. Inflation may be the least painful way out.
- nine_zeros 6y ago> 2. Currency depreciation. This is likely going to be the outcome. All the savers will ultimately be shafted, as was done in times we moved off of gold standard. The real cost of living will just keep rising as many jobs just won't come back despite this printing of money.
- BenoitEssiambre 6y agoJust don't keep all your savings in government paper and you'll be fine.
- nine_zeros 6y agoYes. Take risks for the rest of your life and live through ups and downs, and you'll be fine.