5 ms·
During covid, the bond market inverted. To avoid collapse of the bond market the fed was the only one who could step in and print money to buy assets. It's the
by incomingpain 5y ago
During covid, the bond market inverted. To avoid collapse of the bond market the fed was the only one who could step in and print money to buy assets. It's the right thing to do. Nobody is saying they were wrong to do this. Nixon made this possible to do and was inevitable to happen. Though Nixon placed it on manufacturing in the USA. Since his time, manufacturing was shipped out of the borders.
https://tradingeconomics.com/united-states/central-bank-balance-sheet https://tradingeconomics.com/united-states/central-bank-bala...
The problem is that they had to do this during the financial crisis and they were clearly unable to exit these 'assets' literally casting shadow on them being labelled assets to begin with. You can even see in 2013-2014 they had to buy more.
They had over 10 years to exit these 'assets' and failed to do so. Even in 2019 there was a temporary dip and then rebuy right before covid.
They say they will be doing $1T/year but that isn't anywhere near where they must go. You can extrapolate where they must go by tracking the line pre-2008. At $1T a year, it will take minimum 7 years to exit.
You'll notice that this 7 years is too long. It's 100% certain that another event will occur before they are complete in which they must buy more. Even ignoring that future prediction, it's 7 years of pain.
So what's about to happen for sure? The bond market will be taking some hits bigtime. We're talking about major negative real yields. The money will come out of retirement funds. Not exactly a prediction given bonds have taken a -2% hit already.
Here's the real prediciton:
https://tradingeconomics.com/united-states/money-supply-m2 https://tradingeconomics.com/united-states/money-supply-m2
M2 says there's 40% inflation coming. At 7.9% that's in the area of 3 years.
BUT that 40% doesn't just stay 40%. How does it increase? It actually requires the Fed to exit that ~$7trillion right this month to keep it at 40%. If they don't and they clearly are not planning to do so. We can look at M1 and see where it might go.
https://tradingeconomics.com/united-states/money-supply-m1 https://tradingeconomics.com/united-states/money-supply-m1
So there's about 400% to deliver. In their current plan of 1 trillion/year. The USA is saying they are locking in ~200% over the next 3 years. They are saying inflation is going MUCH higher.
Mid term election won't have any major impact on this. 2024 on the otherhand? The real inflation numbers will be out then. Practically handing the election to the republicans.
Meanwhile those of us who aren't in the USA. What are we about to do? We're going to look at new reserve currencies that are more stable. Hence why biden is talking about the new world order. USA will no longer be top dog.
- adam_arthur 5y agoIt's the right thing to do in an acute situation where financing locks up. I would argue it's obviously the wrong thing to do for years and years while all assets are mooning in value, and 1m jobs being added per month. The Fed chairpeople we've had since the financial crisis have been spineless about normalizing the balance sheet because they always optimize for the short term. Pretty sad tbh. Need somebody who actually cares about the future generations in there. Nobody wants to be the guy that makes your stocks or house go down in value, but that's exactly what's needed to give future generations opportunity, and not just a huge asset bubble that will inevitably burst some decades down the line. Covid monetary policy will go down as an initial success that snowballed into a huge failure.
- incomingpain 5y ago>I would argue it's obviously the wrong thing to do for years and years while all assets are mooning in value, and 1m jobs being added per month. That's kind of what I was saying. They did this during 2009. Great, it was needed. They should have exited and brought to balance probably by around 2016 at the latest. >The Fed chairpeople we've had since the financial crisis have been spineless about normalizing the balance sheet because they always optimize for the short term. Pretty sad tbh. It's not necessarily 'spinelessness' they just realize what will happen when they do this. This 'balance' let them increase the bad situation in the bad and they later have to decrease it will make a great situation worse. If the situation isn't great and they make it worse. They could make something neutral into bad. >Need somebody who actually cares about the future generations in there. Nobody wants to be the guy that makes your stocks or house go down in value, but that's exactly what's needed to give future generations opportunity, and not just a huge asset bubble that will inevitably burst some decades down the line. That's kind of the thing right. This is about generational warfare. This is the worker shortage of 2030 starting now. This is the boomers trying to retire and move their investment to safe bonds but not enough bonds are available. So yields are well below inflation.
- fibers 5y agoi am curious what you mean by looking for new reserve currencies as a function of a portfolio, does this mean simply going overweight non US stocks?