Loading ...Implications?
My dear Tenters,
From the macro viewpoint, what are the implications of having the Fed funds rate higher than 10 year yields?
“The government is intentionally about to have the Fed funds rate higher than the 10-year yields.”
Still learning.
GL
When the Fed is the largest player in the market for 10 year treasuries, there is no real price discovery. So comparing a shorter term rate like the FFR (where the Fed FOLLOWS the market in any event) to a FALSE OR DISTORTED benchmark tells you absolutely NOTHING.
Now send the Fed back to 1914, when they could ONLY buy corporates, deeply discounted, and then compare yields with (properly measured) inflation, you might get somewhere.
Ie, credit is still loose until debt returns to sane levels. Price and quantity. Price is moving, quantity is still off the charts.
Thank you Sir Pedro.
But debt is still exploding higher … as seen here
https://fiscaldata.treasury.gov/datasets/debt-to-the-penny/debt-to-the-penny
(courtesy of 321gold.com)
So, how is this debt being serviced? The interest payments on all the debt, how will they be done when no new QE is being done? I think therein lies the tell, that QE is still happening ???
Lost.
GL
It isn’t the interest rate or the total level of debt. It is the amount of money being created. For two years, 2020-2021 you had enormous money creation. 12-18 months later you got excessive inflation. If the money creation slows down back to a more reasonable level, so will the rate of inflation. “Always and everywhere a monetary phenomenon” as I correctly argued a while back before the inflation hit it’s peak, when others argued otherwise.
“It isn’t the interest rate or the total level of debt. It is the amount of money being created.”
Money isn’t being created, by OUR definition. (See Exeter)
Under this system, “money” creation (in quotes) = debt. BY DEFINITION.
So it very much IS about the total level of debt.
So benchmarking rates is useless. Track debt, or money. They are identical.
And policy has been loose, and remains loose, until total debt contracts meaningfully.
Until something breaks.
The debt has been at record levels for each year going forward because of the continuous deficit spending. Yet, despite having inflation on a continuous basis every year, why did it only skyrocket in the last two years. The money created by the FED. They monetized the deficit spending during 2020-2021. They are still going to do the same but not at the level of those two years. Therefore we will still have inflation but not at double digits for long, especially when the GOP takes control of Congress and slows down the rate of increase in spending.