With the Fed having hiked thrice and calling for three more hikes still, the 2017 Hoisington First Quarter Review contains a call that will have many if not most analysts shaking their heads: “The secular low in bond yields remains in
the future, not the past,” says Lacy Hunt.
The Federal Reserve has initiated the fifteenth tightening cycle since 1945 (Chart 1). Conspicuously, in 80% of the prior fourteen episodes, recessions followed, with outright business contractions being avoided in just three cases. What is notable today is that the economy is in the 93rd month of this expansion, a length of time that is well beyond periods in prior expansions where soft landings occurred (1968, 1984 and 1995). This is relevant because the pent-up demand from the prior downturn has been exhausted; thus, the economy is extremely vulnerable to a shock, which could lead to recession. Regardless of whether there was an associated recession, the last ten cycles of tightening all triggered financial crises.
Total domestic nonfinancial debt, excluding off balance sheet liabilities such as leases and unfunded pension liabilities, surged to a record 254.8% of GDP in 2016, 5.6% greater than in 2009 when Lehman Brothers failed (Chart 2). Total debt, which includes domestic nonfinancial, foreign and bank debt, amounted to 372.5% of GDP in 2016, compared with 251.9% of GDP in 2006, the final year of previous tightening cycle, which, in turn, was greater than in any earlier time from 1870 through 2006. The situation in the business sector deserves particular scrutiny. Business debt surged to a record 72.6% of GDP in 2016, for the first time eclipsing the prior peak of 70.2% reached in 2009. With the business sector so levered, not much room for miscalculation exists. As such, the risk is clearly present that the Fed’s restraint will chase out one or more heavily leveraged players, just as was the case in all the previous tightening cycles since the 1960s.
Academic studies reflect that economic growth slows with over-indebtedness. Thus a powerful negative headwind is reinforcing
the present monetary tightening.
In the last three months, no growth was registered in total loans and nonfinancial commercial paper. Historically, the three-month growth has not been this weak until the economy is already in recession.
In the first quarter survey of senior bank lending officers, almost 10% of the banks were tightening standards for both credit card and other consumer type loans. This was almost identical to the percentage when the economy entered the 2000 and 2008 recessions. Standards for commercial real estate loans have also been raised and in the first quarter were just below the levels when the economy entered the last two recessions.
In summary, monetary restraint is taking hold in all the different ways of measuring the Fed’s actions in a late stage expansion where historically the final result was either a recession, a financial crisis or both.
Our economic view for 2017 remains unchanged. We continue to anticipate no more than 2% growth in nominal GDP for the full calendar year. The risks, however, are to the downside.
The downturn in nominal GDP growth suggests that a rise in inflation to above 2% will be rejected and that by year end the inflation rate will be considerably slower. In such an economic environment long-term Treasury yields should continue to work irregularly lower over the balance of the year.
Our view on bond yields does not change if the Fed further boosts the federal funds rate this year. Any additional increases will place further
downward pressure on the reserve, monetary and credit aggregates as well as tighten bank lending standards. Such actions will not allow the
economy to regain the economic momentum that was lost in 2016 and in the early part of this year.Thus, the secular low in bond yields remains in the future, not the past.
Van R. Hoisington
Lacy H. Hunt, Ph.D.
That’s a pretty bold call, but betting against Hunt or on alleged bond bubbles has been extremely unrewarding, to say the least.
The Fed thinks three more rate hikes are baked in the cake over the rest of the year. I highly doubt the Fed gets in even one more hike.
You can take this dot plot of expected rate hikes and throw it out the window.
The rate hikes various Fed presidents think will happen are pure Fantasyland material.
Huge equity and junk bond bubbles are in play. The Shiller 10-Year PE is 29.2. The only higher numbers were 1929 and the dot-com bubble in 2000. The bursting of these bubbles will be anything but an inflationary event.
Those looking for a steeper yield curve, might get it, but not the way they expect. When recession does hit or the stock market collapses, the Fed will be cutting rates, not raising them.
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Whether or not the secular low in the long bond yield is in, this is not a good time to be shorting long-term treasuries.
Mike “Mish” Shedlock
30-year Treasury well below 3-handle. TLT time.
When?
Slowly or abruptly?
Doesn’t there come a point where the US and other high debt govts. must auction off their bonds at a higher rate to compete? Is there a point where the Fed loses control of that process and the resulting rates? For example if the Brics nations decided to stop buying US Govt debt and focus on their own group, … Or would the Feds just keep creating money to buy it- diluting and inflating? In that case wouldn’t the rates be forced higher due to the inflationary effect?
To run a trade surplus with the US, over the long haul, it is a mathematical fact those running a surplus MUST buy US assets.
Surplus countries cannot NOT buy them. That asset – US treasuries.
Mish
Have to wonder if owning debt is really an asset… I mean who wants to walk around feeling they are owed ?
Plunge protection team will be working scheduled overtime after summer.
The report you site is valuable. Once the Trump smelling salts wears off the economy will return to its Zombie like state. Despite higher official interest rates monetary policy remains accommodative. I agree there will be no more FED hikes. What is never discussed is the question of profits which is the motive for the whole system. Recent improvements have been anything but. If we strip out fictitious banking profits, non-financial profits have been falling in real terms. Table 1.12 (BEA) shows profits in nominal terms to be no higher than 2012 and adjusted for inflation to be no higher than 2011. FACTSET expects S&P profits per share to be 8% higher this quarter compared to q1 2016. But taking into account share buy backs, fictitious banking profits and inflation together with the 5% fall in profits that quarter, anything less than 10% would be no real increase. An economy suffering stagnant to falling profits, bearing a heavy debt load is a ticking time bomb.
“What is never discussed is the question of profits which is the motive for the whole system.”
What if we are headed into a period when the motive for the whole system is preservation of capital, AND govt’s and confidence are collapsing? Where does capital flow? Govt bonds?
If the whole system where an iceberg, with govt sitting on top, imagine the system flipping upside down with govt underwater. Most will inaccurately forecast because they can’t imagine this transition and new world ahead, which has already started with Brexit and Trump, and will continue this year with the French and German elections. The root cause being the collapse of socialism.
“economy…. is a ticking time bomb”
Yeah but it has been ticking for a long time. The Fed (and other central bankers) have been able to keep stretching the fuse. As of now they appear to keep stretching it for ever.
Trump smelling salts…
“Trumpgasm”
There may be another traditional scare to get that last of the govt bond bag holders on board, but how can stocks crash when the govt bond bubble pops? Where else is global capital going to go. This has been the biggest bear rally in history, and it will continue as long as analyst and pundits keep forecasting a stock market crash. It has been short covering that’s driving the market, not fresh longs. That day is still coming when retail jumps in.
Blacklisted, as Mish has pointed out many times, “cash on the sidelines” is a mythical construct. For every buyer taking cash off the sidelines, there is a seller putting it back. You speak of “global capital” as if it is a fixed-size blob flowing one way or another. It is no such thing. When “stuff” drops in value, over leveraged holders of the stuff get margin calls and can’t meet them. They go bust and more “stuff” gets auctioned at depreciated values (further reducing “global capital”). When the entire financial system is highly leveraged, as it is now, the wind can come rushing out at a fantastic pace. When debt is wiped out by bankruptcy, money is destroyed, adding to the deflationary cycle. This is why monetary policy makers are terrified of deflation. The debt super-cycle turning can be delayed, but it cannot be cancelled.
Excellent comment. The Trump posts and foreign policy ones grab my attention because provocative , but it’s this post and comments like Okienomics’ to them that distinguish Mish’s blog.
“That day is still coming when retail jumps in.”
…
Record ETF growth + record margin debt = Evel Knievel has landed … just waiting for the ambulance …
“Evel Knievel has landed … just waiting for the ambulance …”
LOL. Enjoyed that, thanks.
Time to roll out war bonds? Nationalism should be supportive….
So when does monetary base inflation come home to roost? Slow or no growth does not necessarily go hand in hand with lower rates if the currency is devaluing too, many examples in the past 50 years.
The whole system is a house of cards, like an old barn you drive by in the countryside every year saying to yourself “boy, that’s going to fall down one day, surprised its still standing.” We all know the final outcome, just not the when.
Yes, leverage is taking up all the slack ( increased productive efficiency another example) available with a low positive inflation target as guide. Trouble is the leverage is debt, and that debt is based on current model. If inflation takes off the current model, being able to service it, will fall through if the money supply is tightened. Even if the economy/values become completely socialised in an effort to direct the debacle and maintain accounts, you still end up with the same effect, but instead of a blowoff and picking up the pieces you have the economy ground to pieces while everyone blows off. Have to credit people for being able to find the longest distance between two points, but that is about all… I suppose no one wants to wash the dishes so much to the point they are happy to leave the kitchen completely in the hands of someone who will… not to be surprised hence how they go about it and that when you go for dessert you find it empty and the cupboards bare, and a scribbled note ‘ Gone shopping ‘.
I agree 100% with Van Hoisington and Lacy Hunt.
The final, secular low in US Treasury yields will occur sometime within the next 2-3 years.
It will be the Fed’s “nuclear” inflationary response to the next recession/financial crisis that finally kills the 35+ year-old bond bull market, once and for all.
I believe that is when Eric Janszen’s “Ka-Poom Theory” comes into play, and we will go swiftly from deflation to hyper-inflation.
When Lacy Hunt speaks … nothing needs to be added ‘cept
+1000
He’s got a girls name.
Shirley, you jest.
No I don’t. And stop calling me Shirley 🙂
Something about that will be funny forever.
Listen up. Economics is a science. The bull market in bonds started in 1981 – it started with the saturation in commercial bank deposit financial innovation, the widespread introduction of ATS, NOW, and MMDA accounts on 1/1/1981. That “time bomb” which was predicted in May 1980, propelled N-gNp to 19.1% I the 1st qtr. of 1981.
1981 demarked the saturation in DD Vt (actually non-bank’s savings velocity) as represented on the G.6 release: “Debit and Demand Deposit Turnover”. 1981 was the start of secular strangulation (chronically deficient AD). This results, in Alfred Marshall’s cash balance equation, P = M/KT, viz., in an excess of savings over investment where: “thus, low interest rates may induce people to hold onto their funds and not part with liquidity for such a small price. This will also tend to reduce the supply of funds and their velocity.” The “paradox of savings” is corroborative. The remuneration of IBDDs exacerbates this blockage in the savings-investment process – where the 1966 S&L credit crunch is the prologue and paradigm.
Thus, aggregate monetary purchasing power, AD, has persistently decelerated. I.e., volume X’s velocity, M*Vt = AD (not N-gDp as the Keynesians define it). AD declines and swallows up R-gDp. This happens because more and more savings become impounded and ensconced within the confines of the commercial banking system. And contrary to every single economists alive today, from a macro-economic accounting belvedere, commercial banks do not loan out existing deposits, saved or otherwise. It is an economic ipsedixitism to say in the same breath: that loans + investments = deposits, but banks also loan out the pooled savings placed at their disposal. This is the source of the pervasive error that characterizes Keynesian economics: that there is no difference between money and liquid assets, or as Bankrupt u Bernanke put it: “Money is fungible. One dollar is like any other” [sic]
What’s even Keynesian about this:
http://bit.ly/2oLY5AW
As I said: “And if the Fed continues its madness, then the economy will flat line. I.e., every time the Fed raises the remuneration rate, it will dampen money velocity, by further impounding savings within the CBs.” Aug 3, 2016. 02:48 PMLink
– Michel de Nostredame
paradox, corroborative, remuneration, and exacerbate in the same line is skirting the line. Then to throw in the word ipsedixitism…
My bet is you never got laid in High School. Probably not even in college.
Is ipsidixicism a girls name too?
I’m fairly certain that it’s a character from ‘ol Superman comics or something like that. If you tricked him to say his name backwards he would get sent back to his own dimension.
I am certain that “accounting belvedere” has something to do with a terrible ’90’s TV show, starring Christopher Hewett and Bob Uecker, where a Brit was the slave of an American family,
…my bad..80’s TV show…
My bet is, they use these fuzzy terms to insulate their “science” from the unwashed. Something like biologists would use the name drosophila melanogaster when for the rest it’s a pesky fruit fly. The rest of this entry pretty much highlights why we are in this shiddy situation: blockheads believing in their formulas.
You’all battin 1000 (dumbest in class)
Tell the world once again how stupid you are:
Like the Treasuries’ conclusion: “Diminishing market depth and a surge in volatility were both on display Oct. 15, when Treasuries experienced the biggest yield fluctuations in a quarter century in the absence of any concrete news. The swings were so unusual that officials from the New York Fed met the next day to TRY AND FIGURE OUT WHAT ACTUALLY HAPPENED”
From: Spencer (@hotmail.com)
Sent: Thu 9/18/14 12:42 PM
To: FRBoard-publicaffairs@… (frboard-publicaffairs…
Dr. Yellen:
Rates-of-change (roc’s) in money flows (our “means-of-payment” money times its transactions rate-of-turnover) approximate roc’s in gDp (proxy for all transactions in Irving Fisher’s “equation of exchange”).
The roc in M*Vt (proxy for real-output), falls 8 percentage points in 2 weeks. This is set up exactly like the 5/6/2010 flash crash (which I predicted 6 months in advance and within 1 day).
Tell the world again how stupid you want to stay:
Or maybe how I denigrated Nassim Nicholas Taleb’s “Black Swan” theory 6 months in advance and within one day:
To: anderson@stls.frb.org
Subject: As the economy will shortly change, I wanted to show this to you again – forecast:
Date: Wed, 24 Mar 2010 17:22:50 -0500
Dr. Anderson:
It’s my discovery. Contrary to economic theory and Nobel Laureate Milton Friedman, monetary lags are not “long & variable”. The lags for monetary flows (MVt), i.e., the proxies for (1) real-growth, and for (2) inflation indices, are historically, always, fixed in length.
Assuming no quick countervailing stimulus:
2010
jan….. 0.54…. 0.25 top
feb….. 0.50…. 0.10
mar…. 0.54…. 0.08
apr….. 0.46…. 0.09 top
may…. 0.41…. 0.01 stocks fall
Should see shortly. Stock market makes a double top in Jan & Apr. Then real-output falls from (9) to (1) from Apr to May. Recent history indicates that this will be a marked, short, one month drop, in rate-of-change for real-output (-8). So stocks follow the economy down.
And:
flow5 Message #10 – 05/03/10 07:30 PM
The markets usually turn (pivot) on May 5th (+ or – 1 day).
I.e., the May 6th “flash crash”, viz., the second-largest intraday point swing (difference between intraday high and intraday low) up to that point, at 1,010.14 points.
Go to the back of the class:
POSTED: Dec 13 2007 06:55 PM |
The Commerce Department said retail sales in Oct 2007 increased by 1.2% over Oct 2006, & up a huge 6.3% from Nov 2006.
10/1/2007,,,,,,,-0.47,… -0.22 * temporary bottom
11/1/2007,,,,,,, 0.14,,,,,,, -0.18
12/1/2007,,,,,,, 0.44,,,,,,,-0.23
1/1/2008,,,,,,, 0.59,,,,,,, 0.06
2/1/2008,,,,,,, 0.45,,,,,,, 0.10
3/1/2008,,,,,,, 0.06,,,,,,, 0.04
4/1/2008,,,,,,, 0.04,,,,,,, 0.02
5/1/2008,,,,,,, 0.09,,,,,,, 0.04
6/1/2008,,,,,,, 0.20,,,,,,, 0.05
7/1/2008,,,,,,, 0.32,,,,,,, 0.10
8/1/2008,,,,,,, 0.15,,,,,,, 0.05
9/1/2008,,,,,,, 0.00,,,,,,, 0.13
10/1/2008,,,,,,, -0.20,,,,,,, 0.10 * possible recession
11/1/2008,,,,,,, -0.10,,,,,,, 0.00 * possible recession
12/1/2008,,,,,,, 0.10,,,,,,, -0.06 * possible recession
Trajectory as predicted:
Bankrupt u Bernanke SHOULD HAVE SEEN THIS COMING. IN DEC. 2007 I COULD.
I knew it. Flow 5. The non-appropriate juxtaposition of complex words, combined with the DD Vt gave you away.
Welcome. I always found your posts overly cryptic but nonetheless entertaining on Summers blog, although I thought Summers was a complete dumbass and stopped reading him.
Accounting belvedere?? WTF. And denigrate is most appropriately used as a negative reflecting on the person doing the denigrating – try disparage.
But one day we should talk DD Vt…
And neither Bacchus nor Castro’s finest, ever had anything on me.
That would be Bach, his compositions had nothing to do with Castro who was a fiddlist, and FYI neither were acclaimed as economists, I don’t think Bach was even interested in the topic.
I thought he was talking about drinking. Castro being rum… as for Bacchus, I gave little thought as I went off on a tangent wondering why there was no god of weed. A party thrown by the gods Bacchus and Canibhus.
“Our economic view for 2017 remains unchanged. We continue to anticipate no more than 2% growth in nominal GDP for the full calendar year. The risks, however, are to the downside.”
Of course, nominal GDP does not account for inflation deflator. So in the best case, really stagnation.
Lacy Hunt has been a fantastically successful investor during the baby boom / debt boom era. But he is clearly showing his age on this call.
CPI is not relevant to 98% of the population (the part Mr Hunt seems oblivious to). Looking at property taxes (aka local education / pension costs), health care COSTS (not Obama’s insurance scam overlays), and college costs … the idea that inflation, as in cost of living, is only climbing 2% is just too stupid to merit a reply. Obviously the true number, the number that effects real world consumer spending, is a LOT LOT LOT higher.
The US government has systematically destroyed savings, and pushed for more more more debt — at the consumer level, at the corporate level, at the government level. To apply Mr Hunt’s antiquated 1950s ideas of savings supply vs demand is stupid. Clearly, the supply of savings is tiny (most Americans have less than $1000 in savings), while the demand for savings (aka debt) is now pushing well over $150 trillion with massive deficit spending as far as the eye can see.
I have little doubt that President Trump ***WANTS*** to cut taxes, but even the most powerful man in the free world is finding out that Uncle Sam faces practical limits. When you are running $700 billion deficits, and even the optimistic projections say its going to get worse, and federal debt levels already exceed 100% of GDP, and effective tax rates (not to be confused with statutory tax rates) are already at the top of their historical range even counting war time … the scope for further government spending simply is not there.
Mr Hunt started his career in a time when the US was the largest creditor in history, and he seems not to understand that his generation’s constant deficit spending has made the USA into the largest debtor in the world.
Treasuries do not cover cost of living increases. Under current law, there is zero chance Treasuries will be repaid in real terms. Baby boomers have little savings yet think they will retire, millennials are underemployed and deep in debt — the scope for big tax increases is zero.
Obamacare is going to get repealed, because the fiscal survival of the US government depends on it. I know this reality has not yet penetrated the thick corrupt skulls of Washington DC… but it is the reality they all (democrats and republicans alike) face.
Mr Hunt’s career was during a time when the US government always expanded — political arguments were about how to divide a growing pie. Mr Hunt is a fish out of water during a time when the US government will be stagnant or shrinking.
Investing in the debt of Chicago and Detroit when General Motors was the largest manufacturer in the world is very different from buying their debt when Government Motors is struggling to stay relevant and Detroit has been hollowed out.
Mr Hunt is not “investing” in Treasuries, he is speculating that he will find a bigger sucker to sell to in a few years. It is exactly the same mentality as condo flipping in Miami. He might get lucky and make a lot of money, but a lot of people are going to get badly burned on half finished underwater condos
“the idea that inflation, as in cost of living, is only climbing 2% is just too stupid to merit a reply. Obviously the true number, the number that effects real world consumer spending, is a LOT LOT LOT higher.”
…
There is a disinflationary / deflationary bust on the horizon … which bonds (and Hunt) sniff out.
The 2 candidates – without a doubt – that will drop in the next few years are houses and vehicles. Those 2 components make up almost half of CPI weighting … dragging CPI lower.
Now, if you want to argue on some sort (hyper) inflation afterwards, maybe so. But the BUST will occur first.
@Tony — YOU might be predicting hyper-inflation. I said the true cost of living is **CURRENTLY** a lot more than 2%, and sell side Wall Street’s obsession with CPI is stupid. Inflation, as in the cost of living, is already more like 4-5%. CPI is a statistical fiction.
I also argued (and I later read that Dallas Fed said the same thing) that further debt expansion will be counter-productive toward growth. Lacy Hunt has no experience in a debt burdened environment, he grew up in a time when the USA was a creditor nation.
I expect the criminals in Washington are looking at Chicago and California and Greece (all with the same stench of socialist failure) and realizing that Congressional pensions are just as “secure” as Greek pensions.
Uncle Sam is in the same boat as GE was when Jack Welch came in (early 80s?). The same boat as GM in the early 70s. The same boat as IBM in the late 80s. The same boat as lots of other massive entities that got fat and lazy.
Uncle Sam will right size (as in layoff about 60-70% of its staff), pay down debt, and restructure (spin off departments that are not and never were “core” to the business). Mighty GE and mighty IBM could not avoid this, the Trump real estate empire couldn’t avoid it, neither could the British or Spanish empires, neither can the USA.
We can argue if the US government has the cojones to actually do the restructuring, or if the deadbeat baby boomers and socialist millenials will lead the USA down the path of GM, Kodak, or Bethlehem Steel.
But Lacy Hunt is no spring chicken. Actuarially speaking, he will be dead before the 30yr bond matures — he is lying to say the bond is money good. He won’t be around. Someone else may or may not pay it for him — but he and his generation have effectively defaulted already.
I know the US has never admitted to a default (both FDR and Nixon defaulted, but they labeled it something else). I know that real estate prices “never declined nationwide” until 2007 when they did. Twenty years ago, most people were claiming that California was the land of riches and wouldn’t be handing out IOUs. How many people expected Detroit and Chicago to be hollowed out and bankrupt.
And yes, New York City went bankrupt in 1972. Some wealthy people and the state of NY bailed NYC out. Current mayor Deblasio is working to bankrupt the city again.
Lacy Hunt is talking about buying 30yr Treasuries and selling them to a bigger sucker before they default. That is not an investment, its glorified condo flipping.
An investor would wait until the government hits rock bottom and we get a halfway credible reform plan (which will absolutely have to entail massive spending cuts and headcount reductions). Then you would be talking debtor in possession financing, and the bonds would yield accordingly.
Berkshire lent $5 billion apiece to Goldman Sachs and GE during the chaos of 2009… but they charged 10% interest (they were cumulative preferred bonds that paid 10%). No investor is going to lend hard earned money to a deadbeat at 3% when inflation is running 4-5%.
Maybe you think hyper-inflation is going to happen. But another default is a lot more likely, unless there is very serious restructuring in Washington.
Either way, more debt is not going to lead to more growth. Even the idiot Fed members are admitting this now. Trump admitted today that the federal government must repeal Obamacare and get health costs under control — any sort of tax or spending reform is impossible when the biggest cost item is growing 30%, or 10-15x faster than revenue.
Seriously Tony, this is really simple math. 30% is greater than 3% (and Mish seems to think 3% GDP growth is too optimistic). No country has had 30% economic growth.
Obamacare will get repealed, or the US government will collapse — and I am guessing the crooks in Washington won’t actually let their lifestyles collapse. They are procrastinating, hoping against hope that there is some other option, when there is not.
Hunt’s yield forecast is based on a world in which the US was a creditor nation. He doesn’t admit that the US government is in extreme danger from its own debt.
If you read Lou Gerstner’s book (elephants dancing or similar?) or if you read Jack Welch’s book — both GE and IBM’s management were in the same denial patterns as the US government is now.
Don’t be an as-hole and claim the US government can print money. So could the Romans and the Spanish and the British and Hugo Chavez certainly printed up a storm in Venezeula. For thousands of years, lots of morons have already suggested printing presses, and every single one of them was proven wrong.
“Don’t be an as-hole and claim the US government can print money.”
…
They can and will, if necessary. Look no further than Japan. For years all I heard (including Kyle Bass) was usdjpy @ 240. How’s that working?
Being a reserve currency has its privileges (and, please no SDR nonsense as rebuttal)
Bottom line – whatever craziness US does re monetary policy … it pales to rest of developed world.
Now SOME day things may change, but first a deflationary (asset) bust.
You will have to take up your hatred of Kyle Bass with Kyle Bass. I made no such forecast.
I don’t believe the IMF (your stupid SDR idea) is a relevant organization. It was a central planning mistake that ceased to be relevant in 1972 when the Bretton Woods system collapsed under its own keynesian weight…. BW closure was by the way a technical default by the US Treasury, although not the first.
Japan has been going to recover every year now since it collapsed in 1990. Nikkei has yet to match 1990 levels. The country is filled with ghost villages, as a declining population moved to the cities to have any interaction with other humans. Fukashima remains “under control” (aka uninhabitable) two years later.
For you to claim Japan is doing anything other than declining is absurd. Financially, geopolitically and demographically, Japan is slowly dying.
Your Japan example just proved my point — printing money hasn’t fixed anything in Japan
I’m confused. I thought Lacy Hunts projection for rates was contingent on his bizarre belief that higher debt forces lower rates. Bankruptcy in his opinion should bring rates to 0. Although I am not familiar with his work, beyond a cursory glance, so I could be very wrong.
Regardless, that’s a rough name for a parent to give a son. I can only imagine the shit he got for it growin up.
Higher debt -> lower rates is one of the distortions brought about by fiat money. In any manipulated market, higher debt means increased risk, means higher rates.
But postulating government debt is nominally risk free, is just another way of saying that any level of government debt can and will be serviced . Which means that, as the debt level goes up, servicing costs can’t indefinitely continue tot go up in proportion. Meaning, at some point, effective rates have to go down.
Of course, the chimera will blow up one day. But it can be kept alive as long as the government and Fed can keep maintaining the illusion that government debt is risk free.
And, to ensure the illusion is not shattered publicly on anyone important’s watch, as that could be unpleasant and embarrassing for the vainos, the government will, FDR style, get America into a war. So that they can blame some foreign hobgoblin for the backhanded default.
And then credit themselves for the inevitably better times that will result, once the debt has been retired/reset “because of the war.” Just like they are currently doing wrt the “good times” of the 50s and 60s, wrt FDR’s Keynesian claptrap and attendant atrocities against both humanity and economics, vs the reality of WW2.
Debt to the moon will lead to another financial crisis. It makes no sense for bankers to confiscate people’s goods, and then loan their own goods back to them. Eventually, almost everything belongs to bankers, and people become their debt slaves. Printing is confiscation.