8 Comments

Are we back to thinking the federal funds rate is directly correlated with long term mortgage rates? I remember reading articles over the last 25 years explaining why that was not the case. They weren't all that clear in any case. But I do tend to believe that the two aren't directly correlated in a "normal" functioning economy. They used to say that mortgage rates were more correlated with long term treasuries.

Also I can't tell but do you believe a rise in mortgage rates and collapse of the housing market is a bad thing?

Expand full comment
author

What I think is that the trends in new and existing home sales push the economy that much closer to the "technical recession" boundary.

At that point, the government and the media start chattering about recession and stimulus--which puts pressure on the Fed to loosen up on monetary policy.

Then it's a question of will the Fed kick the economic can down the road yet again, inflating a new asset bubble without regards to inflation, or will they stick with the tighter monetary policy, endure the recession, and reduce inflation a la Paul Volcker.

Ultimately, the longer we have the Fed twiddling with inflation and interest rates the worse off everyone is. The fact that Powell and Branard are talking about there not being any recession even now is enough proof that neither one is exactly in touch with reality.

Expand full comment

*The fact that Powell and Branard are talking about there not being any recession even now is enough proof that neither one is exactly in touch with reality."

Or they're lying.

Expand full comment
author

While one should never discount that possibility, in addition to the general rule of simplicity in such matters ("Never assume malice when stupidity will suffice") one has to also add in the fact that stupidity has been more or less a job requirement at the Fed at least since Ben Bernanke took over for Alan Greenspan and proceeded to collapse the subprime mortgage market in 2006, which boiled over into the derivatives crisis and the Great Financial Crisis of 2008.

Expand full comment

I don't care about "technical" recessions. I only care about "effective" recessions.

Expand full comment
author

The technical recession is that point where the government acknowledges the reality that we are in a recession. Given the predilection of government to futz with the economy, the technical recession demarcation is meaningful in that it shapes government rhetoric and subsequent policy.

What's important to understand is that in almost every instance: the 2001 recession, the 2008 recession, the 2020 recession, and the current recession, the economic contraction is the result of government policy -- the same government and the same policies which will be put forward as the government solution to the recession the government caused.

Expand full comment

So there is a recession, but they don't admit it & raise interest rates until they decide to admit it & lower interest rates again.

I had hoped Powell was taking on WEF, but at this point

I think they are lying & trying to do a controlled demolition of the economy.

I've read (forget where, but was a reasonable source) that if they raise rates enough to stop inflation, the US won't be able to pay interest on its debt & will go into default.

I think that is or was their goal but with Russia cleaning their clock & China too big to attack, they need to slow the economic destruction down.

Oh the challenges if trying to take over the world. If only the useless eater sheeple understood how hard it is to be the masters of all.

Expand full comment

"Inflation not only brings on recession, but effectively IS recession."

Forking Bravo!

Expand full comment